Month End Close

A Hallmark in Consistent, Accurate Financial Statements and Processes

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Review, record and reconcile all financial accounting information each month

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Month-End Close

To help sustain and prevent your business from experiencing any financial issues, every business should have its finance and accountant team perform a month-end close process. The month-end or monthly close is generally time-consuming but is a hallmark of any business in presenting consistent and precise financial statements.

What is the month-end close?

A month-end close is an accounting procedure that ensures all financial transactions have been accounted for in the previous month. To ensure that they are giving accurate data, accountants will have to review, record, and reconcile all account information.

Though each company has its own predetermined set of activities and closing operations for its, there are some uniform functions to be performed, including:

  • closing the accounting period on the business software or system
  • recording un-entered invoices
  • reconciling bank or credit cards
  • insurance and mortgage entries
  • reconciling any discrepancies in the inventory
  • comparing the budget and the actual expenditure
  • analyzing the data and preparing reports for the management and investors

Monthly Close Information

Before completing the monthly close procedures, the following information has to be collected:

  • Total Revenue

  • Bank Account Information

  • Inventory Data

  • Amount of Petty Cash Fund

  • Financial Statements

  • Balance Sheets

  • Total Fixed Assets

  • Sum of Income and Expenses

  • General Ledger Data

Month-End Close Process

The month-end close process is a complicated procedure wherein you need to gather, analyze, reconcile, and adjust data from various systems. The complexity of the process in part lies in the collaboration needed in different functions to promptly complete their tasks.

During this period, you must balance the account and check if all transactions have been recorded in the right amounts. The month-end process is essential because it is a way of separating the current period to the next. This way, you can follow the matching principle, which requires that expenses, along with the total revenue, are recorded and recognized in the same period.

There are instances wherein some expenses may be paid out after the period that they are in, and it is the accountant’s responsibility to accrue for those. For example, if a company pays its sales commissions the month after they’ve earned it, the commissions need to be counted as commissions payable at the end of the month that the sales happened on an accrual basis.

If you follow the pre-ASC 606 revenue recognition standards, those commissions would be considered expensed as they are incurred. However, with the new rules, those commissions will gradually be paid off over the duration of the contract with the client.

For companies that have subsidiaries or international operations, they will have to consolidate the activities from the separate aspects of the business without including intercompany deals. In the end, only transactions made with companies or individuals outside the company will be reflected.

There is so much work to get done, but with advanced technology, accountants may work faster by starting on some of the tasks before the period concludes. Doing so will lessen the work that you have to do once the period ends.

Other than the sizable amount of work to do, managing the process and data make this procedure even more challenging. The number of reconciliations to finish, checklists to complete, documents to gather, and schedules to meet are substantial. Throughout the process, it will be difficult to see what’s finished or whether there are still adjustments to be made.

Your goal must be to reconcile as many accounts as you can each month. Those with high-risk accounts do so even more frequently. These are accounts that deal with high volumes of transactions, making them susceptible to being off by a notable amount. Some companies may also reconcile cash daily.

Best Practices for Month-End Close

It is incredibly challenging for one to ensure that all the figures in the report are accurate while working fast to meet the deadline. However, there are some ways that you can improve the result of your close process.

Accuracy

More important than closing fast
Deadlines, are, of course, important. So too is receiving correct data. You have until ten days after month end to present your close information.

Time Management

Manage well and be organized
To meet your deadlines, you need to learn how to work efficiently. Setting daily and weekly goals for the team are advisable.

Know People

Know people in other departments
Accountants need to learn how the business runs and the people who are running varied functions.

Relationships Matter

Cultivate them
By building relationships with people across the enterprise and understanding how they are gathering and disseminating the information you receive from them, you’ll know the value and accuracy of their numbers.

Month-End Close Checklist

Cash
Reconcile bank accounts and confirm if the bank balance on the reconciliation corresponds to the actual bank statement balance.
Check if cash on trial balance is the same as the ending cash balance on the bank reconciliation.
Go through all outstanding checks and deposits that may need to be adjusted.
Undeposited Funds
Balance in the account must be reconciled to particular check deposits clearing in the next month.
Check if all undeposited funds from the previous month have cleared in the current month.
Accounts Receivable
Check if the total of the accounts receivable aging report agrees with the balance on the trial balance.
Find out if there are any past due balances that you need to write off.
Review if there are any unapplied credits in the accounts receivable.
Inventory
Compare total inventory to trial balance. Make necessary preparations and adjustments.
Find out if there are any obsolete inventory that you need to write off.
Fixed Assets
Identify all fixed asset additions and disposals
Reconcile depreciation schedule cost and accumulated depreciation totals to balance sheet account balances
Check if depreciation expense was properly documented
Reconcile Intercompany Accounts
Check if intercompany payables and receivables have the same data in each entity’s books.
Prepaid Expense
Check if balance corresponds to a supporting schedule and can be traced to transactions paid in advance.
Find out if the amount of monthly expenses is reasonable
Notes Receivable
Check if ending account balance agrees with the related loan amortization schedule.
Accounts Payable
Check if the total of accounts payable aging report is the same as the balance on the trial balance.
Review if there are any unapplied credits on accounts payable aging.
Accrued Payroll and Vacation
Trace account balance to supporting payroll data for vacation payable and payroll accrual for the period.
Specify the correct amount of days’ pay in accrual when you calculate liability.
Accrued Property Tax
Check if monthly accrual is 1/12 of the previous year’s expense.
Accrued Sales Tax
Balance in liability account agrees to sales tax reports for the following month.
Accrued Payroll Tax
Locate the payroll tax returns arranged for the coming month and tax payments made the following month for an existing month payroll.
Other Payroll Liabilities
Ascertain that balances in the concerned account accord with liabilities or withholdings that are not settled by payment by the end of the month.
Notes Payable Bank
Settle bank balance to book balance within the note account with amortization schedules or statements acquired from the bank or another lender.
Conclude whether or not monthly interest expense has been properly documented.
Equity
Confirm that the personal expenses of the owner are documented properly in the drawing or receivable account.
Confirm that the earnings that are retained or capital conform to balances on prior year tax return.
Expenses
Repairs – Inquire for expenditures which should be capitalized instead of expensed.
Supplies – Inquire for expenditures which should be capitalized.
Miscellaneous expense – this amount is to be made at the minimum; inquire for items which can be categorized to another account.
Miscellaneous income – recheck entries to confirm that no changes are required, such as the reclassification to another account.
Examine general ledger to confirm the correctness of the entry classification in other accounts.

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