The Month End Close Process: A Detailed How-To (+Free Template)
Author: Financial Cents
What is the End Close?
The End Close is a series of review and reconciliation tasks that accountants do to update a company’s financial information for the accounting period, which could be a month, quarter, or year. This keeps your client’s financial transactions of the previous month, quarter, or year from mixing up with those of the next month, quarter, or year.
Back in the day when accounting was done on columnar pages, closing the books meant literally closing the book so that more financial transactions cannot be added without your knowledge.
Today, closing the books means recording all expenses and revenues to get a complete and accurate financial record on the company’s accounting software.
Achieving this on a consistent basis depends on the procedure your team has to work with. That is why the month end close process is such a huge deal.
What Is the Month End Close Process?
The month-end close process is the act of reviewing, recording, and reconciling the monthly transactions of businesses to get up-to-date financial information that helps them make informed decisions, issue accurate financial statements, and comply with government regulations.
The process involves checking receipts, invoices, and other documents to match the client’s income and expenses to their physical records.
Why You Need a Month-End Close Process
In theory, the month end close process is straightforward. But in practice, getting from one stage to another is difficult, especially for clients with large businesses and a distributed workforce.
A standard operating procedure (SOP) will help you stay on top of the process by addressing common challenges like
Disorganized Data Management System
Your client’s financial data might reside in different places—like bank statements, accounting software, enterprise resource planning (ERP) software and spreadsheets.
An effective month-end close process includes a system that collects and organizes data without delay or risk to data accuracy.
Your Month End Close Tasks are Not Defined
Your team members might be clear on what they need to do (internally), but when you have to collaborate with the client’s team, you also need a process what defines what (documents, access to third-party apps) you need from them, when, and how they should do it.
Usually, the client task feature of your work management solution should help you create a list of tasks for your client so your team doesn’t waste valuable time chasing them.
Internally, the task dependency feature in your workflow tool should enable your team members to hand work off to each other without confusion or delay.
Human Errors Resulting From Manual Work
Most Month End Close tasks are manual, repetitive tasks that software solutions do better than humans.
Your month-end process should include ways to automate as many tasks as possible to free your team to focus on the tasks they do best. This keeps your month-end close projects from error and, potentially, missing deadlines.
Having a month-end close process in place ensures that your numbers are accurate and reliable.
Who Needs and Uses a Month-End Close Process?
Business owners need the month-end close to manage their cash flow, reduce the risk of fraud and make informed decisions to grow their firm while accounting and bookkeeping firms need a month-end close process to
Close Their Client’s Books with Confidence
Having a process that streamlines your month-end process improves your team’s ability to work with confidence.
They know what needs to be done and when, so they wouldn’t be confused trying to guess the procedure for doing the work that falls to them.
An accurate month end close process gives clients the financial information to make necessary improvements to their business.
Such clients will want to keep you around for a longer time.
Simplify Client’s Tax Filing
If you also provide tax services to your month end close client, accurate monthly records makes it easier (and faster) for your team to complete their tax returns.
Accurate month ends make completing the year-end quicker and more accurate, thanks to an effective month end process.
Checklist: What A Month End Process Looks Like
The goal of the month end process is one: to make your client’s financial records up-to-date. But each business, each accounting (and bookkeeping) firm decides the list of tasks to check off on their way to achieving this goal.
Here’s a straightforward way to complete your client’s month end close process:
- Collect relevant financial information.
- Make adjusting entries.
- Reconcile card accounts.
- Reconcile loan accounts.
- Verify assets and liability accounts.
- Confirm suspense holding accounts.
- Review equity accounts.
- Uncategorized accounts.
- Verify appropriate balances.
- Prepare financial statements.
- Close books.
- Notify client.
1. Collect Relevant Financial Information
This is where you receive the client’s financial information (receipts, accounts payable, accounts receivable, etc.) from their data management systems, such as enterprise resources planning (ERP) software, accounting software, and bank statements.
2. Make Adjusting Entries
This step helps you to record transactions like prepaid expenses, deferred payments, depreciation, and accrued revenues and expenses.
At the end of this step, you will have reconciled the difference in the time of payment or expense for all goods or services by their actual delivery in the general ledger.
Bear in mind that this only applies to businesses that use the accrual method of accounting.
TIP: Using an accounting software solution to reconcile reversing and recurring entries will make this step much easier (and improve the accuracy of the information in your financial statements).
3. Reconcile Card Accounts
Compare the transactions in credit cards statements to your client’s general ledger to resolve:
- Duplicate charges.
- Charges for failed transactions.
- Refund for canceled payments.
4. Reconcile Loan Accounts
To resolve any difference in the figures on your client’s general ledger and the statement from the lender and or amortization schedule by
- Comparing the interest expense for the loan statement or amortization schedule with the interest expense for the period.
- Comparing your client’s ending balance with the lender’s ending loan balance.
Alternatively, take advantage of a software solution that pulls and harmonizes data between your client’s accounting software and the lender.
5. Verify Assets and Liability Accounts
To prove whether the stated assets and liabilities
- Actually exist.
- Are legally owned.
- Are correctly valued.
- Are free from any charge.
The goal is to show that the value of the assets and liabilities is true as they appear in your client’s balance sheet.
6. Confirm Suspense Holding Accounts
To categorize transactions that have been recorded in suspense holding account because of missing or incorrect details, like
- The source of payment.
- Debits and credits that don’t match during trial balance.
- Partial payment.
- Incomplete payment for a fixed asset.
7. Review Equity Accounts
To analyze the difference between the business’s total liabilities and assets by subtracting the client’s liabilities from their assets.
This helps to verify the financial ownership of the business.
8. Uncategorized Accounts
To categorize transactions that your client was previously not sure about how to classify them when recording them.
9. Verify Appropriate Balances
To match the difference between the client’s opening and closing balance with the corresponding transaction details.
10. Prepare Financial Statements
This is where you prepare the client’s financial statement (balance sheet, income statement, and cash flow statement) with the information you have collected, verified, and reconciled.
11. Close Books
By ending the financial transactions for the month. All revenue and expense accounts must equal zero and the total debit balance must equal the total credit balance.
12. Notify Client
Let the client know that their work is ready. They can review the month-end process for possible mistakes in the monthly financial statements.
Why You Need a Workflow Template for Your Month-Ends
Few accounting procedures need standardizing than the month end close process. The procedure is manual, repetitive, and complicated, which makes defining the steps that go into completing it crucial for your team.
An accounting workflow template saves your team the confusion, errors, and last-minute rush that most accounting and bookkeeping firms struggle with.
When everyone in your firm works with a template that shows them what they need to do at every step, your firm’s month-end projects will consistently satisfy your clients.
But creating one might take the time you would have used for other high-value tasks.
Month Ends Are Faster and More Accurate with Financial Cents Template
Seeing that speed and accuracy are the most critical skills in the month end close process, we have created a free month end close template to streamline your team’s month-end projects.
Download and modify it to your taste to make your month end process smoother, faster, and more consistent.
Use the Month End Close Process and 40+ Free Accounting Workflow Templates on Financial Cents.
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