In situations where the month closing has to be done before the month itself has actually ended, it is very difficult to make sure you have accounted for all expenses and even revenue. This is more complicated as in fact you do have to estimate the revenue as well and not just expenses. Normally those extremely tight reporting deadlines are applicable to groups, which report to stock exchanges and are also globally very big. “Very big” means that they have consolidated assets and revenues bigger than some country’s budgets.

But what should you as an accountant do when you have to meet those very short deadlines? Simply put you estimate everything. Normally expenses are easier as you more or less know your regular costs (i.e. rent, heating, electricity etc). One off charges as marketing, repairs etc is also something you know a bit in advance (you know about the campaign and estimated budget for it for an example).

As for revenue though, it depends on your business – if you sell goods, you can always base your estimation on month end revenues in recent months, pervious years or average daily sale. If you sell services, it can be based on month end sales or bookings made for your services.
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In case you don’t know what exactly a purchase order or PO is, it’s a document and procedure done just before actually acquiring an asset or making an expense. With this a person responsible lets accountants and management know he or she is planning that kind of purchase and if built in, also asks for permission and approval.

Now, leaving this approval thing beside, another good thing that comes out of having this process, is estimating for accruals.

A PO should always have as a description the period this expense relates to, so essentially at the end of a reporting period when adding up all open purchase orders, you would be able to get a precise sum of what you should additionally expense for that certain period. Yes, the invoices have not yet been received, but you can estimate the expense and charge it as:
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As you no doubt may already know, accounting in most countries and companies is accruals based. The other method of choice is to recognize everything based on cash movement, but this usually applies to self-employed people and is very strictly regulated in most countries. Anyhow, as most of us need to use the accruals based accounting, the key thing about which is the accruals – what are they and why would you need one?

The key principle to accruals based accounting is the period in which the events and conditions happened that either resulted in an expense or an income for the company. Consequently, it’s this very same period in which those transactions and their effect needs to be recognized.

Recording accounts payables and receivables is one thing. They are based on invoices or similar source for exact amount and due time for the payment. But when it comes to liabilities or income that we are currently exactly not aware of simply because we haven’t received or sent out an invoice it gets mote trickier. To be honest, it’s not that difficult and more just about remembering things.
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