Monthly closure

The work of an accountant does not presuppose a vacation. First, you must file tax returns, prepare financial statements for different periods, and remember to close the month. Each of these tasks takes a lot of time; just completing the month can take up to 8 days.

Closing the month is a routine monthly task that takes precious time, which could be spent on more profitable business tasks and strategic ideas.

When you have a clear plan for closing the month, the task is completed more efficiently, reducing the likelihood of making mistakes. This article will teach you how to make the month-end closing process more structured, clear, and straightforward. Before moving on to this topic, let’s review what month closure is and how it is performed.

Monthly closure: what is it?

Monthly closure is a monthly procedure for collecting financial accounting information, analysis, and reconciliation. Some companies require such financial reporting to facilitate accounting throughout the year.

It is best to track a company’s financial situation daily, weekly, and monthly. The most crucial period is the fiscal year-end close. Most accounting firms close the period monthly. This allows a quicker review of financial statements in journals, reports, and comparisons to actual income and expenses in the future.

Each accountant has a monthly reporting rate. On average, they complete the report within 5-10 days. The importance of this process cannot be overestimated because closing the month:

• facilitates the display of financial statements;
• organises records and prepares them for possible audits;
• prevents accounting errors in the future;
• makes it easier to file future tax returns.

By seeing where your money comes in and goes out during the month, you can assess the overall spending situation of your business. After the month closes, you can find expenses you could have avoided, helping you optimise your costs.

When the month-end closing process is streamlined, the number of errors in the accounting procedure is reduced. This task must be done correctly.

Closing the month: 6 essential steps

Each company has its differences and peculiarities, so there is no perfect list of month-end closing steps. Grocery businesses will have the extra task of tracking inventory. Other companies have additional office maintenance costs to consider.

An average month-end closing procedure in accounting for small and medium-sized businesses looks like this:

1. Checking accounts receivable
2. Checking accounts payable
3. Reconciliation of accounts
4. Verification of fixed assets
5. Applications
6. Plans for the future

Let’s briefly describe each of these month-end steps.

Checking Receivables.

All income received during the month is recorded. You must consider cash, issued loans, invoices, and other payments. At this stage, you will see if all clients have settled with you and if they have transferred the correct amounts.

The finance team should make entries in the appropriate journal for each profitable transaction.

Verifying Accounts Payable.

At this stage, a record of all monthly expenses is kept. All purchases and bills are accounted for. This will allow you to keep track of where the money goes. Sources of information are expense reports, invoices, and company cards.

Reconciliation of Accounts

In this stage, you must reconcile all transactions with those that have gone through the bank, suppliers, and businesses.

Fixed Assets Checking

As a company works, some of its equipment, technology, and other assets may lose value. This happens due to depreciation and amortisation. If this is the case, the ledger should be amended to show depreciation expense, which can be allocated several years in advance for each asset.

In the ledger, it is essential to show all changes in asset values. This helps maintain stability and prevents unreasonable spikes in losses or profits.

Applications

All financial statements of income, expenses, profits, losses, and the final balance sheet are collected at this stage. It is ideal if the net worth of all loans and deposits is zero.

Accurately compiled financial reports allow you to qualitatively assess the company’s financial situation and more intelligently develop a future strategy for its development.

Future plans

The company’s financial plan for the next month is drawn up at this stage. This makes it possible to eliminate potential risks. For example, consider reducing the share of manual work in reporting preparation to automate this process. As practice shows, almost 90% of companies with automated month-end closing spend at most six days completing this task.

How to increase the efficiency of the month closure: 5 tips

It is essential to close the reporting month efficiently to understand the actual financial state of your company and work on your mistakes. Optimizing the month-end closing process can better prepare for an audit and tax season.

To effectively close the month, all you need to do is perform the following steps:

1. Use templates and checklists
2. Combine all transactions in one place
3. Make a backup copy of all the information you have
4. Implement a company shutdown date
5. Automate your work

Now about each tip in a little more detail.

✅ Use templates and checklists.

Using templates and checklists will seem like a tedious and monotonous activity. Still, it will help reduce the month’s closure by a few days.

Thanks to templates, all month-end operations are standardised, increasing this procedure’s speed and accuracy. Using a checklist, some companies have reduced the monthly closing time from 3 weeks to 3 days!

✅ Combine all transactions in one place.

When transactions are grouped into separate categories, such as expenses, income, etc., it is much easier for an accountant to check them across the company. Expense management software must have the proper functionality. Labels can also be used to simplify the classification and visualisation of expenses.

✅ Back up all of the information you have

If your company only keeps paper records, it’s time to think about moving all of your accounting to a virtual backup. This will allow your business to become more flexible. It doesn’t hurt to back up all your paperwork if you already use digital accounting or online software.

If your data is lost, a backup will help restore the information. Losing data can extend the month-end closing process by several days and cause other accounting processes to halt. You can use a reliable cloud-based system to create a backup. On such a resource, your data will be kept entirely safe.

✅ Implement a company shutdown date.

Everyone in the company, from the CEO to the small clerk, must know the specific date at the end of the month, after which a new period begins. All transactions after that date are carried over to the next month. A cut-off date will allow you to prepare projects on time, pay bills, and close the month seamlessly.

✅ Automate your work

Closing the month will no longer scare you if you can automate the process as much as possible. For example, you can avoid running after every employee to collect receipts, but set up automatic reconciliation of payments, issue everyone with built-in debit cards, and set up seamless approvals. Properly configured software will reduce your month-end closing time by about four days.

By taking advantage of the tips presented above, you’ll be able to significantly reduce your month-end closing time and make it more efficient. All our recommendations are universal and can be used to close any accounting period. You can also use them to optimise other accounting systems as well.

To summarise, closing each month consumes a lot of precious time and energy that could be spent on implementing strategic ideas and increasing the company’s profitability. Optimising this process will give you more pleasure from your work. Not only can you save money, but you also increase the company’s profits.