Month End Closing: Process, Checklist, Challenges, Solutions
Vena automates time-consuming financial close processes, e.g., data collection, account reconciliation and inter-company transactions. In addition to your company’s audit readiness at the end of the month, a checklist also helps you prepare your annual financial statements. Implementing a month-end closing checklist increases efficiency and accuracy, reducing the time, effort and expense involved in preparing for year-end audits.
Using estimates rather than exact calculations can shave hours or even days off the close. In many cases, those estimates are not materially different from the actuals. However, when it’s time to close the fiscal year, the actuals will need to be determined. That means that the year-end close will likely take at least an extra day or two. Thanks to technology, the close has been getting steadily faster, according to surveys by Ventana Research. In 2014, 58% of companies surveyed took seven or more days to close, and 28% needed eleven days or more.
What is the month-end close process?
Unless you have your own accounting department, you’ll have to conduct your month-end closing process on your own. But that’s actually all the more reason to make a month-end close process a regular habit. Start by reviewing your accounts payable records to confirm payments made to lenders, payroll, and suppliers. Reconcile the money you owe to these entities with the money you’re actually paying. Doing so will help you stay current with your monthly debts and avoid penalties for late payments. Each month, you’ll need to reconcile your revenue and expense accounts to ensure accuracy.
Working capital, cash flows, collections opportunities, and other critical metrics depend on timely and accurate processes. Ensure services revenue has been accurately recorded and related payments are reflected properly on the balance sheet. It can become overwhelming unless the accounting team has a well-designed SOP that can be followed. Many efficient accountants have a comprehensive checklist for account closing processes. Finding automation solutions that can transfer data to the accounting system can be a game-changer.
Year End Close
But as we’ll see below, there’s a lot more to closing the books than making just a few journal entries. Emma’s 70-person geographically distributed accounting team improved internal controls and streamlined the audit which transactions affect retained earnings thanks to FloQast. 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.
Beyond that, spreadsheets usually get traded back and forth during close-outs via email, a practice that tends to introduce issues of version control. To analyze the difference between the business’s total liabilities and assets by subtracting the client’s liabilities from their assets. At the end of this step, you will have reconciled the difference in the time of payment or expense for all goods or services by their actual delivery in the general ledger. Check out the advantages that you stand to gain and how automation software can be complementary. Keep all data backed up in the event of a breach or the need to refer back to historical data for forecasting or budgeting.
Accounts Payable: What Is It, Definition, Job Description, Process, and Software
This will help them make decisions about what to do next with their money, such as investing it or paying off debt. The month-end close process is an accounting procedure where all of the previous month’s company transactions are accounted for. This is generally done by your accounting team, which reviews all records, reconciles, and other relevant account information. Accounts receivable is an area finance teams should especially focus on when seeking out improvements to the month end close process.
Test for validity and conduct preliminary walkthroughs with your team to ensure the information makes sense and is consistent across reports. This process involves several steps your team will complete over several days. Plus, accurate monthly reporting makes year-end closing much easier to understand. Chris Rauen has been educating procurement and finance professionals on accounts payable automation and procure-to-pay transformation for more than 20 years. His articles have been featured in Treasury & Risk Management, Supply & Demand Chain Executive, Global Treasurer, Forbes ASAP, and more. In Economics from the University of California, Santa Barbara and a Professional Designation – Marketing from UCLA.
Reconcile accounts payable (AP) and accounts receivable (AR)
Other departments and providers may not understand the need for timely information. That’s why we emphasize a solid flow in closing each month, from when the team begins gathering information to crossing the finish line with the final financial report. Finally, you must officially close the period in your financial system and distribute the financial statement. If you do not have another person you can ask to review your information, double and triple check your own work to ensure the information is accurate. Reviewing statements can help you catch issues early on, like overspending, and prevent problems later on with your books. Find professionals with solid track records (like us!) to handle your finance work.
How to do month end closing entries?
- Collect all financial information.
- Verify and reconcile the data.
- Assess fixed assets.
- Make financial statements.
- Conduct a final review.
In accounts receivable, accruals are used to report revenue (and corresponding accounts receivable) earned during a given month that have not yet had their transactions recorded. Matching the entries in your financial statements with the corresponding entries from vendors, banks, etc. is known as reconciliation. As with Step 1, this part of the month-end close is much more transparent, accurate, and swift if you’ve been recording and tracking spend automatically in your accounting system. You’ll have much less risk of maverick spend or fraud throwing a spanner in the works, too. 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.
What is month end closing?
The month-end close is the collection of financial accounting information, review, and reconciliation of records each month. This is a fiscal reporting requirement for some companies, and helps businesses keep accurate records throughout the year.