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Month End Closing Process in Accounting - Checklist and Step by Step Guide to handle your monthly accounting closure with breeze
Accounting is the job that never ends and works on continues basis. There's scarcely time to breathe when you're filing tax returns, presenting financial reporting data or conducting month end closure.
The average accounting team indicated that the month end close takes more than 8 days.
However, time spent on month-end closure detracts from added value. You already have a never-ending list of daily activities to accomplish, and the closing process diverts your attention away from revenue-generating company duties and strategic insights.
A concise month-end closing process increases efficiency and avoids errors. We'll talk about how you can improve the management of your accounting closure process. But first, let's go through the month-end close and the specific steps you might be taking.
Each month, the month end closure is the gathering of financial accounting information, evaluation, and reconciliation of accounting records. This is a fiscal reporting obligation for some companies, and it assists the company in maintaining correct records throughout the year.
The most critical closure phase is at the end of the fiscal year. Good financial tracking, on the other hand, continues every day, week and month.
As a result, most finance teams close the books every month allowing them to review transactions, journals, and reports on a more regular basis. Matching income and expenses to tangible records entails reviewing receipts, invoices, and other papers.
This month-end process could take between 5 and 10 days, depending on the pace of your accounting team. It's an essential component of your company's financial system because month-end accounting:
Having a comprehensive image of your entire business spending allows you to create a view of where your money enters and leaves each month. The month-end closure identifies areas where spending is unnecessary and assists you in optimizing the company's expenditure.
A more streamlined month-end closure process, on the other hand, leads to fewer errors across the complete accounting procedure. So doing things correctly pays off.
Because every business is unique, there is no such thing as a flawless month-end close checklist. Some work with items, which means they must track both inventory and purchases. Others are service-oriented or have significant petty cash and office costs.
In general, the month-end accounting process for startups and SMEs consists of six major steps:
Begin by entering all income received during the month, whether it be in cash, invoices, loans, or other forms of revenue. This phase also entails confirming that you have received the correct payments from clients and that you are pursuing delinquent debts.
Accounts payable, as opposed to income, is the money you spend each month on purchases and bills. You'll be expected to keep track of how much you've spent and on what products or services, using methods such as ,expense reports, invoice payments, and corporate cards.
This stage of the monthly closure entails matching and verifying each transaction with the associated bank, vendor, or business. This is referred to as the accrual process.
Larger gear, technology, and other assets are occasionally converted to cash in your ledger. This is related to the process of depreciation and amortization, which means that the value of these assets decreases over time. Because assets are expensive, you can spread the cost of depreciation across time in the form of expenses.
It is critical to record any change in the value of these assets (including repairs or amortization) in order to keep your records consistent and avoid unexpected jumps in profit or loss.
Now is the time to organize your monthly closing financial statements, which include the balance sheet, profit and loss statement, revenue and expense sheets. Of course, the net value of your credits and debits should be zero as the account balance.
Financial reports and statements are critical for presenting an accurate picture of a company's financial facts and shaping future strategy.
Finally, consider the upcoming month and develop a corporate financial plan to meet important risks. If something was very manual this month, for example, it might be time to consider automating it. Only 40% of organizations who use automation can complete the monthly close process in less than 6 days compared to 88% of those that do not.
As previously said, making your accounting month end more effective will not only provide an accurate picture of your company's financial situation but also prevent future errors. Streamlining the process better prepares you for an audit and for when tax season arrives.
Here’s how to make month-end close more efficient:
Templates and checklists for each step in the process may appear time-consuming, but they can cut entire days off your month-end close procedure.
The main advantage of adopting templates for your financial close is that they standardize procedures. Developing a standard operating procedure (SOP) and month-end process flow chart or month end close schedule has been shown to speed up and increase the accuracy of your month-end process.
It's critical to keep all types of transactions in one location. We're discussing spending, revenue, and other topics. Spend management software with various user accounts allows your accounting staff to validate all company-wide transactions.
You may also use labels to effortlessly categorize and visually display spending.
Let's face it: no one should rely on paper these days. If you haven't already moved your accounting process online, it's time to be creative. Even if you use digital accounting software or internet tools, you should back up all of your information.
Consider the possibility of losing access to all of your data, reporting, and analysis. Such occurrences have the potential to double the entire month-end procedure and will almost certainly have a knock-on effect on other accounting operations. Back up your data with a dependable cloud-based system that may be safely kept.
Company-wide cut-offs are particular dates at the end of each month that all employees should be aware of and adhere to. They denote the end of the current accounting period, and any transactions that occur after this date will be carried forward to the following month. For example, if you deal with a freelancer who does not submit their invoice before the deadline they will usually have to wait until the next billing cycle to be paid.
The number one step you can take to make life significantly easier when it comes to month-end?
Did you know that you can put the responsibility of receipt collection onto your employees, rather than chasing them every month?
While accounting is never fully complete, you can save time on month-end closing activities to boost efficiency and provide added value. All of these suggestions and tricks, of course, may be used to year-end closing and may assist some of your other accounting systems.
The main point here is that closing time wastes significant time and energy that should be spent on strategic decision making. You have the ability to improve workplace satisfaction, save money, and increase profits. Repair the close process today, for good
At Jordensky, we specialize in accounting, taxes, MIS, and CFO services for Startups and growing business and are focused on delivering an experience of unparalleled quality. When you work with Jordensky, you get a team of finance experts who take the finance work off your plate – ”so you can focus on your business.”
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