To ensure that all the costs and income are amortised in the correct month, taking up necessary expenses to produce accurate financial information for the client.
The purpose of monthly accruals is to record incurred expenses within the proper accounting period and to match expenses with related revenues.
Accruals are needed to ensure that all revenues and expenses are recognized within the correct reporting period, irrespective of the timing of the related cash flows. Without accruals, the amount of revenue, expense, and profit or loss in a period will not necessarily reflect the actual level of economic activity within a business. At month end, accrual procedures ensure the expenses related to the month are properly included in the Company’s financial statements.
There are expenses that are definitely incurred on a monthly basis but their invoices are billed in after the closing cadence. Accruals of these type of expenses have to be made. These could be anything such as:
- Loan interests
- Marketing expenses
- Recurring and nonrecurring costs, expenses or payments (such as rent and utilities)
- Purchase order expenses or asset acquisition (such as project costs)
- Travel and entertainment costs
- Contracts or contingencies that involve possible future loss.
PIKOHANA ensures that the closing balance in the schedule is reconciled with the Xero closing balance every month.