But a more streamlined month-end close process leads to fewer mistakes across your entire accounting procedure. Creating a view of where your money comes and goes each month enables you to build a clear picture of your overall business spending. Month-end close highlights where spending is not particularly necessary and helps you to optimize the company’s expenditure. The most important closing period comes at the end of the financial year. In 2017, the average accountancy team reported that month-end close takes more than 8 days. The goal is to show that the value of the assets and liabilities is true as they appear in your client’s balance sheet.
The monthly closing process, as a result, takes more time and resources because the books won’t reconcile. With all the data in hand, it’s time to cross-check and perform account reconciliation to verify accuracy. Account reconciliation compares internal documents with external statements to ensure each line item matches up. As already mentioned, the month-end closing generally includes the recording, review and reconciliation of all relevant financial accounting data. However, as different as companies are, so are the requirements for a monthly closing.
- If any pending transactions are unaccounted for, such as unpaid money owed to the company for the month, all of those transactions need to be completed before the month can officially close.
- Since month-end closing is a routine activity, every time you encounter a roadblock or problem, note it down and try to address it effectively.
- 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.
- Most organizations take around 5-10 working days to complete the month-end close.
- Your quarterly and annual reports are the most important, but usually you’ll also do a month end close.
Taking it a step further, data visualization tools like Power Bi can be another potential game-changing technology for your month-end financial close, and not just for journal entry analysis. This business intelligence platform lets you visualize and interact with your data in real time through intuitive dashboards and reports. Thus, thanks to its user-friendly interface and powerful analytical capabilities, you can quickly identify bottlenecks, track KPIs, and monitor progress toward your closing day target. Invest in cutting-edge accounting software to automate routine tasks such as data entry, journal entries, and the preparation of financial statements.
AP & FINANCE
It also helps reduce errors and makes sharing of the financial statements easier. Now that you have all the information in place and have verified them, it’s time to prepare your financial statements. These include the balance sheet, income statement, and cash flow statement. Make sure the entries are recorded correctly and that there are no discrepancies between the financial statements. It serves as a mandatory fiscal reporting requirement for certain companies, ensuring compliance with financial regulations and standards.
Email your stakeholders for any pertinent information needed to contextualize the close process. Taking these easy steps in advance saves finance teams hours of research and corrections. Streamlining the process also means teams can address any issues early in the closing process rather than waiting until after all data has been posted. An effective closing process ensures that sales transactions are recorded accurately and on time, which allows businesses to better understand their current cash flow position. To ensure that happens, your accounting department and finance team need to work together to create a month end close process.
What are Month End Process Best Practices?
The month-end closing process is critical to any business but can be very time-consuming. Never underestimate the significance of monthly closing and the importance of a month-close checklist. However, just because your peers are closing faster, you shouldn’t rush your month-end close. A better approach would be to steadily optimize your month-end process in a way that keeps errors at bay while reducing the close time. After collecting all the data, it needs to be cross-checked with receipts, bank statements, and other sources of information that the business might have.
Throughout the month, the accounting department spends the majority of its time recording financial transactions, posting payments, and paying bills. To cover all your tracks and the necessary steps that are part of the month-end close, here’s a checklist that you can keep handy. It makes it easy to either review each month and/or to set up an automated process that will cover average cost method formula + calculator each task for you. Since the month end closing moves through multiple steps, and is more likely than not to include different responsible parties, it can get hard to manage from a high-level. With an automation solution deployed, visibility is made easy as the system tracks every step of the process and can alert the responsible party should an action item be needed.
Why Is Month-End Closing Important?
These errors may be legitimate or an attempt to cover up fraud or theft. A month-end checklist helps accountants remember what they might otherwise skip. You could also look at investing in automation solutions that support data aggregation and segmentation. HighRadius’ Autonomous Accounting Solution provides financial close automation which offers project templates, close task management, and accounting anomaly detection. There are lots of ways you can define your “month” for accounting purposes.
The Month-End Closing of Accounts Payable
Streamlining the process better prepares you in case of an audit, and for when tax season eventually rolls around (far too soon, might I add!). Larger pieces of machinery, technology, and other assets are sometimes translated to cash in your ledger. This is due to the depreciation and amortization process, which means that the value of these assets drops over time.
One of the first steps in a systematized close process should be tying up the month’s loose ends. When preparing to close, contact department heads to check on budget adherence, unexpected expenditures, anticipated last-minute sales, and more. Verify anticipated vendor payments to ensure receivables will arrive on time.
Financial Cents
Your accounting team reviews, records, and reconciles all relevant account information. It spots any irregularities or issues and helps to ensure compliance with financial reporting standards and regulations. The month-end closing process is an essential part of the accounting cycle and helps to ensure the integrity and reliability of a company’s financial information.
Automation solutions simplify this by offering visibility into the process at every step. Define your ideal time frame for each task and set deadlines for the account close process. This way, every person with a defined role in the process is aware of what needs to be done and by when. After hearing a month end process flowchart provides for your organisation, you’re likely wanting to create your own. Although it can be time-consuming and stressful, there are a few things that you can do to make the process run more smoothly. Once the month-end close process is complete, you can provide accurate and up-to-date financial information to your shareholders and credit managers.
