While there’s a certain level of predictability in expenses and transactional activity, each month may come with new wrinkles to account for. Accounting software is a crucial part of your financial close process. It’s how you keep track of all your numbers and make sure they’re accurate, after all. But if you use accounting software that doesn’t integrate with the financial close software you use, then it’s going to be more difficult to get through the entire process smoothly.
Your books are closed for the year, but this isn’t a formal close process. Anyone with access to your QuickBooks file can go in and change something in the previous month or year, and you might not find out until it’s time for your CPA to prepare your tax filing. For many accounting teams, controllers, and CFOs, the month-end close involves long hours and added stress. After all, day-to-day responsibilities don’t get put on pause during the close — you’re expected to handle both. Your accounts payable only captures short-term payables to creditors.
Automate Accounts Payable With Bill.com + Xero
That way, you can keep your accounts payable in tip-top shape for your monthly close. 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. We will talk more about automation in the accounting space and the month end closing process specifically later.
What are the 4 steps in the closing process?
- Close revenue accounts to Income Summary. Income Summary is a temporary account used during the closing process.
- Close expense accounts to Income Summary.
- Close Income Summary to Retained Earnings.
- Close dividends to Retained Earnings.
Make time to review any critical matters, such as cash flow issues, weekly. Record all purchases, improvements, and sales of fixed assets. Routinely monitoring inventory levels will help you manage your working capital efficiently. If you overstock, you’ll trap money unnecessarily in inventory and risk wastage.
Perform an Inventory Count
Without appropriate support to streamline month end workflows, your team can feel frustrated, stressed, and dissatisfied. And working in this environment only leads to more errors and missed https://kelleysbookkeeping.com/ deadlines. If you don’t establish these lanes for your team members at the outset, they might get confused about what tasks they need to do and end up repeating work unnecessarily.
- Check to see if you recorded your expenses in the correct accounts for the period.
- By clear communication, setting aside enough time, and celebrating successes, you can help to make the month-end close process a positive experience for everyone involved.
- A profit-and-loss (P&L) statement (also called an “income statement”) is a document that shows all of your revenues and expenses for the month or accounting period.
- Check out our most recent webinars dedicated to modern accounting.
- Whether you are deploying for the first time or creating a sustainable education program for maximum value creation, explore how you can take the next steps to upskill your users.
Not surprisingly, more and more companies are using some sort of automation tool in their account closing process. Manual accounting tasks, when performed under time crunch and stress, can become error-prone. A human being is likely to make 10 errors in every 100 steps when performing redundant work. Manual accounting closure requires considerable human capital.
Month End Close Process: Importance, Checklist & Best Practices
All fixed assets that a business might have, like equipment, technology, storage, housing, vehicles, etc., need to be assessed. It is also essential to consider that these assets depreciate, and the depreciation amount needs to be categorized under expenses. After https://kelleysbookkeeping.com/ collecting all the data, it needs to be cross-checked with receipts, bank statements, and other sources of information that the business might have. It is important to note that the month-end close is an official process to finalize the balance sheet numbers.
- Closing your books every month won’t prevent a tax audit outright, but going through the end-of-month accounting process can make an audit easier to manage.
- 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.
- Our theme for the month end close is “how do we know that X really happened?
- That means they have to know who’s responsible for what so they can always talk to the right people.
- Workflow automation software tool that helps you manage month-end close processes.
- The month end close process involves the recording, review, and reporting of the financial transactions that have happened in the period since the last close in the previous month.
You can tweak the calendar as time goes on to fit it around your schedule. Organizing the statements is just as important so that you aren’t scrambling to find them in the last few days of the month. Most forms of accounting software have features built-in for this purpose.
Month-End Close Process Checklist: How to Get Through Your Financial Close Efficiently
Once you’ve prepared your financial reports, show them to a CPA. They can analyze your numbers and give you insights to make good business decisions. If you’re fighting for time, aim to catch up with your reconciliation ahead of the month end close process. But accounting for every transaction is key to avoiding discrepancies in your financial data. Let’s say your company has earned $200,000 in revenue this month, in the form of customer purchases.