8 Steps to Follow During the Month-End Close Process
The month-end close is the crucial process of finalising the books by recording all financial activities that occurred throughout the month and the preparation of monthly accounts. This process supports accurate quarterly and year-end financial closures and facilitates monitoring the company’s financial health effectively. It serves as a rigorous check-and-balance system, meticulously reviewing reported cash levels, transactions, and budgets to confirm their accuracy.
As a fundamental responsibility of the finance team, the month-end close process also demands collaboration from various stakeholders. This collaborative effort ensures that all financial data is thoroughly accounted for and recorded precisely, maintaining the integrity of the financial statements.
Steps in the Month-End Close Process
A well-organized, streamlined month-end close process helps avoid numerous challenges that can hinder finance teams. Without centralised, comprehensive financial data, teams may miss deadlines, work with incomplete data, or make inaccurate financial assumptions, leading to missed deadlines and incomplete closing tasks. These inefficiencies disrupt workflows and increase the risk of reporting errors. Additionally, poorly organised data reduces visibility, complicates accurate financial reporting, and impairs decision-making based on accurate forecasting. This can result in misallocated resources and long-term negative impacts on financial health. Finally, a lack of consistent accounting standards across departments can lead to undetected discrepancies, necessitating time-consuming corrections during the close process.
The steps to be taken during the month-end closure process are explained below.
Collect data and documents
Start by gathering all the most recent and up to date information and documents, including customer and vendor invoices, bank statements and inventory counts. Maintaining a daily record of transactions is crucial, allowing for immediate and accurate entries into the accounting system. During the closure process the completeness of recorded information should be ensured.
Integrate Different Accounting Modules
Reconcile data from various accounting modules, such as accounts payable and receivable. This step ensures that all financial records, from bank transactions to invoice payments, are accurately reflected and up-to-date in the general ledger.
Reconcile Accounts
Crucial to the process, this step involves matching ledger entries to the bank statements and verify account balances and transactions of external financial documents. Key accounts to focus on include lease payments, bonds and fixed assets.
Raise provisions
Providing for accrued expenses and prepayments starts with reversing the journals from the prior period, ensuring all financial activity is accounted for without discrepancies.
Asset Management
Regular assessments of fixed assets and inventory are necessary. This includes physical counts and evaluating the depreciation of fixed assets and potential write-downs of obsolete inventory. The inventory count should be reconciled to the ledger and differences queried to identify adjustments necessary. Similarly, the fixed asset register should be agreed to the ledger accounts.
Financial Statement Preparation
With reconciled data, prepare the core financial statements: profit and loss, balance sheet, and cash flow statements. These documents are essential for analyzing business performance and financial stability.
Review and Analysis
Have the month’s financial statements reviewed by someone not involved in the initial preparation, such as an accounting manager or controller. This fresh perspective can help spot errors or unusual transactions that may have been overlooked.
Planning for Future Closes
Reflect on the process to identify improvements you can do for future closes. Establish a financial calendar to track all critical dates and tasks, ensuring smoother subsequent month-end closes.
Best Practices for Efficient Month-End Closes
Set a Closing Timeline:
Establish a clear timeline for the month-end close by planning the order of tasks, assigning responsibilities, and setting deadlines for each step. This preparation prevents tasks from being overlooked and helps the team manage the process efficiently.Follow a Systematic Process:
Document the closing process to ensure consistency, detect errors, and maintain an efficient workflow. Outline the steps and assign roles for various tasks to set clear expectations and maintain continuity, even if team members are absent. To facilitate a smoother process, incorporate tasks such as:Entering all transactions into the accounting system promptly.
Reconciling all bank and credit card accounts.
Reviewing and adjusting inventory and asset records.
Generating detailed financial reports and comparing them against budget forecasts.
Prioritise Accuracy Over Speed: Take the necessary time to ensure accuracy, which is crucial for reliable financial reporting and decision-making.
Leverage Automation: Replace manual accounting with automation to reduce costs and minimise errors. Automation enhances the accuracy of tracking financial transactions, speeds up reconciliations, and improves communication with vendors and stakeholders. It also provides real-time data access, ensuring consistency and compliance across the organization, which boosts efficiency and accuracy while saving costs.
Continuous Improvement: Each month provides an opportunity to refine the closing process. Learn from previous challenges to enhance efficiency and accuracy.
Cross-Departmental Collaboration: Engage with other departments to ensure all relevant financial information is captured. This cooperation can lead to a more comprehensive understanding of the company’s financial activities.
Challenges and Solutions
Despite best practices, challenges like data entry errors, delayed expense capture, or over-detailed financial reporting can obstruct the closing process. Addressing these issues might involve simplifying the chart of accounts or enhancing training for accounting staff. Additionally, automating more components of the process can help reduce these bottlenecks.
Conclusion
Following a structured month-end close process is crucial for maintaining an accurate and reliable accounting system. This discipline not only supports better business decisions but also strengthens financial oversight and simplifies compliance and auditing tasks. By adhering to the planned process and embracing continuous improvement, accountants can significantly enhance the efficiency and accuracy of their financial reporting.
Learn more on how to perform efficient closing procedures with CIBA’s Efficient Month-End And Year-End Closing Processes CPD course!
What you will learn
By attending this webinar you will gain the following competencies:
Understand the importance of timely and accurate month-end and year-end closing processes in financial management.
Comprehend best practices for reconciling accounts and resolving discrepancies efficiently.
Gain insights into utilizing automation tools and software solutions to streamline closing procedures.
Understand strategies for coordinating cross-departmental collaboration to expedite the closing process.
Gain insights into enhancing overall organizational efficiency through optimized closing practices.
