Month-End Close Process: Steps, Checklist & Best Practices

end of month reconciliation

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. Use our month end closing checklist to streamline your closing procedures. By analyzing your numbers and implementing learnings, you can drive your business to success. Staying on top of your numbers and closing your books every month is important to keep your business on the right track. By preparing ahead for the month-end, you’ll avoid the last-minute rush and have a smooth closing process. To avoid mistakes, review your financial information before the month-end close.

end of month reconciliation

No matter where the cash comes from, you need to have a record of it. That means verifying that you’ve sent invoices and cross-checking which invoices clients have paid. Furthermore, review your general ledger to ensure you’ve posted credit and debit entries correctly.

For example, you might find that you can alter payment terms for your next accounting period. No matter how smoothly or properly a process runs, if there is missing or incorrect data, then outcomes could be misconstrued. As such, process integrity checks can be applied to make sure that all records are accounted for in financial statements. If you think about the amount of transactions that happen on a daily basis within your business, it’s easy to see how this process can become complex. Even if there aren’t many transactions, timing can play a role in complicating the process.

Alternatively, take advantage of a software solution that pulls and harmonizes data between your client’s accounting software and the lender. 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. 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. An effective month-end close process includes a system that collects and organizes data without delay or risk to data accuracy. Achieving this on a consistent basis depends on the procedure your team has to work with.

How to Reconcile Accounts for Month End?

This way, accounting personnel could allocate their time to high-level tasks instead. The month end reconciliation close process finds its foundation in the General Ledger. As payments are sent out and received during the month, bookkeepers, clerks and accountants will record debits and credits. These records should match with external accounts like bank statements.

end of month reconciliation

The month end close process ensures you have information about your company’s financial standing. It’s crucial for helping you make short-term decisions, in addition to helping you work towards long-term goals. Plus, having accurate monthly reports makes your year-end close much simpler. The month end close process allows you to track all the transactions your business conducts during the month. That’s crucial for ensuring your accounting data is as accurate and complete as possible.

When the company pays the bill, it debits accounts payable and credits the cash account. Again, the left (debit) and right (credit) sides of the journal entry should agree, reconciling to zero. The financial close doesn’t have to be a headache for the accounting team.

What is GL Reconciliation? Advanced Tips for CFOs

Ultimately, month end close requires that various team members be in the loop and sequentially complete their tasks without delay. In single-entry bookkeeping, every transaction is recorded just once (rather than twice, as in double-entry bookkeeping), as either income or an expense. Single-entry bookkeeping is less complicated than double-entry and may be adequate for smaller businesses.

  1. The month-end closing process is complicated and might vary for every business.
  2. While banks and investors expect to review reports that are in accordance with GAAP principles, the SEC and IRS require faultless financial statements.
  3. You’ll have to also make note of your fixed assets that are long-term items adding value to your business.
  4. Fixed assets—which can include equipment, property, and vehicles—add long-term value to your business.

Conversely, it can uncover new opportunities for business growth, and drive strategies so you can exploit them. Communicate your plans to other team members involved in the month end closing process to get everyone on board. You can tweak the calendar as time goes on to fit it around your schedule. Reconcile materiality principle in accounting your cash accounts first, which are easier to process since discrepancies and mistakes are apparent when you’re dealing with cash. This step also makes you aware of how much cash you have on hand as a business. You organize, reconcile and report the financial activities of your company for that month.

Order To Cash

Companies with single-entry bookkeeping systems can perform a form of reconciliation by comparing invoices, receipts, and other documentation against the entries in their books. Some reconciliations are necessary to ensure that cash inflows and outflows concur between the income statement, balance sheet, and cash flow statement. Too much detail in your financial reporting can also lead to delays in the month-end close. That may include a bloated chart of accounts where much time is spent tracking information, but where reporting against it provides little business value. Don’t forget to review the revenue and expense accounts as well to make sure all entries have been accurately reflected.

Like any business process, if your month-end close is built on a shaky foundation, there will be problems. Incorrect recording of data, expenses not captured, or captured expenses coded incorrectly are potential problems from a poorly designed process. Without the ability to capture accurate financial data, you won’t deliver reliable reports in a timely manner.

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