Your monthly bookkeeping review
A simple routine for checking balances, following up on open items, and reviewing your reports.
Read articleBookkeeping & financial education
Business Insights
Practical tips to keep your books current, understand your reports, and see how money moves through your business.
Profit and cash: why the numbers differ
Your profit and loss report and your bank balance answer different questions. Here’s where to look.
Read articleYour monthly bookkeeping review
Keeping your books current is more than entering transactions. A monthly review helps you spot missing details and resolve questions before they carry into the next month.
Start with complete records
Gather bank, credit card, and loan statements for the month. Include receipts, bills, and details for payments that need an explanation. If you use more than one payment system, check that the records are complete for each one.
Check balances and open items
- Reconcile each bank and credit card account to its statement.
- Review unpaid invoices and bills for old balances, duplicate entries, or payments applied to the wrong item.
- Check loan balances and how payments were split between principal and interest.
- Review uncategorized transactions and items waiting for an answer.
Read the reports together
Review your profit and loss report and balance sheet for the same period. Compare income and expenses with prior months. Ask about large changes or balances that don’t fit what happened in the business.
If you track projects, review the income and direct costs assigned to each job. A cost can be in the books but still be missing from the right project.
A useful monthly habit: Keep one list of open questions, who needs to answer them, and when you’ll follow up.
Profit and cash: why the numbers differ
A profitable month doesn’t always leave more money in the bank. Your profit and loss report shows income and expenses. Your bank balance shows the cash in that account at a point in time.
Timing can change the picture
On accrual reports, income can appear before the customer pays, and expenses can appear before you pay the bill. Check whether your reports use cash or accrual accounting before comparing them.
Some cash movements aren’t income or expenses
Loan proceeds add cash but aren’t sales. Paying loan principal reduces cash and the loan balance, rather than creating an expense. Transfers between bank accounts move money without changing profit. Owner contributions and distributions also affect cash without being ordinary sales or operating expenses.
Look beyond one number
Read your profit and loss report alongside the balance sheet. Review unpaid customer invoices, unpaid bills, loan activity, and owner transactions. Together, these explain more than the bank balance alone.
Ask a clear question: “What caused the change in cash this month?” Then trace the answer back to the records.