Categorised is not the same as closed
A great deal of bookkeeping stops at categorisation: every transaction has been given an account, so the profit and loss statement produces a number. That is not a close. A close is the process of proving that the number is correct.
The difference shows up the first time you need the books for something serious, such as a loan application or a sale. That is a bad moment to discover the reconciliation was never done.
The reconciliations that must happen every month
These are the non-negotiable items. If any of them is skipped, the statements are an estimate.
- Every bank account reconciled to the statement, with no unexplained reconciling items
- Every credit card reconciled to the statement, including personal cards used for business
- Merchant settlements tied to deposits, with fees recorded separately rather than netted
- Payroll tied to the provider reports, including taxes and employer contributions
- Loans and lines of credit agreed to the lender balance, with interest split from principal
- Accounts receivable and payable agreed to their supporting detail
- Inventory or work in progress adjusted where the business carries it
The review that turns data into information
Once the accounts are reconciled, someone with judgement should read the result before it is sent to you. Compare the month to the prior month and the same month last year. Investigate anything that moves more than expected. Confirm that unusual entries have an explanation rather than a plausible-looking account name.
The output of this step is the part you actually use: a short written note explaining what changed and why. Statements without that note ask you to be your own analyst.
A close has a date
The other mark of a real close is that it happens on a schedule you were told about in advance, and the period is then locked so it does not silently change afterwards. If last month can still be edited, every report you produced from it is provisional.
Ask your current provider three questions: which day of the month is my close finished, which accounts are reconciled, and is the prior period locked. The answers are usually revealing.
This guide is general information, not advice for your specific situation. Tax outcomes depend on your entity, your state and the facts of your year. Speak to an advisor before acting on it.