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Virtual Close

What Is Virtual Close?

Virtual close refers to a fully automated and completely integrated digital accounting system that enables a business to produce accurate financial statements at any time.

Closing the books is an accounting expression that describes the process of finalizing all accounting reports to produce financial statements about the business.

This process is done typically on a scheduled basis, often monthly, quarterly, and annually.

It takes most businesses several day or even weeks to close their books.

The process involves a number of steps that are designed to ensure the accuracy of the information contained in the reports. For example, account reconciliation—the process of verifying data about transactions in the business—is performed on all relevant account reports.

Examples include payroll reconciliation, bank statement reconciliation, and petty cash reconciliation, among others. These are time consuming and labor-intensive processes.

In today’s digital environment, much of this can be done with the aid of computer software, which greatly reduces the time spent performing these tasks. It also increases the accuracy of the information. However, not every step in the process is digitized, and businesses are still learning how to integrate digital platforms into their accounting systems.

Data is not always consistent or reliable, different programs are used by different accounts within the same business, and manual intervention at key junctures of the process is still required.

By adopting a virtual close, a business has taken the next steps of accounting automation. It has integrated a completely digital approach. All internal processes are operating on the same accounting platform, using the same data entry parameters, and following the same reporting protocols.

In other words, all aspects of the overall accounting system for the business are speaking to each other, in the same language and at the same time. This gives the business the ability to monitor all aspects of its accounting and finances in real-time and to effectively close the books at any time.

How Is Virtual Close Implemented?

A virtual close requires a significant investment for the business. It involves a structural change to its information technology systems, which itself is built on many steps of implementation.

A business will need to adopt an enterprise resource planning (ERP) platform. ERP describes an integrated management approach to business processes, usually involving technology. It often includes a suite of integrated software applications.

This allows the business to manage its operations in a holistic manner by facilitating a standardized, across-the-board method for collecting, storing, managing, and interpreting the data that is generated by its many different activities.

Having an ERP platform will make it easier for the business to implement a centralized accounting process. Large businesses, in particular, will have many programs and divisions. When their accounting programs, schedules, and data entry and reporting practices are not aligned, it creates more steps in the final stage of reconciling and funneling data into the closing reports.

It also increases the possibility of errors and discrepancies. On the other hand, having a centralized system that all units follow in the same manner increases uniformity and efficiency. It rapidly speeds up the process, makes the business nimbler, and enables it to operate at a more sophisticated level of accounting.

At the granular level, to support these broader objectives, all transactions in the business should be recorded following a master standard of data entry protocols. Following the same guidelines for inputting information into the business’s accounting records will reduce errors and discrepancies, increase the quality of the data, and rapidly speed up the process.

To support this consistent data entry, the business should also digitize and electronically collect all transactional information. This includes invoices, purchase orders, and all other types of transactional documents. This will facilitate the input of information contained on these documents into the centralized data-based system.

Finally, other changes can also be implemented. Automated workflows, online transaction portals, increased automation of manual processes, and reduction of red tape within the business all contribute to a more streamlined and holistic digital process which allows the business to conduct a virtual close.

FAQ

What Are the Advantages of Virtual Close?

A virtual close can benefit the business in many different ways. Implementing the systems upgrades and procedural adjustments that support the virtual close will greatly enhance accounting systems.

Collectively, they will lead to more synchronized and efficient interactions between departments, reduced processing times, and higher quality reporting.

The ultimate benefit of virtual close is that the business can perform continuous monitoring of financial data and literally close the books on demand, not just at the end of a reporting period. This dramatically improves management’s ability to gather critical information about the business and to make important decisions when needed.

What Are the Disadvantages of Virtual Close?

There are some disadvantages to a virtual close. It requires a significant investment for the business, financial and otherwise. Transforming a business’s accounting and information systems can be very expensive, especially for a larger company.

It also requires an investment of staff time and a commitment to make a cultural change in the way information is gathered, inputted, and stored.

This demands that all relevant personnel in the business are committed to making the changes necessary to achieve the virtual close.

Transitioning to a virtual close can also pose some challenges with outside sources. Vendors, customers, and other businesses may not operate on the same virtual platforms and will be unfamiliar with the processes implemented by the business to achieve the virtual close.