month end closing process

Your goal must be to reconcile as many accounts as you can each month. These are accounts that deal with high volumes of transactions, making them susceptible to being off by a notable amount. Other than the sizable amount of work to do, managing the process and data make this procedure even more challenging. The number of reconciliations to finish, checklists to complete, documents to gather, and schedules to meet are substantial. Throughout the process, it will be difficult to see what’s finished or whether there are still adjustments to be made. For companies looking to improve data governance, automation is key.

Next, review if you’ve posted your journal entries correctly into your general ledger. With a month-end closing checklist and a bookkeeping habit, you can scale the summit with ease and manage your finances well. More importantly, staying on top of your financial data will help you achieve your long-term business goals. In accounts receivable, accruals are used to report revenue earned during a given month that have not yet had their transactions recorded. Knowing when and where your team is spending money is at the core of effective spend management. If you’re still using pen-and-paper accounting practices, you may not have real-time records of all your purchases for the month.

By analyzing your numbers and implementing learnings, you can drive your business to success. With cash basis accounting, you won’t have balance sheet accounts, such as accounts receivables and accounts payables. To learn more, see our guide on Cash Basis Accounting vs. Accrual Accounting. Like all business processes, the month-end closing process has the potential to help your company thrive, or hinder its growth and success. To ensure your month-end close is as smooth and painless as possible, it pays to follow a month-end close checklist. A checklist will help you keep track of essential information and minimize time-consuming errors and redundancies. Remember, your specific procedures may vary based on your industry, accounting methods, available technology, etc.

month end closing process

We like to allocate a healthy chunk of time to verifying each transaction is accurately inputted. It is a tedious step but it pays off later in the workflow if everything is correct. Looking for ways to customise and automate your sales commission reports? The ability to collect, store and compare records in a centralised system boosts accuracy, transparency and efficiency.

How Long Will Closing The Books Take?

Once you close your books, you can’t go back and create journal entries for that month. So make sure your financials are accurate before closing the accounting period. Fixed assets are generally big-ticket items that readily convert to cash in the general ledger. Instead, they may generate expenses for your company in the form of repairs, depreciation , amortization , or impairment month end closing process costs . For the purposes of the month-end closing process, you simply need to record any of these expenses that occur for each of your fixed assets. This process may be viewed by those outside the accounting department as time travel or financial legerdemain. During the first three business days of a month, two accounting periods are open in the general ledger .

  • 88% of companies who apply automation can complete the monthly close process within 6 days, compared to only 40% of those who don’t.
  • The longer it takes to close the books, the staler the financial data gets, which hurts the accuracy of any forecast.
  • You’ll be required to track how much you’ve spent and on which products or services, including via expense reports, invoice payments, and company cards.
  • Having eyes on all your inventory, in real time, means less inventory shrinkage from theft, damage, and loss.
  • Nexia International Limited, a company registered in the Isle of Man, does not provide services to clients.

CliftonLarsonAllen is an independent member of Nexia International, a leading, global network of independent accounting and consulting firms that are members of Nexia International Limited. Nexia International Limited, a company registered in the Isle of Man, does not provide services to clients. Financial Insights How to Build a SaaS Pitch Deck That Will Impress VCs and Investors Your SaaS pitch deck can be the difference between a great VC pitch or a poor one. Pitch decks shouldn’t be a backwards-looking report on the business — rather, they show the future growth and potential of your business. Here’s how to build a SaaS pitch deck that grabs investors’ attention. Make necessary preparations and adjustments.Find out if there are any obsolete inventory that you need to write off. Reviewing statements can help you catch issues early on, like overspending, and prevent problems later on with your books.

In some processes, we also deploy a quality control accountant, who reviews the financials prepared by other accountants. Post preparation of financial statements, accountants would typically respond in a structured and data oriented manner to multiple queries raised by senior management. If necessary, financial analysis of the statements is also done and information dashboards are prepared. Match your internal financial records with account statements (e.g., from banks and vendors). The accruals process provides a more comprehensive picture of fiscal health by enabling your team to take into account not only transactions that have been paid but also outstanding liabilities and unpaid invoices.

Division Of Finance & Administration

Special attention must be taken when processing transactions to ensure they are recorded in the correct accounting period/month. The purpose of this month-end close policy is to provide guidance for the period-end close cycles required to prepare financial statements. This standard applies to both the month-end and year-end closing cycles for an organization. In this sample policy, the company’s accounting department should establish annual calendars for month-end and year-end closings and the preparation of financial statements. While there is no doubt that much needs to be done during a month- and quarter-close, there is always room for improved efficiency in the processes. These closing procedures should not be days upon endless days of analysis of every small detail, particularly when those details have no impact on the company’s big picture or leadership’s decision making. Making this process longer than it has to be costs not only time, but also money.

  • Without an umbrella view of activities and an intelligent means to orchestrate their completion, it is extremely difficult for organizations to see where they are in the financial close process.
  • With a thorough foundation of trends, you’ll be able to forecast growth for the coming months and see your progress and growth with less work involved.
  • Automation reduces or eliminates the need for manual data entry, preventing errors before they happen and ensuring data is clean for analysis and reporting purposes.
  • Working papers are your reference for the month end closing procedure.
  • Month-end closings are not only essential to effective fiscal governance, they also provide management with financial information that drives strategic decisions.
  • Downloading all bank statements will be your reference for confirming transactions in your accounting software.
  • Developing an efficient, ‘streamlined,’ process for month-end will create a more relaxed environment, free up man hours and ensure that your management receives accurate and timely information.

This could mean comparing the amounts and percentages on the current financial statements to those of earlier months. For example, if the current income statement shows the cost of goods sold as 86% instead of the normal 81%, the current month’s amounts should be investigated before releasing the financial statements.

What Is Inventory Lead Trial Balance?

Divvying up the records when reconciling your bank statement can help you stay organized and catch errors at month-end. If you’re struggling to keep up with your books and the month-end close process, you can outsource your bookkeeping to Bench. With account reconciliations, you’ll spot mistakes in your financial data and fraudulent transactions (if any!). Small businesses often struggle to collect money on time, resulting in poor cash flow management and bad debt. Check if you’ve recorded all your incoming cash during the month and capture any missing items. Here’s our month-end close checklist to help you organize your workflows. This step also involves verifying that you’ve received the correct amounts from customers and are chasing unpaid invoices.

The platform also makes it easy to import invoices in whatever way works best for your business, whether that’s forwarding bills through email, uploading them or bulk-processing thousands of payments through API. So most finance teams also close the books each month, letting them check transactions, journals, and reports on a more regular basis. It also means matching both income and expenses to the physical records – checking receipts, invoices, and other documents.

For example, if a company pays its sales commissions the month after they’ve earned it, the commissions need to be counted as commissions payable at the end of the month that the sales happened on an accrual basis. Do a comprehensive review of any and all income your company received during the past month, such as revenue, payments on invoices and any loans. It’s easy to put this step off until the end of the month, but it’s also a costly mistake. Automation software can help you better track accounts payable throughout the month so that there’s less pressure on you as the fiscal calendar turns. Before you completely close the accounts at month-end, consider having a second set of eyes review your work.

How Long Should The Month

Once the accounting team is satisfied that the general ledger is accurate, you are ready to prepare financial statements. Many organizations can generate these statements through their accounting systems, while others will need to run reports and compile data, which is often transferred to an Excel document. Another useful review is to compare actuals to budget using the statement of activities . This result requires controlled and coordinated activities throughout the month. It also means processes and procedures that are well thought out, documented, and incorporate internal controls such as segregation of duties across all appropriate departments. Successful monthly (or other periodic e.g. quarterly) reports are critical to developing financial statements and other data such as KPI’s to support management’s reporting needs.

  • Two accounting periods/fiscal years will be open in the general ledger for certain days in July.
  • Monthly close processes serve as a cutoff point for transactions, as they are essentially permanent income statement accounts.
  • It acts as your company report card, displaying an accurate picture for investors to grade.
  • Revenue is often linked to a subsidiary ledger and therefore has been reconciled.
  • Organizations with numerous monthly transactions will also benefit from reconciling cash on a daily or weekly basis.

This process should be standardized by creating a list of standard journal entries to promote consistency between monthly closings. These adjusting entries produce accurate financial books, which are the basis for correct financial statements. Before we explore leading practices for optimization, let’s start by defining the month-end close process. For any serious organization, it’s crucial to be aware of the benefits that a month-end close process offers. Simply, month-end close processes are a complete and timely way to calculate accurate cash predictions for the coming months and assist business managers in assessing their financial performance. These accounting month-end close procedures track all the transactions made during the month and keep accounting data organized, which is why you should consider implementing one for your business.

Communicate Company Cut

Create a deadline to complete your closing procedures, depending on your business and your team’s workload. With up-to-date records, you will save time catching up with your financials during the month-end process. Staying on top of your numbers and closing your books every month is important to keep your business on the right track. By preparing ahead for the month-end, you’ll avoid the last-minute rush and have a smooth closing process. They are an asset you’ll recognize as expenses in different accounting periods.

month end closing process

Inventory fulfillment issues or cancelled subscriptions, should be noted along with the point in time when a business relationship has ended. Take this time to reach out to your vendors for any outstanding expense payments that are coming due. We like to set up an email account that is strictly for payables, to never miss a bill. Firstly, it helps to make sure that your financial statements are correct. These statements are used for many purposes, including receiving investment and making important business decisions, so you want the data to be right. Flux analysis, short for fluctuation analysis , is one method that teams can use to identify signs of errors early on.

Check expenses to see if they have been recorded in the correct accounts and in the correct period, and that accruals and prepaids are accurately reflected. Presenting a complete and accurate representation of the organization typically requires monthly journal entries for accrued expenses, amortization, depreciation, and other activity. In most cases, accounting systems are able to automate recurring journal entries. No matter what your bespoke month-end close process looks like, data availability and integrity will make or break its effectiveness. If accounting teams are bogged down in manual data collection and manipulation for multiple days, they’re bound to get caught in the vicious cycle of never-ending backward-looking reporting. Standardizing data definitions is a good first step to ensuring clean data. APQC found that companies who adopted a standard chart of accounts with clearly defined naming and numbering conventions were able to cut an average of two days off their monthly close process.

Both the efficiency and effectiveness of this process must be improved to create a smooth and reliable month-end close. All CFOs aim for comprehensive compliance with internal and external regulations, but achieving it is very rare. For example, a quarter of all finance teams have no secondary approval process.

You can work out your working capital, meaning the money you will need to spend every day, and your business liquidity, meaning the rate at which you can pay off your debts, effectively using business balance sheets. It’ll show you all about your current assets and compare them to your current liabilities, so you have a clearer photo of your debt management.

Whether you’re a small business owner, a CPA, or part of a dedicated corporate accounting team, the success of your business relies heavily upon certain standardized procedures and the data they generate. This is particularly true for the accounts payable department, where the month-end closing process must be done properly to ensure the accuracy and completeness of your financial statements and balance sheet.

The first step is to ensure that all income and expenses are recorded in your accounting system to categorize and reconcile. Enter all the accounting data such as bills received, receipts, import/post payroll, and generate invoices. One of the most critical tasks in the month-end procedures is timely submission and approval of journal entries. All journals for an accounting period must be created, submitted, approved and posted within five business days of the last day of the period. Reminder notices will be sent by Financial Reporting and Accounting Services for journals that have not been submitted or are subject to deletion upon final close to the person who initiated a journal .

Having accurate financial statements and source documentation will save your clients money when they pass over to their CPA at tax-filing time. If your accounting system’s included reporting tools meet GAAP requirements, that may seem like enough. But ask yourself this, “do they give business leaders the information they need to make smart decisions? If the answer is no, or you are unsure, now is the time to improve the month-end closing process.

They can analyze your numbers and give you insights to make good business decisions. Check your petty cash balance at the beginning and end of the month. For example, uncleared checks, mistakes in internal records, and bank charges. Check the ending balances, deposits, and withdrawals of your bank statements against your cash book. Maintain accurate and up-to-date financial records to provide lenders or during an IRS audit. Of course, all of these tips and tricks can also be applied to year-end closing and might benefit some of your other accounting systems. Having this simple process and workflow in place that can evolve and be customized will save you time in the long run, minimize errors and save your firm money.

Make sure your receipts and records match the balance of your petty cash fund. So, how can you simplify your responsibility of closing your books monthly? Say goodbye to disorganized books and hello to a month-end closing procedure. To avoid mistakes, review your financial information before the month-end close. Ask someone who didn’t prepare the accounts to review them so they’ll find errors or problems you didn’t notice. Adjust accrued and prepaid expense accounts to reflect any income received and expenses paid during the month.