Month End Close Process: The Complete Guide

During a month-end close process you’ll review all invoices, reconcile all accounts, verify posted entries are valid and accurate, close out any files needed, and make adjustments where necessary. At the end of it, the financial statements should reflect the transactions that took place in that time period and give you a clean and transparent start of the next month. In the world of finance and accounting, the month-end close is an integral part of the financial reporting process.

Automated business processes not only allow standardization of operations but also ensure maintenance of records throughout the year, thereby creating an audit trail. According to a survey by Ventana Research,  in 2014, 58% of companies reported taking seven or more days to close their books. Adding to the stress and work levels is the deadline-oriented nature of the activity; the accounts must necessarily be closed by the last day of the month. While the month end close can be stressful for accountants of small businesses, it can be overwhelming for those in large companies with significant financial activity.

Month End Close Checklist

Be sure that accruals and prepaid expenses are recorded accurately in your books. During your month-end close process, you need to reconcile all of your accounts. To do this, match your records to your account statements from outside entries, such as the bank.

That’s crucial for ensuring your accounting data is as accurate and complete as possible. All departments whose activities impact financial records should follow similar procedures and maintain similar schedules to support the month-end close. Following a sound basis of accounting such as Generally Accepted Accounting Principles (GAAP) will maintain consistency across the organization and support the month-end close process. Reconciliations of complex accounts can require a great deal of time to work through. Typically, reconciliations on accounts related to liability and revenue involve tracing transaction entries to source documents.

Update accounts payable

Today, you’ll find our 431,000+ members in 130 countries and territories, representing many areas of practice, including business and industry, public practice, government, education and consulting. Close the books 4x faster, collect over 95% of receipts on time, and get 100% visibility over company spending. Automated payment reconciliation, built-in employee debit cards, and seamless approvals can all be done using the power of Spendesk.

• It may be best to check this fund weekly to keep track of your small payments.
• If you’re a small business owner who feels the month end close process is a mountain of tedious admin, you’re not alone.
• Not having proper insight into the finances can increase the risk of misallocation of resources, resulting in wasted time and resources which could have been used more productively.
• The S&P 500 jumped 3.1% to notch its fifth consecutive positive month for the first time since its seven-month streak ending August 2021.
• So most finance teams also close the books each month, letting them check transactions, journals, and reports on a more regular basis.

Another account is used to keep track of dividends paid out over the period, and it also needs to be zeroed out. Complete and timely financial statements are the most powerful strategic tool for any organization. They help business owners measure progress towards goals, and they’re essential for performing an accurate cash flow projection for the future and making business decisions. The details and steps of the month end close process largely depend on the size of the company and the quantum of financial transactions executed per month. A bank reconciliation statement summarizes banking and business activity by reconciling a business’s bank account with its financial records.

What Is the Month-End Close Process?

Nonetheless, closing books is an important part of any accounting cycle. It allows companies to accurately assess their financial position, track performance against budgets and keep operations running smoothly. If your company uses a petty cash fund, that spend will likely become invisible unless you have systems in place to track it. Manual accounting involves tracking receipts and cross-checking them with withdrawals from petty cash. Knowing when and where your team is spending money is at the core of effective spend management.

Reviewing and reconciling balance sheet accounts ensures that all transactions have been recorded and accounted for. Reconciliation includes bank statements, charge accounts, the rules of working with tax returns for unexperienced accountants accounts payable and receivable, fixed assets, deferred revenue accounts, and inventory. This step is important for the accuracy and completeness of the financial statements.

Poor data visibility

Lean on these teams to set the timeline for overall review, including checking automated figures. While reviewers are noted throughout the process, Vasco schedules an overall review of the report around Day Six to account for any potential inaccuracies. The month-end close process involves accounting teams collecting, reviewing, and conforming transactions and financial activity from the previous month. It is used to ensure accuracy and compliance while maintaining data integrity for financial planning and analytics. The month-end close process is a series of steps that are taken to ensure the accuracy and completeness of an organization’s financial statements at the end of each accounting period. BlackLine is a high-growth, SaaS business that is transforming and modernizing the way finance and accounting departments operate.

Closing the books faster and more efficiently can save money and increase productivity. Company-wide cut-offs are specific dates at the end of every month that every employee should know and respect. They signify the end of the current accounting period, and transactions after this date will be carried forward to the next month. For example, if you’re working with a freelancer who doesn’t submit their invoice prior to the cut-off, they’ll typically have to wait for the next billing cycle to be paid.

What is month end reports?

Many accounting teams do this on the last day of the month, but depending on the volume of transactions the company processes, it can take multiple days or occasionally even weeks. Finally, it’s time to think ahead to the month in hand and create a business financial plan to address key risks. If something was particularly manual this month, for example, it might be time to think about creating an automation process. 88% of companies who apply automation can complete the monthly close process within 6 days, compared to only 40% of those who don’t. Finance and accounting need to find any and all opportunities to automate tasks in the monthly closing process. This is what frees their time to not only close faster, but contribute to larger conversations around strategic business goals.

This is what an integrated platform delivers, and why technology is such a differentiator when it comes to your month-end close checklist. BlackLine partners with top global Business Process Outsourcers and equips them with solutions to better serve their clients and achieve market-leading automation, efficiencies, and risk control. By outsourcing, businesses can achieve stronger compliance, gain a deeper level of industry knowledge, and grow without unnecessary costs. Explore the future of accounting over a cup of coffee with our curated collection of white papers and ebooks written to help you consider how you will transform your people, process, and technology. World-class support so you can focus on what matters most.BlackLine provides global product support across geographies, languages, and time zones, 24 hours a day, 7 days a week, 365 days a year.

Other reasons to optimize include better discipline, more structure, improved controls, more visibility, and reduced risk. Journal entries of recurring monthly transactions must be performed at the time of the month-end close. This applies to such transactions as accrued expenses, amortization, depreciation, and loan interest.

Review inventory

Financial statements include the income, balance sheet, and cash flow statements. These statements accurately reflect the company’s financial position and the results of financial operations for the month. Temporary accounts, such as revenue and expense accounts, are closed and their balances are transferred to permanent accounts, such as retained earnings. Financial statements, including the balance sheet, income statement, and statement of cash flows, are then generated and reviewed for accuracy. Preparation plays a role in the speed and accuracy of the month-end close. Clear visibility and process automation give top-tier finance departments the tools to close quickly.

Poor organization and coordination cause month-end close drag out — potentially for weeks. Protracted close procedures trap teams in a perpetual cycle of struggling to close the books in one month while falling behind in preparing for the upcoming close. Month-end close is the process of finalizing the books and recording all financial activity at the conclusion of every month.

When you set the year-end in Intuit QuickBooks, the program automatically zeroes out all the income and expense accounts and transfers the balance of net income to Retained Earnings when your fiscal year ends. So it looks like your books are closed for the year, but this isn’t a formal close process. Anyone with access to your QuickBooks file can go in and change something in the previous month or year, and you might not find out until it’s time for your CPA to prepare your tax filing.