If you own a business, then specific work needs to be completed at the end of the month. The month end close process is one such critical activity. The closing process in accounting involves many things to do. Many business owners consider this to be a cumbersome activity. You need to do many things, and they would take a lot of time and effort.
If you are one of those who worry about carrying out the close process, this guide is for you. You can first learn about the importance of the monthly closing. Then, we break down the entire closing process into 10 easy steps. You can prepare a month end close checklist based on the steps given. Follow this checklist, and the close process every month will no longer be troublesome.
What is a Month-End Close Process?
The month end close process is when all monthly financial accounts are closed. Closing includes collecting all necessary information related to the accounts and reviewing them. You need to reconcile all records. It involves checking all income and expenses and comparing them with records.
Depending on the business size, the closing process accounting could take up to 10 days. The people carrying out the closing need to check all transactions and journals. It is vital that this process gets the importance it deserves. Completing the monthly closing on time ensures all data is ready for the year-end closing. To standardize your company's process, you can use online flowchart creator to create flowcharts that visually document your month-end close process.
Why is the Month-End Close Process Important for Businesses?
Every business needs to prepare accurate financial reports on time. The reports are not merely a legal/regulatory requirement but crucial for the business. Financial statements help the business owner understand how the business is doing. You can make future plans based on the reports. If a business has to prepare its annual reports on time, it must prioritize the monthly financial close process.
If the month-end closing happens seamlessly, it ensures all records are verified. The data needed for the reports would be ready and available by the end of the year. Most importantly, the closing process accounting would help in uncovering errors. The accountants can fix these errors so they are not carried forward.
In case you do not do this, it can have serious consequences. 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. As a result, the financial statement may be delayed. Another worrying scenario is that trying to finish the reports quickly could lead to errors. These errors can be costly as inaccurate financial statements negatively affect the business.
All the above clearly illustrate why it is vital to ensure you complete the month end accruals QuickBooks process on time. The benefits of the month-end closing listed below clearly highlight its importance:
- It helps you keep your books of accounts and financial reports accurate.
- Your tax filing becomes easier if every month’s closing happens on time.
- It is very helpful to ensure trouble-free audits.
- You can detect errors and correct them to prevent future mistakes.
Month-End Closing Process Checklist: 10 Simple Steps
If you want your month-end closing to happen effectively, you need a month end close checklist. The following is our checklist that explains how to carry out closing in 10 easy steps. Use this checklist to carry out your monthly closing without any hassles. It acts as a guide for all closing activities. You can learn how to close expense accounts along with other such details.
Record the Income and Expenses
You should record all income and expenses. The month-end close allows you to check this. You need to review if you have missed out on recording any cash that has come in. Check if you have included all sales revenue and incomes from investments, rentals, etc.. You should check for the inclusion of payment of all bills, business travel expenses, supplier payments, and payroll. Check if the debit and credit entries are posted and review journal entries.
Review Accounts Receivable and Accounts Payable
Are your customers paying you as per agreed timelines? You can review this when you check the accounts receivable and accounts payable. You can generate the aged debtors report and then follow up with defaulters. Also, check accounts payable check for duplicate invoices and duplicate payments.
Prepare Bank Reconciliations
Bank reconciliation will help you identify any mistakes and also help you prevent fraud. You need to reconcile the checking and savings accounts. Check your card and loan accounts, as well as digital transfer payments. Check balances against your cash book. Look for any discrepancies and make adjustments accordingly. Maintain a bank reconciliation record.
Review Petty Cash
You need to check the funds available in petty cash at the start and end of the month. Reconcile all your deposits and receipts so that you can identify any discrepancies.
Review Inventory Count
An essential activity in the monthly closing is checking inventory levels. Update your inventory levels and review the management process. Take a hard look at how you order goods, when you reorder them, and prices paid. You also need to review your procedures for storing goods.
Review Fixed Assets
Fixed assets include buildings, vehicles, equipment, and intangible assets like your brand name. You need to review if all records of purchases and sales of fixed assets are updated. It is important to account for depreciation so you effectively allocate the cost of the assets over their lifetime. Also, review the condition of all your fixed assets. Record expenses related to maintenance and repairs.
Reconcile the Accrued and Prepaid Accounts
You must adjust the accrued and prepaid expense accounts to reflect all income and expenses. It is important to identify if any duplicate payments have been done. You can do this by double-checking prepaid and expense accounts. You must pay off accrued liabilities when due to avoid affecting your credit.