Why it is important to review internal financial statements monthly?
Internal financial statements should be reviewed monthly because they reflect the pulse of the company. They provide information to help you guide the business effectively.
Here are some of the financial reports that you, as an owner, should be looking at monthly within your internal bookkeeping records:
Income statement for the current year to date versus the same period in the prior year and to your budget. Studying the income statement to determine if you are ahead of or behind on sales and expenses versus the previous year will help you determine the growth and health of the company and if there are any cut-backs that could be made. The consistency of your bookkeeping allocation of revenue and expense categories year on year will help you analyze this more effectively.
Balance sheet items such as accounts payable, accounts receivable and bank account balances for the current period compared to the same period in the prior year. Studying the balance sheet to determine if you have more cash on hand than you did in prior years and how your levels of accounts payable and accounts receivable are compared to the same period in the prior year will help you ensure that your cash flows are sufficient to cover anticipated upcoming expenses. This is especially important if you are anticipating a slow season or planning an expansion.
Shareholder loan account balances. Reviewing your shareholder loan account balance and the detail of the items posted to this account will help you monitor your personal spending of corporate money to ensure that you are not in a position in which you owe the company money. If you owe the company money, this will need repaid or declared as income to you personally so that appropriate personal taxes are paid.
Contact us at Gilmour Group Chartered Professional Accountants to learn more about how to produce and read internal financial statements to guide your business effectively.
Dawn Loeffler, BA (Hons), CPA, CA
Staff Accountant, Gilmour Knotts
Disclaimer: The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. While we have made every attempt to ensure the information contained in this article has been obtained from reliable sources and accurately described herein. SW Media Group and Gilmour Knotts Incorporated is not responsible for any errors or omissions, or for the results obtained from the use of this information. Before taking any action that might affect your personal and business finances, you should consult a qualified professional advisor.