4 Reasons Why Your Month End Close Process Is Inefficient

Accountants typically use the double-entry accounting method to record transactions such that for every debit entry, there must be a corresponding credit entry of the same account. Now that you have this checklist, you’ll never worry about forgetting a step during your month-end close again. Proper bookkeeping gives a company or business trustworthy information regarding their progress. Therefore, even before having a big team and many employees, it is essential to invest in keeping records of everything. Efficient month-end closes are the foundation for strong board reporting and insightful flux analysis.

Finally, you must officially close the period in your financial system and distribute the financial statement. It’s generally best to start with bank accounts, but it’s most important to implement a reconciliation system that works for you. Double-check your reports once more and then deliver them to the executive teams for reviewing and analysis. Review all month-end accruals and track coverage for the next month. Plus, accurate monthly reporting makes year-end closing much easier to understand.

Invoice Cycle Time: What Is It and How To Improve It

In fact, depending on your company’s size and business cadence, you may need to close the books weekly or even daily. During this period, you must balance the account and check if all transactions have been recorded in the right amounts. The month-end https://www.apzomedia.com/bookkeeping-startups-perfect-way-boost-financial-planning/ 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.

• Of all the processes the finance team covers, the month end close process especially deserves your attention.
• You’ll have much less risk of maverick spend or fraud throwing a spanner in the works, too.
• When you set the year-end in Intuit QuickBooks, the program automatically zeroes out all the income and expense accounts and transfers the balance of net income to Retained Earnings when your fiscal year ends.
• Rather than spending time creating or updating yet another spreadsheet, your team can devote their efforts to higher-value-add activities within the organization.
• Consistent and regular (daily, if possible) journal entries of all transactions that will impact the financial records will help avoid delays and reduce errors when it is time to perform the month-end close.

However, all companies share the same goals in that they must verify account balances, identify and fix any budget inconsistencies, and create a number of financial statements. You need to review the general ledger and the financial statements to try and spot any errors. In case any errors remain, you cannot create journal entries after closing the book. So, adjustment entries for any errors have to be done before you close. You must carry out the closing process for all the months at the year’s end, which would be challenging and take a lot of time. Another worrying scenario is that trying to finish the reports quickly could lead to errors.

Where Accounts Payable Fits Into the Month-End Close Process

Also, it helps prevent mistakes or omissions and provides information for monitoring future performance and making decisions about how well your company is doing financially. The month-end close process helps you to balance books, checks cash, and bank account and prepares financial statements. The month-end closing process is an important part of accounting because it ensures that all transactions have been recorded accurately so that your financial statements are accurate. This will help you make decisions by having accurate information about the business’s performance during that time period. The accounting team will reconcile cash accounts and balance sheets.

• Even once your accounting team has aggregated that data, chances are they’ll still have to format it, find and fix any errors, and fill in any missing information.
• But keep in mind that each general task will have many individual steps under it.
• The process supports management review and decision-making, and it reflects the financial status of the company for outside interests, such as investors, lenders, auditors, and tax agencies.
• Even small mistakes in financial statements can lead to big problems when the information rolls into planning.
• If you want your month-end closing to happen effectively, you need a month end close checklist.

An Accounting “Review” refers to the procedures involved in examining the financial statement balances at any given period to ascertain their accuracy. Because of this interdependence, the accuracy of the income statement is dependent upon the accuracy of the balance sheet. Although, the impact of the actual transaction differs if your are using cash accounting or accrual accounting. Finance and accounting need to find any and all opportunities to automate tasks in the monthly closing process.

A More Refined Approach To Accounting

Collectively, you can use these documents to create a trial balance. A few simple steps can have a profound and positive impact on your business. If the process takes too long, you need a method for improving the efficiency of the month-end closing process. Not having access to bookkeeping for startups information when needed makes it difficult to make decisions and plan for the future. A thorough review allows you to feel confident in your month-end close. If you find any errors or areas of concern—such as overspending within a specific department—address them right away.

The frustration is further exacerbated by the high number of interdependencies to take into account. Some tasks need to be scheduled according to a date or time or need to be triggered by dependencies. Thanks to automation, there will be no need to constantly monitor each task and notify responsible individuals of the next steps. On top of a laid out plan and a checklist, let’s go over some best practices to make this essential business process as smooth as it can be.

What Is the Month-End Close?

The bank reconciliation process is the same as the accounting reconciliation process. You must compare your bank statements to your general ledger, which means checking that all of your transactions are accounted for and reconciled. It’s important to do this because it allows you to ensure that there aren’t any errors in your accounts or on your bank statement before they are reported in month-end reports.