The month-end close is an accounting procedure that finalizes and closes out all financial activity for a business for the preceding month. This timeframe represents a well-defined period for accounting purposes. The process involves reviewing, documenting, and reconciling all financial transactions for that period. It is intended to ensure that all transactions have been properly accounted for, which allows the business to close the books on this financial activity and start a new month with a fresh set of records.
The month-end close is an integral process that helps a business provide accurate financial data on a regular basis. Reviewing and reconciling account information for the business on a monthly basis, or some other regular interval, supports business evaluation and forward thinking. It helps catch errors before they become costly and helps evaluate the company’s financial well-being and its progress in meeting performance objectives. The process helps maintain consistency and accuracy within the organization. It supports sound decision-making, strategic planning, and financial investment.
Performing a month-end close helps build confidence in the company’s financial data which is used to prepare its financial statements. The process ensures that the data in those statements is reliable and accurate. It also helps the business prepare for tax filings.
Like all deadlines, the month-end close can be a source of tension for some organizations. However, with proper preparation and systems in place, it is a source of reliable information and a sound business practice.
Here is a month-end close process flowchart to visualize some of the key steps and processes.
The month-end close procedure involves several steps.
To perform a month-end close, the business’s accounting team will review, record, and reconcile all account information to confirm that the data is accurate.
Consistent and regular (daily, if possible) journal entries of all transactions that will impact the financial records will help avoid delays and reduce errors when it is time to perform the month-end close.
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.
With this information in place, the accounting team can perform the month-end close. One of the primary steps of the process is to reconcile subsidiary ledgers with the general ledger.
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.
The accounting team will reconcile cash accounts and balance sheets. They will review revenue and expense accounts. Bank account statements will be reconciled. Finally, the team will prepare financial statements. Once all accounts have been reconciled and statements are produced and reviewed by management, the accounting period is closed, and no further transactions can be recorded for the month.
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 expenses and accounts payable records
Review fixed assets
Inventory count (if necessary)
Collect and review financial documents
Prepare financial statements
Review all information for accuracy
The process may be different for various companies for many reasons. 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 multi-nationals 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
Total fixed assets
Income and expense accounts
A properly and consistently executed month-end close is a fundamental practice for a well-run business operation. It is important for all divisions within the business to adhere to the month-end close process to provide consistency and reliability within the operation. The process supports management review and decision-making, and it reflects the financial status of the company for outside interests, such as investors, lenders, auditors, and tax agencies.
Each company is different, so it’s impossible to say how long your month-end close should take. Surveys and research over the years show the month-end process generally takes between 5-10 days. The amount of time it takes to complete the process will depend on several factors including the size of the company, the volume and complexity of transactions that need to be recorded and reconciled, and the accounting systems that are used. Some activities can be recorded or reconciled more frequently than monthly to help speed up the process at month’s end.
Accounting teams face a lot of pressure to close the books fast because executives use the previous month’s financials to make business decisions for the upcoming months and quarters. Ventana Research notes, “Closing faster has value: 62% of those that close within six days say that the information they provide is timely, while only 39% of those that take longer say that.”
However, closing faster can mean a tradeoff between speed and accuracy. For example, using estimates rather than actuals can shave hours or days off your close, but that means your numbers may not be exact, and when it’s time to close the fiscal year, the actuals will still need to be determined. This may end up adding days to your year-end close.
Extra time spent on the month-end close means less time spent on adding value through analysis and business partnering. Optimizing the month-end close will get financial numbers into the hands of leadership sooner to assist with timely analyses and smarter decision-making. Other reasons to optimize include better discipline, more structure, improved controls, more visibility, and reduced risk.
Some challenges finance and accounting teams encounter when performing a manual close process include:
Team members don’t know what needs to be done and/or what is already completed
Inaccurate or incomplete data
Lack of standardization
Processes that are not clearly defined
Discrepancies between numbers
Delayed reconciliations due to errors, adjustments, and reclassifications
Lack of real-time data that results in little or no visibility and transparency
If you have month-end close challenges, you may want to implement some of these month-end close best practices.
Conduct pre- and post- month-end close team meetings
During pre-close meetings, the team should discuss follow-up items from the previous month’s post-close meeting and determine the current month’s close schedule and timeline. This way everyone is clear on responsibilities and deadlines. You should also determine what staff should do if they run into barriers and how they should communicate any bottlenecks.
In post-close meetings, discuss what worked and what didn’t, and review assigned roles and responsibilities for the next month. Review any lessons learned, any variances or abnormalities, and entertain any proposed changes to the process.
Manage your time, be organized, and communicate efficiently
Understanding deadlines and schedules is critical so you can work toward an ideal close date. Being organized will help you stay on track. In addition, accountants must begin to cultivate strong written communication skills with the ability to think critically. They will also need strong oral communication skill and the ability to convey pertinent financial information to executive teams and stakeholders.
Exceptional accountants know how to manage numbers and people. That requires cultivating a broader range of relationship skills today, such as how to work in a team and how to engage with other departments. If other departments are aware of what you are doing and what you’ll need for each month-end in advance, they may be more willing to contribute the financial data you need on time.
Take advantage of accounting automation
Refocus your teams on analysis by replacing repetitive, spreadsheet-heavy work with leading-practice automation. Centralize data and close activities, automate journal entries and reconciliations, strengthen controls, and enhance visibility.
BlackLine is a leading accounting software platform that has helped thousands of accounting teams make the move to modern accounting. Our solutions unify systems, data, and processes to unlock global visibility, automate repetitive work to focus on what matters most to the business, and deliver continuous real-time information and analysis.
Most importantly, BlackLine enables modern accounting to be achievable.
BlackLine’s cloud solutions address the areas of financial close management, accounting automation, and intercompany governance and can be deployed rapidly, allowing accounting teams to shift their focus to new challenges, provide consistency and control, and work together from anywhere.
Get your complimentary copy of Modernizing Accounting For Dummies to understand the real cost of inefficient month-end close processes and discover how you can eliminate and automate tasks to focus on more strategic work.