Why adjust at all
Bank feeds capture cash events. They cannot see that you used a month of prepaid insurance, that equipment lost value, or that employees earned wages that will be paid next week. Without adjustments, your monthly profit can swing for reasons unrelated to how the business performed.
If you only care about annual taxes, you can bunch these at year end. But monthly decisions need monthly accuracy.
Depreciation and amortization
Record one month of depreciation for each asset on your register. If you amortize loan costs or software development, record that month as well. Use recurring entries so the amounts repeat automatically, and review them whenever you buy or dispose of an asset.
Prepaids and deferred items
Move one month of each prepaid item from the asset account to expense. On the other side, release the earned portion of customer prepayments from deferred revenue to income. Check the schedule balances after posting and see that they match what remains unused or undelivered.
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Accruals
Record wages earned but not paid, interest accrued, and vendor work completed but not billed. Add unbilled revenue for work done but not yet invoiced if you use accrual reporting. Set these to reverse on the first day of next month so the real bills do not double count.
Inventory and other balance checks
If you track inventory, update it for the period using the count or system values and record shrinkage or write-downs. Review owner items: personal charges to move to draws, reimbursements owed to the owner, and loans between owner and company.
Then review sales tax and payroll liabilities against the filings. Balances should be explainable by what is due, not left over from past errors.
Final review before locking
After posting entries, run the profit and loss for the month and compare it to the prior month and the same month last year. Large swings should have a reason you can state in a sentence. Print or save the reports, then set a closing date in the software so past periods are not changed by accident.
If you outsource the books, ask for a short list of the adjustments made each month. It teaches you how your business works and makes your CPA's year-end work easier.
Keep a one-page close checklist in a shared folder with each recurring entry, the amount source and who does it. Tick items off each month and note exceptions. When a bookkeeper changes or you hire help, the checklist transfers the knowledge in minutes rather than weeks, and it gives your CPA a clear explanation of how monthly numbers are produced.
Common questions
Do I need all of these every month?
Only those that apply and are significant. Small amounts can be handled quarterly or at year end if your CPA agrees.
What is a closing date?
A software setting that blocks changes before a chosen date unless a password is entered.
Can adjustments change my tax return?
They can, depending on your accounting method. Share your adjusted reports with your tax preparer.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.
