Producing financial statements monthly is the best way to monitor the progress of your business.
Monthly statements that include a Balance Sheet and Income Statement give you a good sense of the profit/loss as you go along, so there are no surprises at the end of the fiscal year.
In some cases, monthly statements are a requirement as many lenders want to see periodic reporting as conditions of the loan.
In some instances, doing yearly audited statements may also be necessary. How in-depth the accounting needs to be depends on the structure of the business and their lending arrangements. This is a decision that each company needs to make based on their situation.
#1 - Financial Statements are Prepared Monthly
When it comes to preparing the financial statements for the accounting period, the mark-to-market process is incorporated into the end-of-month routine. The purpose is to bring into the picture the value of the open positions. Without it the income may not be stated accurately.
#2 - Mark-to-Market Entries are Consistently made at the Close of Each Accounting Period
The process of mark-to-market consists of:
- Assigning a market value to the open position
- Making an adjusting Journal entry to record the value.
These steps are taken to value inventory, forward purchase contracts, forward sales contracts and open futures contracts. This picks up the offsets against the closed futures activity that is needed to adjust the P & L to the correct value.
#3 - Mark-to-Market Entries are Prepared by the Elevator, not the CPA
The mark-to-market routine is an activity that should be done in-house by the elevator's bookkeeping department. This allows for timely preparation of monthly statements and utilizes the merchant's knowledge of market values in the process. The information is provided to the CPA for review and verification when the year-end accounting is done.
To aid you in this process, we've created an eBook entitled: "The Five Essential Reports: Accurate Mark-to-Market Accounting at the Grain Elevator".
This eBook takes a in depth look at the reports and documentation you need to appropriately account for your business operations.