Fractional ControllerMonth-end adjustments, explained in plain words
You're looking for month end adjustments in plain words, perhaps because your bookkeeper never made any and a controller says they're needed. Tax CFO Steven Palmieri leads the work, and Steven and his team make a handful of entries each month that don't come from a receipt. They exist so the month shows what really happened, and not only when money moved.
Find the missing entries
Cash and accrual, in two sentences
On the cash method, income counts when you receive it and expenses count when you pay them. On the accrual method, income counts when you earn it and expenses count when you incur them. A business picks a method for its taxes and stays with it, and changing it takes a proper filing with the IRS, as Publication 538 explains.
Your tax method and your monthly statements don't have to match. Even on cash-basis books, statements for your own use can still show the month truly, and that's where adjustments help.
Costs paid once and used all year
Say a company pays $12,000 for a year of insurance in January. These numbers are made up. Without an adjustment, January looks like a terrible month and the other eleven look great. With one, each month carries $1,000. The same goes for annual software and any other bill that buys a year of coverage.
Wages earned but not yet paid
Suppose the last week of the month's wages gets paid on the fifth of the next month. Without an adjustment, those wages land in the wrong month. With one, they're counted where the work happened. Our hypothetical company has $8,000 of such wages at month end, and the adjustment moves them back into the month that earned them.
Money received for work not yet done
A customer pays a deposit of $5,000 for a job you'll do next month. That cash is real, but it isn't earned yet. An adjustment holds it as money owed to the customer in work until the job is done, so the month's income isn't overstated.
Equipment losing value
A truck, a computer or a piece of machinery gets used up over time. Depreciation spreads its cost across the years it serves, and the IRS describes the recovery periods in Publication 946. Entering it monthly means the year has no December surprise when the full amount suddenly appears.
Why a bookkeeper wasn't asked
Entering a receipt is straightforward. Deciding that a bill covers twelve months, or that wages belong in last month, takes someone looking at the whole picture. That's a controller's work, and it isn't a criticism of whoever enters the daily activity. It's simply a different job, and it sits among the steps on the close checklist.
What changes for you
Your monthly profit stops jumping around for reasons that don't come from the business. Months become comparable. And when the year ends, the numbers on your monthly statements already include everything, so there isn't a pile of year-end entries that change a result you've been reading all along.
Checked and closed. After the adjustments, January no longer looks like a disaster, the wages sit in the month that earned them, and the deposit waits patiently for the job it belongs to.
Which entries might your books be missing?
You will be talking to the Steven Palmieri practice.