Month End Close Process Flowchart - Easy-to-Follow Guide
Whether long-term or short-term, business decisions can only be made with accurate financial statements. Because error-free financial reports give a solid foundation for the business to thrive. Do you know the secret to producing consistent and accurate financial statements? The standard month end close process can provide accurate financial statements. Hence, the month end close process flowchart is essential for accurate financial data and the company's longevity.
But as we know, the month end close process is quite hectic and, most of the time, complex. However, when the month end close process is completemenmted by the accounting automation tool, your account team has the power to unlock massive time savings, generate error-free books, and optimize the workflow.
What is the month end close process?
The Month End Close Process refers to the accounting operations a firm must carry out to close out its financial records for the current month and prepare for the next. This procedure is critical for the company's accounting and financial reporting since it ensures that all transactions are appropriately documented in the books.
The following are typical steps in the Month End Close Process:
- Review and reconcile account balances.
- Make any necessary adjustments.
- Create and analyze financial reports.
- Examine data for accuracy and completeness.
- Prepare financial statements, including the balance sheet, income statement, and cash flow statement.
The month-end close process can be time-consuming and necessitates collaboration across departments. It is, nonetheless, necessary for a company's financial management and decision-making.
Importance of month end close process flowchart
As you know, the month end close process can be hectic, time-consuming, and complex. A month end closure process flowchart can be an excellent tool for streamlining the month end close process.
Here is why the month end close process flowchart is crucial.
- Month end process flowchart helps you provide a clear and visual representation of the steps involved in a particular process.
- It can be used to identify bottlenecks, inefficiencies, and potential areas of improvement in the process.
- It serves as a helpful reference tool for accountants or bookkeepers, ensuring that everyone follows the same process consistently.
- The flowchart can reduce errors and mistakes by providing a standardized approach to the process.
- It is useful for training new accountants on the process, providing a clear and easy-to-understand overview of the steps involved.
- It can help you increase transparency and accountability.
- The month end close process flowchart can be used to evaluate and improve the process over time, as changes and updates can be made to the flowchart as needed.
What to add to a month end close process flowchart?
Now that you understand the significance of the month end close process flowchart, you will likely want to construct your own. But how do you make one, and what should it contain?
Here are some of the most crucial aspects to include in the month end close process flowchart.
- Time period: The flowchart must have a time frame for completing each task in the month-end close procedure. It helps to guarantee that all activities are accomplished within the time range specified and that the overall process is completed on time.
- Roles and duties: The flowchart should have mentioned the roles and responsibilities of each team member involved in the month-end closing process. It ensures everyone understands their position and responsibilities, with minimal overlap or confusion.
- Resources and tools: The tools and resources needed to complete each task in the month-end close process should be listed in your flowchart. When you utilize an automation solution like Xenett, you can worry less about reviewing, closing, reconciling, and client communications.
- Communication strategy: The flowchart should include a communication plan to guarantee that all team members are kept updated on the month-end closing process status. Regular team meetings, email updates, and other types of communication are all part of this. You can connect instantly and collaboratively with your team in Xenett’s internal communication.
- Quality control measures: To guarantee that all financial information is accurate and complete, quality control methods should be defined in the flowchart. It comprises a review process in which a reviewer or management analyses teamwork for finding and rectifying faults.
Best practices for month end close process flowchart
It would help if you considered numerous factors when creating the month-end close process flowchart. Consider the following practices while creating an ideal month end close process flowchart.
- Create a checklist: Create a detailed checklist outlining all of the tasks required for the month-end close process. It ensures that all tasks are executed on schedule and accurately.
- Assign responsibilities: Assign defined tasks to various finance team members to ensure that everyone understands their roles and obligations during the month-end close process.
- Communicate effectively: Ensure that all members of the account team, as well as other departments, communicate well to ensure that everyone is aware of deadlines, deliverables, and any difficulties that may emerge during the process.
- Utilise technology: Use technology tools to simplify the month-end close procedure. Accounting software, automated procedures, and other solutions that can minimize manual effort and enhance accuracy may be included.
- Undertake the analysis: Once the month-end close process has been completed, undertake an analysis to identify areas for improvement and to build an action plan to resolve any issues that surfaced throughout the process. It will make future month-end closing operations even more efficient and effective.
How long does the month end close process take?
The length of the month-end close process might vary depending on the business's size and complexity, as well as the unique accounting practices and procedures in place. On average, the process can take anything from a few days to a week or more to complete.
According to APQC(American Productivity & quality center), 25% of the F&A teams say it takes 10 or more days. However, with the help of automation tools like Xenett, the duration of the regular month end close process can be shortened significantly without losing the accuracy.
What are the 6 steps in the month end close process?
The month-end close process is a collection of tasks that the account team performs at the end of each month to close their books and create accurate financial statements. The six steps involved in the month-end closing procedure are as follows:
1. Review Accounts Payable and Receivable.
This includes assessing all outstanding bills and invoices that the company must pay, as well as any payments owed to the company by consumers. These accounts must be reconciled to ensure that they are accurate and up to date.
2. Record Journal Entries
Journal entries are used to document any financial transactions that occur during the month. Adjusting inputs such as accruals and prepayments are included.
3. Rereview and reconcile bank statements.
Reviewing and reconciling bank statements is critical to ensuring that all transactions are appropriately recorded in the accounting system. This entails comparing the bank statement to the company's records and discovering any inconsistencies.
4. Check Inventory Levels
It is critical for businesses that carry inventory to undertake a physical count and reconcile it with the inventory records. Any inconsistencies should be examined and resolved.
5. Calculate the depreciation and amortization.
Non-cash expenses such as depreciation and amortization must be documented at the end of each month. This entails calculating and recording the amount of depreciation and amortization for the period in the accounting system.
6. Prepare financial statements.
After completing all of the preceding processes, the final step is to generate accurate financial statements. The income statement, balance sheet, and cash flow statement are examples of these. These statements summarise the company's financial performance for the month.
How can automation help in the month end close process?
Automation can significantly minimize manual drudgery and the likelihood of errors in your books. Furthermore, by choosing the correct tool to conduct the month end close process, you might complete the month end close earlier than planned.
Here are some of the benefits your business may enjoy by implementing the right automation tool.
1. Reduced errors:
Reduced errors in the books is a significant advantage of automating the month-end close procedure. Repetitive processes, including financial data input and account reconciliation, can be automated to dramatically reduce the chance of errors caused by human error or oversight.
Automation technologies can also assist in identifying and correcting faults more rapidly before they become more serious problems. Accounting teams may increase the quality and dependability of financial data by decreasing errors, allowing for better decision-making and supporting business success.
2. Increased efficiency:
Another benefit of automation in the month-end closing process is increased efficiency. Automation solutions can also help to streamline operations, allowing teams to operate more quickly and efficiently. Accounting teams can focus on more strategic duties, such as analyzing financial data and delivering insights to support corporate decision-making, with more time and fewer errors.
3. Increased financial data accuracy:
Automation systems can aid in the accuracy, completeness, and consistency of financial data, lowering the risk of errors and fraud. Automation may assist in ensuring that financial data is trustworthy and dependable by enhancing accuracy, resulting in better decision-making and business outcomes.
What are the month end pitfalls?
Month end is a challenging time for accountants and businesses as numerous pitfalls exist. Here are some common ones:
- Time crunch: The stress of completing all necessary tasks during the month end close might be excruciating. There may be insufficient time to complete everything, resulting in mistakes or oversights.
- Cash flow: Month-end is a critical time for cash flow management. Balancing cash inflows and outflows, reconciling accounts, and managing receivables can be challenging.
- Accruals and adjustments: Month-end requires reconciling accounts, calculating accruals, and making necessary adjustments, which can be time-consuming and complex.
- Reporting: Preparing financial reports, such as income statements, balance sheets, and cash flow statements, can be challenging, especially if there are changes in the business's operations or financials.
- Compliance: Ensuring compliance with regulations and accounting standards can be challenging. Month-end may require additional regulatory reporting, such as VAT returns or tax filings.
- Communication: Coordinating with other departments or team members can be challenging, especially in medium and large businesses.
To overcome these challenges, it is essential to plan ahead, prioritize tasks, and communicate effectively with the respective team members involved in the month end close process. Adopting automation and utilizing technology such as Xenett can also help simplify your hectic month end close process.
The bottom line:
The month-end close is a vital accounting process that ensures financial records are accurate. A flowchart can help to simplify a complicated process by identifying inefficiencies and enhancing consistency. Better communication, technology, and analysis for improvement are all examples of best practices.
Depending on the intricacy of the firm, the procedure can take a few days to a week or more. Close management software like Xenett exists to save you time, improve the accuracy of your books and lets you close faster than ever. Request a demo call to learn more about Xenett.
FAQs(Frequently asked questions)
A Month End Close Process Flowchart is a visual representation that outlines the steps involved in completing the month-end accounting process. It provides a roadmap for the tasks and procedures required to reconcile financial records, ensure accuracy and completeness of financial statements, and prepare for the next accounting period.
A Month End Close Process Flowchart offers several benefits, including streamlining the month-end close process, reducing errors and inaccuracies, improving communication among team members, and promoting accountability and transparency in financial reporting. Additionally, it can help identify areas for improvement and facilitate the implementation of best practices.
A Month End Close Process Flowchart is typically used by accounting and finance teams responsible for completing the month-end close process. It can also be used by other departments, such as auditing or compliance, to ensure that financial reporting requirements are met.
To create a Month End Close Process Flowchart, you can start by identifying the key steps involved in the month-end close process. Next, map out the flow of activities, including the inputs and outputs of each step. Use symbols, shapes, and colors to make the flowchart easy to follow and understand. Consider using a software tool specifically designed for flowcharting to create a professional-looking chart.
Some common challenges in the Month End Close Process include data inaccuracies, manual processes that are time-consuming and prone to errors, lack of communication and coordination among team members, and changing accounting standards and regulations. To overcome these challenges, it is important to implement best practices, leverage technology and automation, foster collaboration and communication, and stay up-to-date on changes in accounting standards and regulations.