So, a final review is always done before the closing process is completed. This review is done by the top management or someone who wasn’t involved in the closing process to get a fresh view of all the data once again. It ensures that there aren’t any mistakes in the monthly financial statements. It serves as a mandatory fiscal reporting requirement for certain companies, ensuring compliance with financial regulations and standards. It helps in tax filing, preventing accounting errors, and getting an overall picture of the company’s cash flow scenario.
The month-end close involves your finance and accounting teams collecting, reviewing and reconciling the previous month’s transactions and financial activity. The month-end closing process is a crucial but often admin-heavy and time-consuming part of accounting. Many businesses are turning to accounts receivable (AR) automation to alleviate manual tasks performed by their AR teams.
Once all of these tasks are completed, you’ll be ready to follow the specific instructions for closing the books in QuickBooks, Netsuite, or Sage Intacct. But as we’ll see below, there’s a lot more to closing the books than making just a few journal entries. The flowchart below provides a visual overview of the month-end close process and the key activities that take place in each step.
- The month-end close process involves accounting teams collecting, reviewing, and conforming transactions and financial activity from the previous month.
- The month-end closing process is a crucial but often admin-heavy and time-consuming part of accounting.
- Your accounting team reviews, records, and reconciles all relevant account information.
- Explore the future of accounting over a cup of coffee with our curated collection of white papers and ebooks written to help you consider how you will transform your people, process, and technology.
- The process involves checking receipts, invoices, and other documents to match the client’s income and expenses to their physical records.
The workflow should cover the entire process, from ensuring customer payments before the closing date to flux analysis and delivery. The calendar serves as a timeline for confirmations and setting budget expectations, which can be accounted for as you approach your month-end close or forecast future closes. The entries in your financial statements must match the entries from bankers, vendors, and other entities. You can’t know the answer if you’re not tracking your accounts payable balance.
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This results in difficult and time-consuming corrections and additional reporting to research issues, adding to the complexity of the closing process. The month end close process ensures you have information about your company’s financial standing. It’s crucial for helping you make short-term decisions, in addition to helping you work towards long-term goals. Plus, having accurate monthly reports makes your year-end close much simpler. Recurring entries are commonly used in the SAP month end closing process to post deferred expenses, or prepaids. Let’s assume that in January, a company has received an invoice of 3000 EUR for rental costs for the first quarter (January, February and March).
- An automation tool can do this for you and flag you if there’s anything mismatching.
- Communicate your plans to other team members involved in the month end closing process to get everyone on board.
- Complete an inventory count and check the numbers against what you have in your books.
- They will also need strong oral communication skill and the ability to convey pertinent financial information to executive teams and stakeholders.
This is what frees their time to not only close faster, but contribute to larger conversations around strategic business goals. These are some common ways to use SaaS accounting software, financial close software, and other tools to automate aspects of your month-end close process. Your accounting and finance teams know the rhythm of the business, such as when vendors pay invoices and when your company pays their expenses (like software bills and salaries). Lean on these teams to set the timeline for overall review, including checking automated figures.
Combine the Parts of Accounting
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. Whatever accounting system you use, the following checklist covers most of the tasks that need to be completed before you can close the books. A month-end close template — like the one found here — can get you started on developing the best process for your organization.
While reviewers are noted throughout the process, Vasco schedules an overall review of the report around Day Six to account for any potential inaccuracies. Your month end close process should include recording incoming cash, checking your AR records, and reconciling all accounts, including petty cash. Track all your business transactions, guarantee accurate records, and mitigate fraud risks to ensure financial well-being of your organization. The first step in the month-end closing process is to collect all the relevant financial information.
All of this will help you avoid misunderstandings, clarify issues, and identify and counteract pitfalls early on. Delegate all tasks and responsibilities to the appropriate team members to evenly distribute the workload – and so that everyone on the team knows what needs to be done and by when. Most importantly, BlackLine enables modern accounting to be achievable.
How can you optimize month-end closing with AR automation?
The same can be said about your business’ finances, hence why the month end closing process is exactly that – monthly. While the month-end closing checklist can feel like a lot to manage every couple of weeks, automation solutions can help to ease the burden and speed up the month-end close timeline. The month-end closing process helps ensure that all revenue and expenses are properly accounted for and that financial statements are accurate.
Therefore, accurately closing your accounts at the end of each month is critical for producing reliable financial statements. Month-end close allows a company to properly record and account for all transactions that have occurred during the month and to precisely reflect the financial situation and performance. 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. Business decisions cannot be made without accurate financial statements. And, accurate financial statements cannot be procured without a timely and repeatable month end close process.
What are Month End Pitfalls and Challenges?
Businesses that wait till the end of the year to prepare their financial reports are likely to find it a tedious and daunting task. To ease the process, most businesses prepare financial statements in monthly reports to get an ongoing view of their financial KPIs and make the year-end process smoother. Once the general ledger has been updated, the next step is to prepare the financial statements, which can be done either with compiled data in a spreadsheet or automation tools. Topics covered in these documents are typically a summary of the general ledger, profit and loss statements, and balance sheets.
Perform pre-consolidation, group-level analysis in real-time with efficient, end-to-end transparency and traceability. Reduce risk and save time by automating workflows to provide more timely insights. An accounting workflow template saves your team the confusion, errors, and last-minute rush that most accounting and bookkeeping firms struggle with. Bear in mind that this only applies to businesses that use the accrual method of accounting. Accurate month ends make completing the year-end quicker and more accurate, thanks to an effective month end process.
The process involves checking receipts, invoices, and other documents to match the client’s income and expenses to their physical records. Missing or incorrectly entered transactions can cause all sorts of problems, resulting in costly delays or inaccurate data. Additionally, tracking down various invoices or receipts needed to prepare account statements can be an extra challenge during month-end close. After all the stages have been accomplished, your month-end closing process is finished and you can officially close the period.
For example, if you’re working with a freelancer who doesn’t submit their invoice prior to the cut-off, they’ll typically have to wait for the next billing cycle to be paid. Templates and checklists for every step in the process might sound incredibly taxing, but they can shave entire days off your month-end close process. Financial reports and statements are incredibly important for providing an accurate view of the company’s financial data and informing future strategies.
Back up your data using a reliable cloud-based system that can be stored securely. The key benefit to using templates within your financial close is that they standardize operations. Creating a standard operating procedure is proven to improve the speed and accuracy of your month-end process. As discussed, making your accounting at the end of the month more efficient will not only give an accurate insight into the financial state of your company, but also prevent future mistakes.
Surveys and research over the years show the month-end process generally takes between 5-10 days. Some activities can be recorded or reconciled more frequently than monthly to help speed up the process at month’s end. Today, closing the books means recording all expenses and revenues to get a complete and accurate financial record on the company’s accounting software. In your accounting unadjusted trial balance example, purpose, preparation, errors software, make all additional entries for vendor prepayments, estimated expenses due, change in equity, depreciation, amortization and loan interest. You need to adjust properly, otherwise your starting balance for the next period will be off. 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.