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What to Review on a Business Balance Sheet Each Month
Review cash, receivables, payables, debt, and equity with supporting schedules, a monthly checklist, and a complete two-month balance sheet example.
Review a business balance sheet each month by confirming that every important balance has supporting records, explaining changes from the previous month, and assigning follow-up for old or unusual items. Start with cash, receivables, payables, debt, and owner equity. Then check inventory, prepayments, equipment, and other accounts relevant to your business.
The SEC explains that a balance sheet reports assets, liabilities, and equity at a particular date. Assets equal liabilities plus equity. An equation that balances still needs investigation: a duplicated asset and liability can leave both sides equal while overstating the books.
Set up a review that can be repeated
Request current and prior month-end reports using the same accounting basis and account definitions. Ask the accountant to identify adjustments affecting a previously delivered month. Compare the balance sheet with its supporting schedules using the same cutoff date; a receivable aging run today may differ from the month-end report.
This suggested TaxBowl checklist focuses on substantiating balances. Our monthly P&L and close guide explains the broader report package. For each important account, retain the balance, evidence link, explanation of change, unresolved difference, reviewer, and next action. Agree which balances warrant detailed investigation based on your business and decisions.
Monthly balance sheet review checklist
| Account | Evidence to request | Question to resolve |
|---|---|---|
| Cash and credit cards | Statements and dated reconciliations for every account. | Do outstanding checks, deposits, and transfers explain the difference between statement and book balances? |
| Receivables | Month-end invoice aging, credits, collection notes, and subsequent receipts. | Which customers owe the balance, and which amounts are disputed or unlikely to be collected? |
| Inventory and prepayments | Count records, inventory detail, supplier invoices, and a prepaid-expense schedule. | Does inventory exist, and do prepaid balances still represent benefits extending beyond month end? |
| Equipment and depreciation | Asset register, purchase and disposal documents, and depreciation schedule. | Do additions, disposals, and accumulated depreciation explain the net balance? |
| Payables and accrued obligations | Vendor aging, unpaid invoices, payroll reports, and tax account detail. | Are obligations complete, and can each old or negative item be explained? |
| Loans | Lender statements, payment detail, and debt schedule. | Do principal movements reconcile, and are interest and fees recorded separately? |
| Customer deposits | Customer-level schedule and contracts or job records. | What goods or services remain owed for each deposit? |
| Owner equity | Contribution and distribution detail, net income, and adjustment records. | Does beginning equity plus earnings and contributions less distributions explain ending equity? |
The IRS recordkeeping guidance explains that supporting documents substantiate entries in business books and tax returns. This monthly checklist is a suggested management practice; it is not an IRS-prescribed review procedure.
Investigate aging as well as size
A small clearing-account balance that persists for months deserves an explanation. So does a large balance with no activity, an unexpected negative receivable, or a loan whose balance never changes despite payments. Ask for transaction detail before deciding whether an adjustment is appropriate. Never use an unexplained equity entry simply to clear a difference.
For receivables, identify the customer, invoice date, dispute, promised payment, and evidence of subsequent collection. For payables, investigate duplicate bills, missing credits, and payments applied to the wrong vendor. Have the accountant assess necessary corrections using the agreed reporting basis. A large bank balance also needs context: vendor payments, payroll, debt installments, and customer commitments may consume it soon.
Original example: bridge two complete month-end balance sheets
Assume a hypothetical established service business keeps accrual books. All figures below are illustrative dollars, not client results or benchmarks. These are its only balance sheet accounts. During Month 2, net income is $12,000, depreciation is $2,000, equipment bought for cash is $6,000, loan principal paid is $5,000, and owner distributions paid are $4,000. There are no contributions, new loans, disposals, write-offs, or other adjustments.
| Balance | Month 1 | Month 2 |
|---|---|---|
| Cash | $40,000 | $34,000 |
| Receivables | $30,000 | $38,000 |
| Equipment, net | $50,000 | $54,000 |
| Total assets | $120,000 | $126,000 |
| Payables | $20,000 | $23,000 |
| Loan principal | $40,000 | $35,000 |
| Total liabilities | $60,000 | $58,000 |
| Owner equity | $60,000 | $68,000 |
| Liabilities plus equity | $120,000 | $126,000 |
Both equations check: Month 1 assets of $120,000 equal $60,000 liabilities plus $60,000 equity. Month 2 assets of $126,000 equal $58,000 liabilities plus $68,000 equity. Net equipment is $50,000 + $6,000 purchases − $2,000 depreciation = $54,000. Equity is $60,000 + $12,000 income − $4,000 distributions, leaving $68,000.
Cash reconciles too: $40,000 opening cash + $12,000 income + $2,000 noncash depreciation − $8,000 receivable increase + $3,000 payable increase − $6,000 equipment purchase − $5,000 principal payment − $4,000 distribution = $34,000. Assume all other income and expense activity is settled in cash or these receivables and payables, including any interest expense.
The owner's follow-up is specific: verify the $8,000 receivable increase against invoices and receipts, confirm the $3,000 additional vendor obligations, and inspect the equipment invoice and loan statement. Equity rose $8,000 while cash fell $6,000. Neither movement alone establishes how much the owner can safely distribute. This simplified bridge is an account review illustration, not a formal cash-flow statement.
Finish with evidence and accountable actions
Keep an exception log showing the account, amount, missing evidence, responsible person, due date, and effect on the next decision. For example, assign collection follow-up on a disputed invoice and ask the accountant whether its recorded value needs reassessment. Carry unresolved items into next month's review with their original dates.
Use the monthly-books decision-readiness test before committing to a hire or purchase. Ask TaxBowl about monthly bookkeeping support that connects reconciliations, supporting schedules, and owner review. Where the review raises borrowing or cash-allocation questions, discuss the appropriate CFO advisory scope.
Video: balance sheet structure
The Accounting Stuff tutorial explains the balance sheet equation, account groupings, and how retained earnings connect to profit. It is a broader accounting accompaniment; use the supporting schedules and monthly exception checklist above to review your actual accounts.