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When you look at your Profit and Loss statement (P&L) each month, is the bottom line actually reflecting the profit margin on that month’s sales?
For example, let’s say you have to make mental adjustments for a large order of imprinted T-shirts you are doing. You received the shirt vendor’s invoice a few days before closing the month but will not bill your customer until you receive the bill from the decorator.
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Or maybe it is the other way around. You had a large order that shipped on the 29th and you want to bill your customer even though you do not yet have the bill from the vendor(s).
If you are making mental adjustments like these, you will want to consider implementing steps to correct the situation. You want to achieve an accounting principal known as “accrual matching”.
Accrual matching on your Profit and Loss statement means that the sales reported for a month are matched with the expenses reported for that month. When you have matching of costs, you are better informed about your business performance and can make better financial decisions.
The matching can be achieved in two ways. Which method you use is determined by:
- Do you have a large volume of multiple-vendor orders and other orders for which you post your invoice from a vendor in a different month than you invoice your customer?
- Do you have someone internally who feels sufficiently comfortable with accounting principles to oversee the matching process and make adjustments?
If your answer to either question is NO, you should use the manual method of matching.
If your answer to both questions is YES, you should use the computer method of matching.
More information about how to make sure your margins are accurate for each month can be found on ASI Computer Systems' web site here.