Month-End Close

The month-end close is an accounting procedure that finalizes all financial activities for a business for the previous month. This process marks the end of a defined accounting period.

The process involves reviewing, documenting, and reconciling all transactions. It ensures that all transactions are properly accounted for, allowing the business to close the books and start a new period with fresh records.

The monthly close process is an integral function that helps a business provide accurate financial data on a regular basis. Reviewing and reconciling account information supports business evaluation and strategic planning. It helps catch errors before they become costly and helps evaluate the company’s financial well-being.

Performing a month-end close builds confidence in the financial data used to prepare financial statements and supports sound business decisions.

Here is a month-end close process flowchart to visualize some of the key steps and processes.

The close process involves several steps. The accounting team reviews, records, and reconciles all account information to confirm accuracy. Using account reconciliation software can streamline this process, reducing errors and saving time. Consistent journal entries of all transactions impacting financial records help avoid delays. All departments should follow similar procedures and utilize a sound basis of accounting, such as Generally Accepted Accounting Principles (GAAP), to maintain consistency.

One of the primary steps is to reconcile subsidiary ledgers with the general ledger. Recurring monthly transactions must be recorded, including accrued expenses, amortization, and depreciation.

The team reconciles cash accounts and the balance sheet. They review income and expenses. Finally, they prepare financial statements. Once all accounts are reconciled and reviewed, the accounting period is closed.

All companies are different but there are some common steps in closing the month-end books including:

• Record all incoming cash and accounts receivable

• Review accounts payable and expense records

• Reconcile accounts

• Review fixed assets

• Conduct an inventory count

• Collect and review financial documents

• Prepare financial statements

• Review all information for accuracy

The process will vary depending on your organization’s needs. Businesses that sell physical products will have the extra steps of tracking inventory while companies that are service-focused will not. Smaller companies may have fewer accounts while multinationals will have hundreds or thousands.

Here is a list of common information accounting teams need to have on hand to close the monthly books:

• Total revenue numbers

• Bank account information

• Inventory levels (if applicable)

• Petty cash total

• Financial statements

• Balance sheets

• Total fixed assets

• Income and expense accounts

• General ledger