Successfully closing out a period starts the domino effect for proactively operating a restaurant versus missed opportunities in the following periods. The purpose of the Period End Financial Close is accuracy verification to highlight where your money is going. This enables you to make quicker, more educated business decisions. To close out a period, begin with a review of the financial statements; The Profit & Loss Statement, The Balance Sheet, and The Cash Flow Statement. Within each statement, defined areas of focus should pop out to an operator as a must-watch for success. In this episode of The Tip Share, the RASI Education Team focuses on reviewing the Notes Payables account for accuracy prior to closing out the period.
Closing Out Notes Payables:
Note Payables reflect a restaurant’s current debt balance for loans and/or promissory notes. Understanding the current debt allows you to make educated, financial, business decisions. Additionally, it helps you truly understand how your business needs to perform in order to break even. Moreover, if balances are incorrect on the Balance Sheet, it could mean that expenses (typically interest) are missing on the Profit & Loss Statement. This impacts the bottom line within your restaurant’s profit
What causes Notes Payables to reflect an incorrect balance?
- The interest for the loan is booked against the loan balance instead of the expense account
- Payments to the loan are not recorded through AP and are miscoded when questioned on the Bank Reconciliation
- Expenses paid by the loan are not coded as paid by the loan account payment method through Accounts Payable (this is especially common with a new business SBA Loan)
- RASI Clients: Payments to the loan are done through a bank account that RASI does not reconcile
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How to correct inaccurate balances in the Notes Payables Account:
If the Loan Account is overstated (less available credit than actual):
- Review the Trial Balance in the Loan Account to determine any incorrect activity
- Review the Trial Balance of the interest account on the P&L to verify that all interest paid on the loan has been properly recorded
- Once the incorrect activity is identified, contact your Accountant with the amounts that need to be reclassed
If the Loan Account is understated (more available credit than actual):
- Review the Trial Balance in the Loan Account to determine any incorrect or missing activity
- Once identified, contact your Accountant with the amounts that need to be added or reclassed
Best Practices within Notes Payables:
- Audit payments to the loan account through Accounts Payable prior to submission to verify that all interest is broken out from the payment on the loan
- Audit invoices paid by the loan balance through Accounts Payable prior to submission to verify that all invoices are marked as paid by the correct payment method
- RASI Clients: If you have any questions on how to set up the loan account in RASI, contact your RASI Accountant for assistance
LISTEN TO THE FULL PODCAST EPISODE BELOW!