Accounting is a never-ending task. There is hardly any time to breathe, rather it’s preparing tax returns, compiling financial statements, or even completing the month-end closing process.
However, time spent on closing the month takes time away from producing value. Added to the never-ending list of activities to accomplish, it diverts you from important duties that would help your business generate revenue.
A well-defined month-end closing process increases productivity and decreases errors. We will discuss ways to improve the management of your closing process as we move along. But let’s first define just what the month-end close entails and what actions to take.
What does the month-end closing entail?
At the end of every month, every business needs to complete a series of financial tasks in order to close the books for that month. These tasks can be time-consuming and complex, making the month-end closing process a challenging one.
The month-end closing process is verifying and recording all the financial transactions that have occurred in the last month, compiling the financial accounting data, and reconciling all accounts. Certain companies may be required to comply with this fiscal reporting obligation, which helps with the year-round accuracy of business records.
Additionally, it entails cross-referencing receipts, invoices, and other documents to ensure that income and expenses match the actual data.
This month-end closing process could take five to ten days, depending on how quickly your accounting team works. For your company’s financial health, month-end closing is crucial because it:
- Makes it easier to see your financial details.
- Keeps your books in order in case of an audit.
- Aids in avoiding any future accounting errors.
- Helps you file your taxes more quickly and easily.
Getting a clear understanding of your entire business’s spending by developing a view of the ins and outs of your money each month. With the month-end closing process, you can better optimize your company’s expenditures once the month has ended, because you will have a better idea of where money is being spent that isn’t really essential.
However, a more efficient month-end closing process results in fewer errors throughout your entire accounting process. Therefore, doing it the right way pays off.
5 Essential Steps for Accounting Monthly Closing
For small and medium-sized businesses, the accounting month closing process generally consists of five essential steps:
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Monitoring the Accounts Receivable
To get started, you will need to enter all of the income you received during the month. Throughout this process, you will also be able to track down delinquent invoices and confirm that you have received the proper payments from clients.
Each of these transactions needs to be recorded by your accounting staff in a journal entry.
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Maintaining Accounts Payable
On the other hand, accounts payable represent the money spent each month on expenditures and bills. You will be required to keep track of how much you’ve spent on goods and services, as well as expense reports, bill payments, and business credit cards.
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Reconciling bank accounts
During this step, all transactions must be matched and validated with the records of their respective banks, vendors, or companies. This process is part of accrual accounting.
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Maintaining Fixed assets
Sometimes larger equipment, technologies, and other assets are converted from time to time to cash in your ledger. This is because, over time, the value of these assets decreases as a result of amortization as well as depreciation. You are expected to spread the cost of depreciation in the form of expenses over the years since the cost of assets is greater.
To maintain consistency in your accounts and prevent abrupt increases in profit or loss, it’s crucial to record any fluctuations in the worth of these assets (including repair work or depletion).
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Preparing financial statements
This is the time to compile your balance sheet and income statement, including your income and expense reports, and other monthly closing financial reports. Naturally, your account balance should equal zero after all credits and debits have been processed.
Financial statements hold the utmost importance for presenting an accurate picture of a company’s financial position and enabling the creation of strategic goals.
4 Tips to Improve the End of Month Closing
As was mentioned, improving the efficiency of your accounting at the end of the month will not only provide a precise understanding of your business’s overall financial health but also help to avoid mistakes in the future. The process can be simplified to better prepare you for the next tax season and the possibility of an audit.
Here are four tips to improve your month-end closing process:
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Checklists and templates
Creating templates and checklists makes the month-end close process easier and quicker. Rather than having to develop and recreate checklists every month, having already created checklists saves time and effort. You know exactly what financial documents you need to process and can get them sorted out in no time.
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Gather transactions in one place
Having all the financial documents related to the month-end close in the same place makes it easier to review the information and gets the process done in record time. A document management system or a cloud-based accounting system consolidates invoices, bank statements, and other documents and allows you to have visual access to all the data.
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Implement Company deadlines
One of the best ways to make the month-end close faster is to implement company-wide deadlines. To do this, you need to create an invoice date, a purchase date, and a payment date when your team will not take on any further transactions. This creates an end date for the month-end close to occur.
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Automate systems
Another great tip is to automate your systems where possible. Automating certain tasks like invoicing, billing, and bank reconciliation can speed up the month-end closing process significantly.
Even though accounting is a never-ending process, you may boost productivity and provide value by cutting time from the monthly closing process.
The key lesson here is that you should focus your time and effort on making strategic decisions rather than spending them on the accounting month-end closing process, which costs you time and money. You have the ability to increase productivity, make savings, and improve employees’ satisfaction. Let’s finally have the monthly closing process resolved!
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