month end closing process

Before this can be done, the accounting team must record all recurring and standard journal entries. For many small businesses, performing a formal year-end close may be enough. But fast-growing businesses with ambitious goals may need to establish the cadence of a monthly closing process so that decision-makers have a reliable baseline for future strategy. Your books are closed for the year, but this isn’t a formal close process.

If multiple teams are involved in the monthly closing process, then keeping track of the status of tasks is going to be a significant pain point. HighRadius’ Autonomous Accounting Solution gives real-time visibility into the different financial tasks and ensures activities that involve multiple stakeholders don’t get slowed down. Month-end closing includes many aspects of accounting basics all business owners should know. So follow the list to learn more about reconciling your bank accounts, totaling trial balances, adding adjusting entries, and generating reports and closing entries.

How long should a month end close take?

When reviewing an income statement, it is important to not only review the current month but also to analyze trends on a monthly basis. If costs in a particular category begin to rise, it is easier to assess and control if caught early. Large fluctuations can also be an indicator that specific vendor costs are rising or departments are overspending in certain areas. If an income statement is only reviewed annually, it is harder to identify these fluctuations, and significant amounts will have already been expended. Here are some ways to help your team cycle through the month-end close process efficiently. Closing the books at the end of a particular period is fundamental in accounting.

Standardizing processes ensures accurate and consistent results month after month. The month-end close lets your teams track all your monthly business transactions. It is essential to ensure that your accounting data is as accurate and complete as possible. The month-end close involves your finance and accounting teams collecting, reviewing and reconciling the previous month’s transactions and financial activity.

Step 1: Review Your Accounts

Is your organization meeting the average time-to-close of 6.4 days? Whether your process takes longer or you’re getting your close done in less time, set a goal to shave a day off of the process next month or next quarter. After expenses are closed to Income Summary, the balance in that account is net income for the period.

For example, you might find that you can alter payment terms for your next accounting period. Vena automates time-consuming financial close processes, e.g., data collection, account reconciliation and inter-company real estate bookkeeping transactions. A month-end closing process should generally include the same steps each month. However, manually integrating data from different departments can present new challenges each time.

How to prepare for a smooth month end close process

However, you can cut that down to as little as 5 days if your accounting team has access to automation software. It’s difficult for small business owners to keep track of all of their company’s financial data. You’re trying to stay on top of balance sheet accounts while tracking accounts payable, savings accounts, and so much more. To ensure that happens, your accounting department and finance team need to work together to create a month end close process. In addition to your company’s audit readiness at the end of the month, a checklist also helps you prepare your annual financial statements.

month end closing process

If you do not receive payment, you may turn over the account to a collection agency within a specified time frame. With Versapay’s collaboration tools, accounting staff can also better coordinate how they follow up with customers on past-due invoices and how they apply payments. Accounts receivable is an area finance teams should especially focus on when seeking out improvements to the month end close process.

Perform an Inventory Count

A way to self audit your process is to check for items that should be on the balance sheet, showing up on the P&L statement, and vice versa. Many business owners struggle with the month end closing procedure. It is hard to prioritize the essential tasks that need to get done. Not having a clear procedure will provide inaccurate reporting and tax bills. To simplify and ease confusion, here is our month end closing flow chart with an explanation of each phase of our process. At the end, you can find our complete month end closing checklist.

month end closing process

Tools like SolveXia exist to save time, reduce errors, and make your financial processes run smoothly and easily. The time it takes to perform the account close process varies by organisation. For some, it could take weeks to manually locate all necessary data and spend time transforming it within spreadsheets across computers. Every task in the month end close process should have a responsible party or team.