Month-End Close

Month-End Close Importance

Completing the accounting month-end close on time is paramount for maintaining an organization’s financial accuracy and efficiency. When completed promptly, the close provides decision-makers and stakeholders access to the most current financial data, thus enabling more informed choices, precise financial forecasting, and better business planning.

Furthermore, timely completion is key in preventing financial fraud or misspending by supporting faster identification and resolution of discrepancies or errors. This is especially helpful for organizations subject to regulatory oversight, such as publicly-owned businesses.

Month-End Close Process

Specific process steps may vary between organizations, but most include some version of the following.

1. Enter and Review Transactions: Review all financial transactions for the month (e.g., vendor invoices, employee expense reports, bank transactions, and other financial activities) and enter them into the accounting system.
2. Reconcile Accounts: Align and cross-reference all bank statements, credit card statements, and general ledger accounts with internal records to verify accuracy and address any discrepancies.
3. Adjust Entries: Make any necessary adjustments to accurately reflect accruals, deferrals (e.g., prepaid expenses or unearned revenue), and other relevant items
4. Create Final Statements: Generate various financial reports or statements, such as:
   • Income Statements: Show monthly revenues and expenses, providing the net profit or loss.
   • Balance Sheets: Snapshots of the company’s assets, liabilities, and equity at the end of the month.
   • Cash Flow Statements: Summaries of the month’s cash flow from all relevant financial activities (e.g.,  operational or investment costs).
5. Final Review and Analysis: Look for trends, variances, and key performance indicators across the final statements.
6. Close Records: Officially “close the books” on the month’s finances to prevent further edits or entries.

Month-End Close Tips

Organizations wanting to maximize process efficiency can implement additional best practices, such as processing transactions in real-time to minimize the month’s accumulated workload. Automating repetitive tasks (e.g., invoice processing) and assigning clearly defined process responsibilities can also save considerable time.

Accounts Payable’s Month-End Close Role

Accounts payable teams are essential for efficient and accurate month-end close systems as they record and process all vendor invoices received that month. Moreover, they also send payments to fulfill such agreements based on company policy and the agreement’s terms. Altogether, this gives said teams unparalleled access to the information necessary for reconciling vendor accounts, preventing overpayments, and avoiding duplicate transactions via month-end close.