Once you are sure you have the right amount of cash entered in your accounting records, you are ready to check the rest of the books. The process is this. Look at your balance sheet, item by item. You've already done cash, and petty cash is a static account, so the next item is inventory. Check what your inventory was last month, total up what you know you've added to or deleted from it, and that should be your current total inventory. To make this easy, keep a list of what is in inventory. Each item should have a beginning balance, an amount of current activity, and an ending balance.
If inventory shows on your books as a higher number than you actually believe you have, adjust that against the material expense. If you have $250 less value in actual office supplies than you show on the books, the adjustment will be to debit office supplies and credit inventory. That will reduce your inventory.
When you close your books for the end of the year, you need to take actual physical inventory. At other times of the year, whether or not you go through this step will depend on how much inventory you carry. Any materials that have a large value should be counted in a physical inventory more frequently. Failing to do that may result in an unpleasant surprise at the end of the year when it turns out you've been underestimating your use of material all year.
Follow this same process for each item on your balance sheet. If your accounting records are computerized, look at your Detail Trial Balance and Detail Transaction Reports. These reports will show you the beginning balance for each account, what was added to or subtracted from that account over the month, and then an ending balance. This is the easiest way for you to find items entered in the wrong account, items entered backwards (credit when you should debit), items overlooked, or items that were transposed when they were entered.
You don't have to do this to every expense account. Just check that your asset and liability accounts are correct. If you have large loans, make certain that you are accounting for principal and interest correctly - putting interest in its own account, and taking principal against the liability account. If you don't have one, ask the loan officer to give you an actual report (loan history) of how much you owe as of this date, to make certain your books reflect that amount.
Completing this process on your entire balance sheet will give you assurance that your books are correct, and you can trust the bottom line on your income statement.
