10 Steps for a Faster and Accurate Month End Close Process
You are not alone if the month end close process is part of running an accounting firm that gives you the willies. Though the month end close process is essential for the business, we are not entirely sold on it yet, but we are willing to explore it further. It's because the month end close process takes quite a while. But if you want to maintain the accuracy and consistency of your financial data, it is essential. If you know how to carry out this procedure in an orderly manner, it can be sped up.
What is the month-end close process?
The recording, reconciliation, review, and finalization of the previous month's financial data are all steps in the month end close process. It will be fair to claim that the accountants and bookkeepers are preoccupied at this time of the month.
Different businesses may have a different way of execution for closing out the month. Here are some of the components of the accounting firm's month end close process, though.
- Track all unentered invoices
- Get bank, credit card, and loan statements
- Account recociliation
- Accounts receivable and accounts payable
- All inventory count
- Compare actual spending and the company's budget.
- Fixed assets
- Mortgage and insurance entries
- Track accruals and prepayments
- General ledger entries
- Financial reporting
- Close the accounting period in the accounting software
The accounting team's ultimate objective during the month end close process is to produce accurate financial data so you can defend your business against financial difficulties.
Importance of the month-end close process
The month end close process is essential for every business, whether it is a small or large accounting firm. You can keep track of every transaction your company makes throughout the month by executing the month end close process. It makes it simple to identify any fraud or inconsistency with the company's account.
Additionally, if the month close process is performed consistently, the year end close process is made considerably more straightforward. Because you don't have to rush during the busy year end season.
Here are some of the major benefits of month end close process
- You can find discrepancies in your books
- Generate accurate financial data
- Make better business decisions
- Terminate potential fraud
- Save valuable time on tax filing
- Have a stress free year end close process
- Hassle-free IRS audit process
- Make tax-filing easier
- It highlights the areas of improvement
- Develops the practice of organized workflow
10 Steps to streamline your Month End Close Process
You must adhere to a month end close checklist in order to organize and make your month end close process super simple. Complete your month end close process accurately and quickly by following the month-end close timeline mentioned below.
1. Record monthly income and expenses
Verify that you have recorded all of the income received from each source of income during the month and recognize missing entries. Review whether or not you have accurately billed your clients, and then take the necessary action.
Review these incoming cash iteams
- Sales revenue
- Investment Income
- Rental income
- Debt repayments made to your business
- Other income
Make a habit of immediately recording business expenses. If it's not possible, try to record them weekly so that you can easily do so when closing out the month.
The following are the key expense to track:
- Rent or lease payments
- Utility bills
- Payments made to suppliers
- Travel expenses
- Business loan interest
Verify that you accurately posted each debit and credit entry to the appropriate account. Additionally, it is essential to confirm that you accurately posted the journal entries to the general ledger because errors made once can have a long-term negative impact on your business.
2. Update the accounts receivable and accounts payable
Make sure your clients pay you according to the credit limits they have agreed to. Small businesses frequently struggle to get payment from their clients. This can drive poor cash flow management and bad debts.
Follow these steps to avoid this.
- Follow up with the customers
- Recognize the bad debt
- Create aged debtors report.
- Consider discounts and credit notes for disputes or returns.
To make sure you are paying invoices on time, check accounts payable. There is a chance you could unknowingly pay the bills twice if there is no structured system in place.
Follow these steps to avoid it:
- Identify overdue invoices and make immediate payment
- Look for duplicate invoices
- Create aged creditors report
- Create a formula to avoid duplicate payments
- Review if any mistake was made(i.e., Wrong bank transfer entry)
You should discuss the credit terms in advance if you think it might take longer for you to pay your suppliers.
3. Prepare bank reconciliations
You can identify irregularities and potentially fraudulent transactions in your financial data through account reconciliation. Match up on your bank account and financial data. It will provide you with a clear picture of your account's financial situation.
Typical account reconciliation includes checking and savings accounts and digital money transfer accounts like Paypal, credit card, and loan accounts.
Follow these steps for bank reconciliations
- Gather bank statements, deposit slips, and other documents
- Prepare your bank statements
- Compare the bank statements and your records
- Identify and reconcile any discrepancies
- Identify any outstanding checks or deposits
- Make adjusting journal entries
- Finalize and document the reconciliation process, including any adjustments made
4. Review your petty cash fund
Petty cash funds may not seem to be important because small payments are easy to miss. It could have a significant impact on the year-end closing process. Try to reconcile your petty funds every day, every week, or every month to avoid this. In this way, you can quickly identify any suspicious activity.
Follow these steps:
- Check the petty cash at the beginning and the end of the month
- Investigate instantly if you find any inconsistency
- Reconcile your receipts and bank deposits
5. Review the inventory
To effectively manage your working capital, review your inventory level frequently. Compare the inventory numbers to the entries you made in your books. If you discover any discrepancies, act right away to prevent further harm to the company's financial information.
Follow these steps for an effective inventory review:
- Conduct an inventory count
- Reconcile the inventory records in your books
- Analyse inventory turnover
- Review obsolete inventory
- Update financial statements to reflect the adjustments
6. Audit the fixed assets
Conduct a timely audit of your fixed assets, including your vehicles, commercial structures, and other types of equipment. Additionally, your fixed assets include intangible assets like brand names and trademarks. Evaluate the worth and condition of the item.
Follow these steps to review fixed assets:
- Record all purchases and sales of fixed assets
- Include the costs of depreciation and amortization.
- Review the condition of your fixed assets and take appropriate actions
- Review the maintenance and repair history of your fixed assets
7. Reconcile the prepaid and accrued accounts
Prepaid accounts cover the expenses you pay ahead of time. Accrued accounts cover the accrued expenses and revenue. The revenue incurred but not paid for in cash is known as accrued accounts revenue. The expenses that the business has incurred but has not yet paid are called accrued expenses. Reconcile the two accounts to show the money received and spent for the month. Make sure to settle accrued liabilities by the deadline.
8. Generate financial statements
After the reconciliation process is completed, it is time to generate financial statements and review the balance sheet, profit and loss statement, and cash flow.
If you have an accounting tool like Xenett, you can avoid the tone of manual work. Show your financial report to a CPA once you've completed it. They will examine the report and provide you with insights to help you make better business decisions. Plan your tax obligations as well to avoid cash flow issues and IRS penalties. Inquire with a CPA about tax preparation.
9. Review the financial statement
Review the financial information before month end close. There is a possibility that errors will occur, causing your business to suffer. Get help from a team member to find errors in the books that you missed. Review the general ledger and the aforementioned financial statements. Before closing the books, double-check your financial data.
10. Implement the insights immediately
Reopening the books for minor changes becomes tedious in a fast-paced work environment. To avoid this, make sure to implement the lessons learned as soon as possible because corrective action can help you with risk management and the financial health of the company.
To execute this effectively, try to determine the answers to these questions.
- Am I following the right method of month end close process?
- Do I need to change the method of month end close process?
- What was the company’s success and failure ratio?
- What issues do I need to address?
- Is my business on the right track toward its long-term goal?
- What challenges may the business face in the future?
If you identify any critical issues, try to address them as soon as possible. Otherwise, you can hire someone to assist you.
How Xenett can help you
Because it takes time and effort, the month end close process can be stressful. As previously stated, accounting professionals are highly occupied during the month end close.
However, if you use accounting software such as Xenett, you can cut down the review time by 70% and speed up the closing of your books by 80%. Xenett eliminates the hours of manually reconciling accounts and correcting errors in your financial books. It is the ultimate accounting software solution for bookkeepers, accountants, CPAs, business owners, and other accounting professionals. Xenett automates and streamlines your month-end and year-end close processes, eliminating the time-consuming effort.
Don't let complicated accounting practices hold you back any longer! Book a demo call with Xenett today and discover how we can simplify your accounting processes.
The ultimate guide for a smooth month end close
You now have everything you need to successfully complete the month end close process. However, you must adhere to the instructions in the guide to make the month end close process as simple as possible.
Maintain a good financial record
A sound accounting system depends on maintaining accurate records of financial information. You will find it simple to close the books during the month end close process if you consistently keep track of all transactions. You can get assistance with this and facilitate better the month end close process with accounting software.
Establish a month-end close checklist
Make a thorough month end close checklist to ensure you have all the information required to finish the process. It is recommended to follow a comprehensive month end close checklist template. You can carry out the month end close procedure in an organized manner with the aid of the checklist. Therefore, there is no need for you to repeatedly waste time looking for the necessary information every month.
Reconcile your accounts
Although this is covered in the earlier steps, it is still important to mention it. Ensure the entries you made in your books correspond to the financial statement. You can reconcile your accounts with the aid of accounting software like Xenett.
Coordinate with cross-functional teams
You need to coordinate with cross-functional teams during month end close, set up precise time frames, and give each team member a specific task to complete. Use a centralized system to monitor progress, plan frequent check-ins, and be adaptable to unforeseen problems. To ensure that everyone is informed of any changes and can modify their work accordingly, communication is essential.
Have a closing date
Create a deadline for the month end close process. Do it within 5 to 10 days, though it may differ from business to business. Make sure the process is set up so that the final movement doesn't require any rushing. It may increase the likelihood of financial data errors.
Many small business owners underestimate the month end close procedure, which eventually might obstruct the growth of their business. By keeping track of the financial activities from the previous month, a business can better understand its positions and impending warnings.
The month end close procedure aids businesses in making better financial-based business decisions. Additionally, it can offer guidance on setting long-term objectives. By removing potential fraud and disasters, you can maintain your readiness to strengthen your business.
Frequently asked questions
To speed up the month end close process, you can start by implementing a standardized checklist, automating repetitive tasks, improving communication and collaboration among teams, and identifying and addressing bottlenecks in the process. Using Xenett, you can easily cut down 80% of the closing time.
Period-end closing involves closing accounting records for a specific period, making adjustments, and creating financial statements. Month-end closing is a similar process that occurs at the end of each month to ensure accurate financial reporting.
By providing a centralized database that consolidates financial data from various sources, an integrated information system simplifies the process of closing the books and preparing financial statements. This enables real-time updates as well as accurate financial reporting. Automated workflows and standardized processes also reduce errors and save time, resulting in a more efficient and streamlined closing process.
A monthly payroll accrual is calculated by estimating the amount of salaries and wages earned by employees but not yet paid for the current month. This is determined by the number of hours worked, the rate of pay, and any applicable deductions or benefits. The estimated amount is then recorded in the company's accounting records as an expense and liability.
Please refer to the answer to question number 1.
Identifying overdue invoices for accounts payable, creating aged creditors report, considering discounts or credit notes for disputes or returns, following up with clients who have past-due payments, creating an aged debtors report, identifying overdue invoices for clients, and in advance discussing credit terms with suppliers are all ways that businesses can prevent payment issues.