10 Steps to Streamline Your Month-End Closing Process
December 13, 2022
peakreliance
Accounting, Bookkeeping
The month-end close process is a critical part of managing a small business, but it can be a daunting task. However, with the right tools and habits, it doesn’t have to be overwhelming. By using a month-end closing checklist and maintaining good bookkeeping practices, you can make the process more manageable and ensure your financial data is accurate and up-to-date. This can help you achieve your long-term business goals and manage your finances effectively.
What is a month-end close process?
The month-end close process is an essential part of managing a small business’s finances. It involves recording, reconciling, and reviewing all business transactions and finalizing the account data for the month. This process requires several key pieces of information, including bank statements, income and expenses, accounts receivable and accounts payable, inventory, fixed assets, accruals and prepayments, and the general ledger. It’s important to capture all financial data for the month to ensure the accuracy of your financial records.
The specific workflow for your month-end close process will depend on the accounting basis you use. There are two main types of accounting: cash basis and accrual basis. With cash basis accounting, you recognize income and expenses when you receive or pay cash. With accrual basis accounting, you recognize income and expenses when you incur them. If you use cash basis accounting, you won’t have balance sheet accounts like accounts receivable and accounts payable.
With the right tools and habits, the month-end close process doesn’t have to be overwhelming. It can help you manage your finances effectively and achieve your long-term business goals.
Why is the month-end close process important?
As a small business owner, it’s normal to feel overwhelmed with daily operations and dread the monthly financial close process. However, there are several benefits to completing this process promptly. First, it allows you to identify and address any discrepancies in your accounts. This can help you make better business decisions and address any issues in your business promptly. In addition, completing the month-end close process on time can save you time and money on catch-up bookkeeping. It can also make your year-end close less stressful and make tax filing easier.
Maintaining accurate and up-to-date financial records is also important for providing lenders with the information they need, or during an IRS audit. By completing the month-end close process without delay, you can ensure your financial records are accurate and up-to-date. This can help you manage your finances effectively and achieve your long-term business goals.
10 steps to complete the month-end close process
To help streamline your month-end close process, it’s helpful to create a checklist of tasks to complete. This can help you organize your workflows and ensure you don’t miss any important steps. Here is a checklist of steps to follow to complete your month-end close process:
- Gather all financial data for the month.
- Review and reconcile your bank statements.
- Record all income and expenses.
- Review accounts receivable and accounts payable.
- Update your inventory records.
- Review fixed assets.
- Review accruals and prepayments.
- Update your general ledger.
- Prepare financial statements.
- Review and analyze your financial statements.
By following this checklist, you can ensure you complete all necessary steps in the month-end close process and maintain accurate and up-to-date financial records for your business.
- Gather all financial data for the month: Gathering all financial data for the month is an important step in the month-end close process. This includes gathering bank statements, income and expenses, accounts receivable and accounts payable, inventory, fixed assets, accruals and prepayments, and the general ledger. It’s important to gather all relevant financial information for the month to ensure the accuracy of your financial records. By gathering all financial data, you can ensure you have a complete picture of your business’s financial position and can make informed decisions about your finances. It’s also important to keep this information organized and up-to-date to make the month-end close process as efficient as possible.
- Review and reconcile your bank statements: Reviewing and reconciling your bank statements is an essential step in the month-end close process. This involves carefully reviewing your bank statements to ensure all transactions are accounted for and there are no discrepancies. It’s important to check for any errors or missing transactions and to make sure your records match your bank statements. This can help identify any issues with your financial records and ensure the accuracy of your financial data. Reconciling your bank statements also helps to prevent fraud and can give you a better understanding of your business’s financial position. By regularly reviewing and reconciling your bank statements, you can maintain accurate financial records and make better business decisions.
- Record all income and expenses: Recording all income and expenses is a crucial step in the month-end close process. This involves accurately and consistently recording all income and expenses in the appropriate accounts. This is important because it allows you to see the financial position of your business at a glance and make informed decisions about your finances. It’s essential to record all income and expenses accurately and consistently to ensure the accuracy of your financial records. By keeping track of all income and expenses, you can also identify any trends or issues in your business that need to be addressed. Overall, recording all income and expenses is an important part of managing your finances and ensuring the success of your business.
- Review accounts receivable and accounts payable: Reviewing accounts receivable and accounts payable is an essential part of the month-end close process. This involves carefully reviewing all invoices that have been sent and received, as well as any payments that have been made or received. It’s important to ensure that all invoices have been sent and received and that all payments have been recorded accurately. This can help identify any issues with your accounts receivable and accounts payable and ensure the accuracy of your financial records. By regularly reviewing accounts receivable and accounts payable, you can maintain accurate financial records and make better business decisions. This can also help you identify any overdue invoices and take appropriate action to collect payment.
- Update your inventory records: This involves adding any new items to your inventory and removing any items that have been sold or disposed of. It’s important to keep your inventory records up-to-date to ensure the accuracy of your financial records and to manage your inventory effectively. By regularly updating your inventory records, you can ensure you have an accurate picture of your inventory levels and can make informed decisions about your inventory management. This can also help you identify any issues with your inventory, such as overstocking or stock shortages, and take appropriate action to address them.
- Review fixed assets: Reviewing fixed assets is an important part of the month-end close process. This involves carefully reviewing all fixed assets, such as equipment and machinery, to ensure they are accounted for in your financial records. It’s important to check that all fixed assets are accounted for and that any depreciation has been recorded accurately. This can help ensure the accuracy of your financial records and give you a better understanding of the value of your fixed assets. By regularly reviewing your fixed assets, you can also identify any issues with your fixed asset management, such as underutilized assets or obsolete equipment, and take appropriate action to address them. Overall, reviewing fixed assets is an essential part of managing your business’s finances and ensuring success of your business.
- Review accruals and prepayments: An important part of the month-end close process is reviewing accruals and prepayments. This involves carefully reviewing any expenses that have been incurred but not yet paid, as well as any payments that have been made but not yet incurred. It’s important to ensure that all expenses have been recorded accurately and that any prepayments have been accounted for correctly. This can help ensure the accuracy of your financial records and give you a better understanding of your business’s financial position. By regularly reviewing accruals and prepayments, you can also identify any issues with your financial management, such as underpayment or overpayment, and take appropriate action to address them. The review of accruals and prepayments is a crucial part of managing your business’s finances and ensuring its success.
- Update your general ledger: The general ledger must be updated as part of the month-end closure procedure. This includes uploading any journal entries and modifying entries to ensure that your financial records are accurate. It is critical to evaluate your general ledger on a frequent basis to verify that it is up to date and correct. This can assist you in identifying any flaws or discrepancies in your financial records and taking suitable corrective action. By keeping your general ledger up to date, you can assure the accuracy and completeness of your financial data and make smarter business decisions. Overall, maintaining your general ledger is a crucial aspect of managing your company’s finances and guaranteeing its profitability.
- Prepare financial statements: Preparing financial statements is an important part of the month-end close process. These statements include the income statement, balance sheet, and cash flow statement. These statements provide valuable information about the profitability, value, and cash flow of your business.
If you have accounting software, you can easily generate these financial statements and avoid a lot of manual work. Once you’ve prepared your financial statements, it’s a good idea to review them with a CPA. They can provide insights and analysis of your numbers to help you make better business decisions. By regularly preparing and reviewing financial statements, you can gain a better understanding of your business’s financial position and make informed decisions about your finances.
- Review and analyze your financial statements: To avoid mistakes during the month-end close process, it’s important to review your financial information beforehand. One way to do this is to ask someone who didn’t prepare the accounts to review them, as they may be able to identify errors or problems that you didn’t notice. It’s also a good idea to review the following reports: the general ledger and the financial statements discussed above. These reports can provide valuable information about the financial health of your business and can help you identify any errors or issues that need to be addressed.
Once you close your books for the month, you won’t be able to make any changes to your financial records. Therefore, it’s essential to make sure your financials are accurate before closing the accounting period. By taking the time to review your financial information and ensure its accuracy, you can avoid mistakes and maintain accurate financial records for your business.
What can Peak Reliance do for you?
If you’re struggling to keep up with your books and the month-end close process, you can outsource your bookkeeping to Peak Reliance. We can’t analyze your numbers, but we can reduce your month-end admin by taking care of your books and making them accurate and up-to-date. We’ll also do your bank reconciliations, so you can leave behind the month-end stress and focus on what you love: growing your business!
If tax work is overwhelming, we offer tax preparation and tax filing services as well. With Peak Reliance, you’ll get unlimited year-round tax support to stay on top of your taxes. Take a free trial with Peak Reliance to see how we can help you.
Contact us at +1 (718) 218-5558 or email us at [email protected] to learn more about our bookkeeping and tax services.
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