The month-end process is composed of a series of steps and is crucial for a timely and smooth year-end close because it builds into the annual close process. The year-end close can be looked at as series of 12 monthly closes. Regardless of your industry, month-end closing procedures are essential to the smooth running of your business. These procedures include but are not limited to pre-close meetings, closing checklists, reconciliations, preparing and posting journal entries, closing the general ledger and reporting. These procedures allow staff to evaluate the current performance of the business, and model the future performance.
Pre-close meetings
A month-end pre-close meeting can ensure that all members of the finance team have not just clear roles and responsibilities in the closing process, but help the team develop certain closing expectations and develop the final deliverables for the close. Being aware of any unusual transactions that happened during the month gives an accountant the awareness required and the wherewithal to ensure the transactions are accounted for in accordance to US GAAP.
Accountants must be able to estimate the amount of time it will take to perform the closing operation, and they must not neglect their regular non-closing business as usual duties. The pre-close meeting can also help fix specific deadlines for each activity. Some of the items that may need to be reviewed during the month-end pre close meetings include financial statements and bank statements, fixed assets, and inventory and other account specific lists.
A pre-close meeting can also streamline month-end close tasks by discussing key issues raised during last month’s close. It can also identify the areas where improvements should be made. For example, companies can consider automating recurring processes like resolving monthly and quarterly accounts. Such software can streamline many manual tasks, including collecting data in real-time, running calculations, and reconciling accounts.
Checklists
Just like pilots use checklists to ensure a flight takes off and lands safely, a month-end close checklist is a useful tool to ensure the month-end close process runs smoothly and without any hitches, measure progress and improve efficiency by ensuring no critical close procedure is forgotten. It forces accountants to take a look at their workload, their efficiencies and their shortcomings. It also makes it easy to measure their progress across time.
Using a checklist for the month-end close can ensure accuracy and reduce errors in the financial reporting process. An accurate financial report allows the management to recognize performance problems and make timely mitigating decisions. A checklist can also minimize data entry errors, which will increase the accuracy of the final financial statement. Without accurate financial reporting, a company may not be able to present its financial position accurately to investors and other users of those financial statements.
Checklists for month-end closing procedures can also help the company achieve audit readiness. With a well-designed checklist, stakeholders can work collaboratively on a common goal.
Reconciliations
Month-end closing procedures involve reconciling financial data from multiple systems to ensure that the financial data is reasonable and accurate. Month-end closing procedure involves collecting all financial data, such as income statement items, expense records, and daily transactions. It is important that this data is cross-checked against other sources to ensure that the amounts reflected are accurate. This process is called reconciliation.
Reconciliation can be complicated, but automation can help. Automation software will collect data from multiple sources within seconds and match the data with the right records. Automating reconciliations also helps standardize processes throughout the organization.
Generally, reconciling internally stored company data to data from third parties such as banks and other service providers is a more reliable way to perform reconciliation. This ensures accurate data and error-free work.
Reconciling accounts is a crucial part of the closing process, since it gives the business a clear picture of its cash flow, revenues and expenses.
In addition to providing accurate financial information, month-end close also helps businesses evaluate their performance and identify errors in their transactions. Reconciliations can prevent costly mistakes that can negatively affect the company’s performance and profitability. Furthermore, it helps ensure consistency in financial reporting, which is essential for sound decision-making and strategic planning.
Automation
Another way to streamline the month-end close process is by implementing a fully integrated software environment. This will reduce the need for manual processes, and eliminate rogue spend, fraud, and human error. Moreover, it will ensure the accuracy of numbers. By automating most of the closing procedures, entities can improve the quality and timing of the month-end close process.
It is also helpful to use an automation tool that provides dashboards and notifications. These dashboards will keep track of the closing process in real-time, making it easier to identify problems and improve efficiency. Automated month-end closing also provides many benefits, including improved record-keeping and audit readiness.
Reporting
Month-end close process ends when the general ledger is finally closed and the agreed upon deliverables are prepared. The culmination of a month -end close process typically is the preparation of the financial statements for either internal or external users. Such financial statements include the Income statement, balance sheet, cash flow statement, statement of equity, notes to the financial statements and management accounts required for internal decision making.
To increase collaboration, the team should clearly assign each team member responsibilities and ownership for each part of the month-end closing process. Listing names in each column will help create an environment of autonomy and teamwork. This way, team members can acknowledge the completion of their respective tasks and move to the next step in the process. This will strengthen the accuracy of the report at every step.
In conclusion, a month-end close procedures involves reviewing all financial transactions for a particular month and preparing financial reports based on a summary of those financial transactions. It therefore helps companies to make sound financial decisions and supports the close of financial year.
Princeton Business Consulting can help you with your monthly close process.
