The end of the month can feel like a race against time for many finance teams. The pressure to close the books accurately and quickly is immense. A well-organized month-end closure process is more than just a routine; it’s the foundation of reliable financial reporting. It ensures your data is accurate, supports strategic decision-making, and maintains compliance. Without a structured approach, you risk errors, delays, and significant stress.
This guide provides a comprehensive 20-point month end closure checklist to help you streamline your month-end closure. By following these steps, you can transform a chaotic process into a smooth, efficient, and predictable operation. Let’s dive into the essential tasks that will lead to a perfect close.
Pre-Close Preparation
Setting the stage before the month officially ends can save you valuable time. These initial steps focus on organizing and preparing your team and your data.
1. Send Out Reminders
Coordinate with all departments. Send reminders for the submission of all financial documents, such as expense reports, vendor invoices, and timesheets. A clear cut-off date is crucial.
2. Prepare the Closing Schedule
Create and distribute a detailed closing schedule. Assign specific tasks and deadlines to team members. This ensures everyone knows their responsibilities and helps prevent bottlenecks.
Reconciliations and Records
This phase is the core of the month-end close. It involves matching your internal records with external statements to ensure every transaction is accounted for correctly.
3. Reconcile Cash and Bank Accounts
Match the transactions in your accounting system to your bank statements. Investigate and resolve any discrepancies immediately. This includes outstanding checks, deposits in transit, and bank fees.
4. Reconcile Credit Card Statements
Just like bank accounts, every transaction on your company credit card statements must be verified and properly categorized in your general ledger.
5. Review Accounts Receivable (AR)
Analyze your AR aging report. Identify and follow up on any overdue invoices. Make any necessary adjustments for bad debt by creating an allowance for doubtful accounts.
6. Review Accounts Payable (AP)
Examine your AP aging report to ensure all vendor invoices have been recorded. Verify that payments are scheduled correctly to maintain good vendor relationships and manage cash flow.
7. Post All Journal Entries
Ensure all manual journal entries are posted. This includes accruals, deferrals, and any correcting entries identified during the reconciliation process.
Accruals and Deferrals
Properly accounting for revenue and expenses in the period they occur is fundamental to accrual accounting.
8. Record Accrued Expenses
Identify and record any expenses that have been incurred but not yet invoiced. Common examples include employee wages, utilities, and services received near the end of the month.
9. Record Accrued Revenue
Account for any revenue that has been earned but not yet billed to the client. This ensures your income is recognized in the correct period.
10. Manage Prepaid Expenses
Review your prepaid expense accounts. Amortize the portion of the expense that applies to the current month. This could include insurance premiums or annual software subscriptions.
11. Account for Deferred Revenue
If your business receives payment before delivering a service or product, recognize the portion of revenue earned during the month. The remainder stays on the balance sheet as a liability.
Fixed Assets and Inventory
Managing your physical and long-term assets is a key part of financial accuracy.
12. Update Fixed Asset Register
Record any new asset purchases or disposals made during the month. This register should be a complete and current list of all company-owned assets.
13. Calculate and Record Depreciation
Calculate the monthly depreciation for all fixed assets based on their useful life and your company’s depreciation policy. Post the corresponding depreciation expense entry.
14. Conduct an Inventory Count (If Applicable)
If your business holds physical inventory, perform a count or review your perpetual inventory system. Make adjustments for any shrinkage, spoilage, or obsolescence to ensure your inventory valuation is accurate.
Final Review and Reporting
Once the numbers are in place, the next step is to analyze them and prepare the financial statements that tell your company’s story for the month.
15. Perform a Trial Balance Review
Run a trial balance to ensure that total debits equal total credits. This is a critical check to confirm the fundamental balance of your ledger.
16. Conduct a Variance Analysis
Compare the actual financial results for the month against your budget and prior periods. Investigate significant variances to understand the story behind the numbers. Why was revenue higher than expected? What caused that spike in operational costs?
17. Prepare Key Financial Statements
Generate the three core financial statements: the Income Statement, the Balance Sheet, and the Statement of Cash Flows. Ensure they are accurate and presented clearly.
18. Close the Books
Once you are confident in the accuracy of your numbers, formally close the accounting period. This action prevents any further changes from being made to the closed month’s transactions.
Post-Close and Compliance
The work isn’t over just because the books are closed. The final steps involve finalizing reports and looking ahead.
19. Distribute Financial Reports
Share the finalized financial statements and analysis with key stakeholders, such as management, department heads, and investors. This provides them with the insights needed to make informed business decisions.
20. Plan for the Next Month
Review the month-end process itself. What went well? Where were the delays? Document any lessons learned and make adjustments to your process for an even smoother close next month.
Start Streamlining Your Month-End Close
A chaotic month-end process can be a significant drain on your resources and morale. By adopting a systematic approach, you can build a reliable and efficient financial rhythm for your business.
Implement this 20-point checklist to bring structure and clarity to your operations. A smoother, faster, and more accurate month-end close is within your reach. Start today and turn one of the most stressful times of the month into a predictable and successful routine.