Prerequisite of Month End Reconciliation

The month end closure procedure particularly merits your attention out of all the processes the finance team handles. If you work in accounting, you are aware that financial statements are critical but that maintaining a consistent, up-to-date record will ensure that no invoices, receipts, or other crucial documents are lost. Accounting teams should examine the monthly closure procedure, create a list of activities to be completed to make sure everything runs smoothly and accurately, adhere to best practices, and make use of the software resources at their disposal. This manual is meant to give you a head start on your adventure.

What Is the Month End Close?

At the conclusion of each month, month-end closure is the process of gathering and organizing all financial and accounting data for review, reconciliation, and reporting. In order to maintain a healthy cash flow, ease financial planning, aid in the making of strategic company choices, and track advancement toward long-term objectives, businesses care about reporting their financial statements on a monthly basis.
Businesses frequently ensure that their books are closed at the end of each month so that the records are irrevocable. This procedure, referred to as the month-end close process, yields:

a trustworthy and precise accounting method
improved business judgement
more insight into your company&aposs financial health
Financial audits made simpler
tax filing became easier

At the end of every month, you can be certain that any transactions that have taken place before or after the closing have been completed and that your month-end balance is correct and current. A closing period reveals areas where you may improve, so a comprehensive set of financials from the previous month can also serve as the basis for business choices the next month.
In other words, you are conducting a thorough analysis of all financial activities and performance for that full month and are certain that the results are unlikely to alter in the future. The specific details you&aposre "closing" with are as follows:

Balance sheets that require certification and a guarantee that there are no errors.
All of your business dealings with other corporations, including intercompany trading.
Journal entries that repeat must be verified, authorized, and posted.
A comprehensive checklist that we shall discuss later.

Non-entered invoices, bank or credit card statements, mortgage entries, and insurance bills are some other required documents. Undoubtedly, gathering data is a significant element of the process. Some of the data to gather are:

Accounts with total revenue
Balance sheets and financial statements
Inventory levels and fixed assets
Details about a bank account
Expenses and income
Little cash reserve
Data from general ledger

Depending on the type of business and its unique accounting technique, the exact approach to the monthly closure procedure varies. Additionally, some businesses use the year-end close, which is a yearly variation.
To recap, the month-end close procedure is making adjustments to accounts to make them accurate for the closed period. Another name for it is "record to report."

The Steps of the Month End Close Process

The accounting team doesn&apost have to deal with headaches during the financial closure. The organization as a whole will benefit from taking the proper course of action when handling financial data at the end of each month.

Gather Information

The job of closing the books requires a lot of data. Begin by gathering numerous pieces of information about the relevant accounting period:

Inventory total
Revenue statement accounts
Accrued costs
General Ledger

Always keep track of daily operational transactions, ideally right away rather than at the end of the month.

Combine Accounting Parts

Accounts payable and accounts receivable departments are two examples of modules that are typically included in accounting systems. Accounting systems are not homogeneous entities. Reconciling all these elements is a step in the closure process. Make sure, for instance, that the accounts payable balance correspond to the general ledger. To that purpose, arrange your receipts and make a list of every purchase. During this phase, double-check your records to ensure that everything has been paid.
Examine all the income sources, including loans and invoice payments, for accounts receivable entries. Have you neglected to send an invoice or has a customer&aposs payment not been completed yet? Before the month is out, organize those entries.

Account Reconciliation

One of the key steps in the closure is to reconcile all of your accounts. Compare your account statements to any receipts, bank documents, or other entries from the outside. The following accounts require this treatment:

Paychecks, savings, and cash
Payment plans
Other accounts on the balance sheet
Petty Cash

Consolidate your cash accounts initially since they are simpler to handle because errors and inconsistencies are more obvious when dealing with cash. This stage also helps you become aware of your company&aposs cash position.
Reconcile the balance sheet accounts after that. To ensure that all entries have been appropriately recorded, don&apost forget to examine the income and cost accounts as well.

Think about fixed assets and inventory

Not all of the organization&aposs worth can be assigned a monetary value. Equipment, real estate, and automobiles are examples of fixed assets that may bring long-term value to your company. Remember that they could lose value over time.
In a similar vein, as part of the closure, conduct an inventory count each month. Do you require stock replenishment? How much, if at all? Do any products need to be replaced or are they perishable?

Prepare Financial Statements

The preparation of the financial statements, which may be done either using collated data in a spreadsheet or automated technologies, comes after the general ledger has been updated. These records generally include a general ledger summary, profit and loss statements, and balance sheets.
You may learn more about what you&aposre buying and if you&aposre receiving a good return on your investment just by reviewing your financial accounts. They also serve as a warning sign for overspending and other financial problems. It&aposs equally crucial to organize the statements so you don&apost have to search for them in the last few days of the month.

Final Evaluation

Senior management in Finance receives the final detailed month-end close summary based on the above playbook and is able to assess objectively because they haven&apost been involved in the closing process up to this point.
When the preceding month has been finalized and no new transactions have been added to it, the month-end closure is complete.

Get Ready for the Upcoming Closing

What did you learn from the experience, and how can you use it to make next month go more smoothly? Next month, when you have a new beginning, commit to creating a financial schedule to maintain the books. Specify due dates for:

accumulating every transaction
the gathering and recording of data in a streamlined manner
posting all earnings and expenditures
A general schedule for updating the ledger
Preparing final reports timely

To get everyone on board, explain your ideas to other team members engaged in the month-end closure procedure. The calendar can be modified over time to accommodate scheduling changes.

Ideal Techniques

Let&aposs go through some best practices to make this crucial business procedure as seamless as possible in addition to a set out plan and a checklist.

Never compromise accuracy for speed:

closing the books might take some time, but the information you use will affect the decisions you make going forward. Manage your expectations properly and take your time so you don&apost miss any crucial remarks or entries. As a general guideline, aim to complete the procedure within 10 days after the month&aposs end.

But bear in mind that time management is important:

since efficiency counts in the accounting division. If you have a deadline, commit yourself to finishing it as soon as possible. To reduce the possibility of delays, talk to the team members about reasonable deadlines and use effective communication.

Slowly gain knowledge from errors:

Since you close at the end of every month, you always have the opportunity to make up for missteps made in the prior month. New accountants should take advantage of any training opportunities because it will take some time for them to become familiar with the necessary hardware and software.

Establish connections with groups outside of finance:

If more people are informed about what you are doing, other departments will be able to give the necessary financial information and comprehend the direction of the endeavour. The senior management in particular has to be aware of your goals.

Utilize automation:

Accounting chores have become much more efficient as a result of technology. Among other improvements, software tools may be utilised to swiftly gather data and perform computations without the possibility of human mistakes.

Obstacles & Difficulties

There are difficulties in this accounting process. Business administrators are aware of a number of glaring problems, one of which is how ineffectively they can obtain all the necessary data. The issue here is that financial data must be cleaned up and put into a uniform format after being pulled from several unrelated sources. Multiple spreadsheets being required to handle labor-intensive data cleaning slows down the procedure and raises administrative costs.
Coordination between all the departments engaged in financial data is another barrier. Larger businesses in particular must cope with complicated interdependencies that are difficult to sort out in the final few days of the month. This time-consuming manual work diverts resources from more productive uses including risk management, enforcing internal controls, and performance analysis.

In Summary

For your business, closing your books on a monthly basis is crucial. It may show you the financial data for your company and the areas where you need to make improvements. Closing your books on a monthly basis will also assist you in making financial choices for your company, avoiding costly errors, and getting ready for tax season.

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