Important Accounting Month End Closing Checklist Steps and Best Practices
Accounting month-end closing is one of the most important activities for finance and accounting teams to take care of every month.
A successful month-end close process lays the groundwork for accurate financial reporting and sound decision-making. You must have a solid approach to ensure everything gets detected when performing monthly accounting close operations.
We’ll provide a comprehensive checklist for your month-end closing process and explore ways to customize it for your business needs.
Table of Contents
Understanding the Importance of a Month End Closing Checklist
An efficient month-end close can provide a myriad of benefits for your business. Accurate and timely financial reports allow your accounting department to make informed decisions for management.
A well-structured closing checklist minimizes errors, optimizes productivity, and provides an audit trail for future reference.
Detailed Month End Closing Process
Your month-end closing checklist should include the following key tasks:
Resolve or Carry Over Known Items
Maintaining accurate accounting records is essential for every business, regardless of size or type. And when it comes to the monthly closing process, it’s crucial to carry over or resolve known accounting items from previous months.
Neglecting to include these items in the closing process could lead to inaccurate financial results and create a headache for the accounting department when trying to reconcile accounts.
In the long run, it saves valuable time and effort to backtrack and correct mistakes later. The accounting and finance teams will like you more.
Recording Income and Expenses
Tracking your expenses and income is essential for any business to thrive. However, it’s challenging to maintain every transaction that has taken place throughout the month.
That’s where having a monthly closing checklist comes in handy. This checklist allows you to review and record all your expenses and income in one organized document.
Who knows? There can be valuable insights into your finances, tracking your income and expenses. Reduce unnecessary costs for not using as much as you should or an opportunity to create another income source.
- Sales Revenue
- Interest Income
- Capital Gains
- Recovered Bad Debts
- Miscellaneous Income
- Cost of Goods Sold (COGS)
- Rent Expense
- Utilities Expense
- Advertising Expense
- Office Supplies Expense
Review Journal Entries
Journal entries are records of financial transactions, and errors in these entries can have significant implications for a company’s finances.
Reviewing them to catch errors and omissions and ensure entries are classified correctly is crucial. Without regular review, errors can snowball over time and lead to significant miscalculations, affecting the company’s overall financial health.
Reconcile Bank Accounts
Reconciliation involves matching the cash balance on your company’s books to the corresponding bank statement.
This step ensures that the financial records are accurate and up-to-date. It helps identify any discrepancies and errors in the bank transactions that might have gone unnoticed during the month.
A timely and thorough review of the bank statements can prevent fraudulent or unauthorized transactions, saving a company thousands or millions of dollars.
Confirm Accounts Receivable
Analyze your accounts receivable ledger and ensure all invoiced payments are recorded correctly. This process involves verifying the accuracy of outstanding balances, reconciling accounts, and communicating with customers to ensure timely payment.
Keeping an eye on your accounts receivable can also minimize the risk of bad debt and late payments, giving you insight into potential cash flow issues.
In the business, you’re not running a charity unless non-profit. If customers have mistaken their invoices for optional donations, it may be time to find some who appreciate your services.
Review Accounts Payable Balance
During this process, companies review their outstanding invoices and bills to ensure they are documented and paid promptly.
By carefully examining vendor balances, outstanding invoices, and payments made during the past accounting period, companies can identify any errors or discrepancies that may have occurred and address them.
Consistently reviewing accounts payable can help companies stay on track with their budgets and maintain strong relationships with their vendors.
It also provides an opportunity to optimize cash flow management, such as negotiating payment terms with vendors and prioritizing payments based on their due dates.
Confirm Inventory
If your business holds inventory, perform a count and compare it against the records. This process involves verifying that the company’s physical stock matches the inventory record, ensuring that the numbers add up, and investigating significant inventory changes.
By double-checking and verifying inventory levels, businesses can clearly understand their current stock levels, which can help with forecasting and planning for future inventory needs.
Inventory confirmation is significant for companies that deal with a large volume of products, as any discrepancies could result in financial losses or even lead to more serious issues like fraud.
No inventory on hand? Well, there’s the universe saving you a checkbox on your month-end process.
Petty Cash Fund
As a part of the monthly closing checklist, one important element overlooked is considering the petty cash fund.
Petty cash funds can be a valuable tool for businesses, allowing for small incoming cash for everyday expenses without needing to write a check or go through a formal reimbursement process.
Review Fixed Assets
Fixed assets, such as property and equipment, are long-term assets your company owns and uses to generate revenue. Ensuring these assets are properly accounted for and valued is essential to maintaining accurate financial records.
This assessment involves reviewing the fixed assets value and depreciation schedule, ensuring that all assets are recorded correctly in the ledger, and checking for any unusual activity or changes in value.
Reconcile Payroll
Reconciling payroll confirms that all employee wages, taxes, and benefits are accurately recorded and accounted for in an organization’s financial records.
You want to have financial accuracy and compliance with regulatory requirements. Reviewing pay stubs, accurately recording employee deductions and contributions, and paying payroll taxes. Properly reconciling payroll can prevent costly mistakes and legal complications.
Prepare Monthly Financial Statements
Financial statements are the backbone of any well-run business. They provide insights into a company’s financial health and help identify improvement areas.
It’s important to examine three financial documents that make up financial statements. Review the balance sheet, income statement, and cash flow statement.
By reviewing financial statements as part of your closing checklist, you’re setting yourself up to make informed decisions for the future of your business.
- Balance Sheet – Assets, Liabilities, and Equity
- Income Statement – Revenue and Expenses
- Cash Flow Statement – Cash Inflows and Outflows
FAQs
How Do I Create a Month End Close Checklist?
Creating a month-end close checklist involves several key steps. Start by identifying all the financial tasks necessary for closing, including reconciling bank accounts, reviewing journal entries, managing receivables and payables, checking inventory levels, and preparing financial reports.
Once these tasks are identified, you’ll want to organize them into relevant categories and sequence them to complete them. Some jobs will naturally fall before others. For example, bank reconciliation usually happens before preparing financial statements.
Each task should have a designated responsible person or team, ensuring accountability. Setting due dates for each job will help keep your closing process on track and allow for any potential delays.
Finally, consolidate all this information into your checklist. Use a spreadsheet or dedicated project management software to manage all your accounting data.
After a few cycles of using your checklist, remember to review the process, gather feedback, and refine as needed. Your checklist should be a living document, evolving as your business grows and changes.
What Should Be Included in End of Month Report?
It typically includes the following elements:
Income Statement: This report details your revenues, costs, and expenses for the month, culminating in your net income or loss.
Balance Sheet: A snapshot of your company’s financial condition at the end of the month or specific date, detailing assets, liabilities, and equity.
Cash Flow Statement: This document shows how changes in balance sheet accounts and income affect cash and cash equivalents, detailing the company’s cash inflows and outflows during the month.
Accounts Receivable and Payable: A review of your AR and AP aging reports helps monitor unpaid customer invoices and bills.
Budget vs. Actuals: A comparison of your budgeted vs. actual results will show if you’re on track with your financial planning.
Key Performance Indicators (KPIs): Depending on your industry and company goals, various KPIs like customer acquisition cost, churn rate, or inventory turnover could be included.
Commentary and Analysis: This should summarize and analyze the monthly performance. Highlight any significant changes, trends, or issues that stand out.
If your lender allows a new borrower, they must qualify for the loan based on their income and credit score. Additionally, there can be fees and requirements that may come with the loan transfer, work closely with your lender to understand the process and any potential costs.
Closing Thoughts
After completing your accounting month-end closing, you will have ticked off all the checklist steps and finished! Every ending of a monthly period is a cause to celebrate; this is your moment of success for concluding the detailed tasks associated with the job until next month-end.
The accounting month-end close process helps bring assurance that all transactions are accurately represented, recorded and reported. It is beneficial for you as an accountant or business owner and helps keep expectations clear for any stakeholders involved.
You know all the steps you need to take during a successful month-end close process – review these recommendations and adjust them as needed for each situation. Good luck with month-end closes, take pride in your accomplishments, and most importantly, thank yourself for committing to guaranteeing accuracy in finances!
