Month End Close Process: Steps, Checklist, and Best Practices

Andreea Macoveiciuc
Andreea Macoveiciuc

Growth Marketing Manager

What is the month-end close, what are the typical steps for closing the books, and how can you make this process more efficient?
Table of Contents

The month-end close process is a fundamental financial ritual for businesses, ensuring that financial records are accurate and up-to-date.

This process sets the stage for quarterly and year-end financial closes, offering a real-time snapshot of your company’s financial health. For finance professionals, from CFOs to heads of finance and accounting teams, mastering this process is essential to ensure accurate financial reporting and compliance.

In this comprehensive guide, we will delve into the month-end close process, highlighting its significance, steps, and best practices to help you streamline your financial operations effectively.

To learn more about this topic, we recommend to read this article next: Closing the Books Faster: How to Make Accounting More Efficient


What is the month-end close process?

Before we dive into the nitty-gritty details, let’s establish a clear understanding of what the month-end close process entails.

At its core, the month-end close process involves organizing, reconciling, and reporting your company’s financial activities for the preceding month, to ensure that their financial records accurately reflect their current financial position at the end of each month.

Thus, this process serves as a crucial checkpoint in a company’s financial management, allowing for the assessment of performance, planning for the future, and ensuring compliance with regulations.

It’s a proactive approach to financial management that addresses discrepancies in a timely manner, preventing them from snowballing into larger issues.

The month-end close relies heavily on the general ledger (GL), which records essential financial accounts, including assets, liabilities, equity, revenues, and expenses. While conceptually simple, this process involves time-intensive work, especially in traditional setups where accounting departments rely on a mix of manual steps and Excel spreadsheets.


Month-end vs year-end closing process

It’s essential to distinguish between the month-end and year-end closing processes. While both involve closing financial records, they serve distinct purposes.

    • The month-end close focuses on regular assessments and adjustments, enabling businesses to monitor their financial health on an ongoing basis.
    • In contrast, the year-end close is a more comprehensive process, culminating in the preparation of annual financial statements for external stakeholders, such as investors and regulatory authorities.

    Why is the financial close process important?

    The financial close process holds immense significance for businesses for several reasons:

    1. Accurate reporting

    Accurate financial reporting is the foundation of informed decision-making. The month-end close process ensures that financial statements reflect the current state of affairs, aiding in strategic planning and risk assessment.

    2. Compliance

    Regulatory bodies and tax authorities require companies to submit accurate financial reports. Properly executed month-end closes help finance teams ensure compliance with legal obligations.

    3. Identifying errors and fraud

    Regular reviews during the month-end close process are essential for identifying errors, discrepancies, or signs of fraudulent activities. Timely detection and correction are crucial for maintaining financial integrity.

    4. Decision support

    Financial data generated before the closing date provides insights into the previous month’s financial performance, and supports effective forecasting and decision-making, helping businesses respond promptly to market changes and internal challenges.

    5. Opportunity discovery: The process can uncover new opportunities for business growth, guiding strategic decisions. By mastering the month-end close process, you can proactively monitor business performance, gaining a competitive edge.

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    What are the steps in the month-end process of closing the books?

    Now that we’ve covered the importance of the monthly closing process, let’s explore the steps involved in ensuring a smooth and successful financial close.

    1. Record all incoming cash and accounts receivable

    This critical step involves meticulously recording all incoming cash transactions and updating accounts receivable records. It includes:

    • Receipt recording: Every payment received from customers during the month must be documented accurately. This includes payments received through various channels, such as checks, electronic transfers, or credit card payments.
    • Updating accounts receivable: Accounts receivable records must be promptly updated to reflect the reduction in outstanding customer invoices. Each payment received should be matched to the corresponding invoice, ensuring that outstanding balances are accurately tracked.

    2. Review expenses and accounts payable records

    Reviewing expenses and accounts payable records is essential for financial accuracy. This step encompasses:

    • Expense verification: All expenses incurred by the organization during the month need to be reviewed meticulously. This includes examining receipts, invoices, and expense reports to ensure that they are valid, properly categorized, and compliant with company policies.

    • Accounts payable validation: Accounts payable records should be reviewed to ensure that all outstanding bills are accounted for and scheduled for payment. Any discrepancies or discrepancies in terms of payment should be addressed promptly.

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    3. Verify and reconcile the data

    Reconciliation is a crucial part of the month-end close process, encompassing various accounts, including:

    • Bank reconciliation: Matching bank statements to the company’s records, ensuring that all transactions are accounted for and identifying any discrepancies.

    • Credit card reconciliation: Reviewing credit card statements and reconciling them with the company’s records to ensure that all expenses are accurately recorded.

    • Accounts reconciliation: Ensuring that all accounts, including general ledger accounts, subsidiary ledgers, and other financial records, balance correctly.

    4. Assess fixed assets

    In this step, organizations assess their fixed assets, which can include machinery, equipment, and property. Key tasks include:

    • Asset verification: Ensuring that all fixed assets are still in use and accurately accounted for in the company’s books.
    • Depreciation updates: Updating depreciation schedules to reflect the appropriate reduction in asset values over time.

    5. Collect documents and prepare financial statements

    Before you prepare the financial statements, gather and review financial documents for thoroughness. This step involves:

    • Document collection: Ensuring that all relevant financial documents, such as invoices, receipts, bank statements, and expense reports, are collected and organized.

    • Review and verification: Conducting a comprehensive review of these documents to ensure their accuracy and completeness, flagging any discrepancies or missing information.

    Once done, you can move on to preparing financial statements. This is a pivotal part of the month-end close process, involving:

    • Income statement (Profit and Loss): Summarizing revenue, expenses, and net income for the month.

    • Balance sheet: Detailing assets, liabilities, and equity at the end of the month.

    • Cash flow statement: Analyzing cash inflows and outflows for the month.

    • Other reports: Generating any additional reports specific to the organization’s needs or industry requirements.

    6. Conduct a final review

    Before finalizing the month-end close, a meticulous review of all the gathered information is imperative. This encompasses:

    • Data accuracy: Ensuring that all financial data is accurate, consistent, and free of errors.

    • Alignment: Confirming that all financial statements and reports align with the organization’s financial goals and objectives.

    How long does the month-end close process typically take?

    The timeline for completing the month-end close process is a critical consideration for finance professionals. While the duration of this process can fluctuate, it is influenced by several key factors, including the intricacy of your organization, the volume of financial transactions, and the effectiveness of your financial systems.

    Complexity of the organization

    One of the primary determinants of the month-end close timeline is the complexity of your organization.

    Larger companies often have more intricate financial structures, involving multiple business units, subsidiaries, and international operations. As a result, the consolidation of financial data and the reconciliation of accounts can be a time-consuming endeavor.

    Conversely, smaller organizations with simpler financial structures may complete the process more swiftly.

    Volume of transactions

    The volume of financial transactions also plays a pivotal role in determining the timeline.

    Companies that engage in a high volume of transactions, whether it’s sales, purchases, or financial investments, inherently have more data to process and reconcile.

    This can extend the duration of the month-end close process, particularly if manual data entry and reconciliation are predominant.

    Efficiency of financial systems

    Efficiency is a key factor in expediting the month-end close process. Modern financial systems equipped with automation and integration capabilities can significantly reduce the time required for tasks like data collection, reconciliation, and report generation. Automation streamlines repetitive processes, minimizes the risk of human error, and accelerates data accuracy.

    For instance, utilizing software solutions for collecting financial data, reconciling accounts, and generating financial statements can lead to substantial time savings. These tools can rapidly compile and cross-reference data, identify discrepancies, and generate reports with precision.

    Consequently, organizations that leverage automation can often complete the month-end close process more expeditiously than those relying on manual methods.

    How to reduce month end close

    Reducing the month-end close process is a common goal for many businesses as it enhances financial agility and decision-making. To expedite the month-end close, consider implementing the following strategies.

    Automation and accounting software

    Invest in cutting-edge accounting software to automate routine tasks such as data entry, journal entries, and the preparation of financial statements. This integration of accounting software accelerates the processing of financial information, improving the accuracy of tax filing data.

    Also, consider using end-to-end spend management software for processing your invoices, expenses, and company card payments.

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    Standardized accounting procedures

    Develop and enforce standardized accounting procedures and workflows to maintain consistency throughout the accounting period. This consistency ensures that journal entries, accruals, and expense accounts are correctly recorded, facilitating an efficient month-end close.

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    Continuous monitoring of financial information

    Rather than waiting until the end of the accounting period, consider continuously monitoring financial information and reconciling accounts throughout the month. This approach reduces the workload required for the month-end close and enhances the accuracy of invoice payments.

    Effective communication and data integration

    Foster effective communication among team members, departments, and stakeholders involved in the accounting processes. Integration of account information across various modules ensures data accuracy and expedites the accounting system.

    Clear tax filing calendar

    Implement a structured tax filing calendar that outlines deadlines for tax filing and other regulatory compliance activities. This calendar ensures that tax filings are submitted promptly.

    Financial process optimization

    Regularly review your accounting processes to identify opportunities for improvement. Simplifying tax filing procedures and minimizing manual data entry can lead to a more efficient month-end close.

    Outsourcing non-core accounting tasks

    Consider outsourcing non-core accounting tasks, such as data entry and invoice payments, to specialized firms. This allows your in-house team to focus on critical accounting processes, tax filing, and financial information analysis.

    Month-end close checklist

    To help you streamline the month-end close process, we’ve compiled a checklist of key tasks:

    • Expense and income recording: Ensure all transactions are accurately recorded.
    • Accounts payable and receivable: Verify outstanding invoices and payments.
    • Account reconciliations: Reconcile bank accounts, credit card statements, and other financial accounts.
    • Petty cash fund: Confirm the balance and reconcile expenses.
    • Inventory review: Assess inventory levels and reconcile with recorded values.
    • Prepaid and accrued accounts: Verify the accuracy of prepaid expenses and accrued liabilities.
    • Fixed asset assessment: Examine fixed asset values and update depreciation schedules.
    • Financial statement preparation: Generate income statements, balance sheets, and cash flow statements.
    • Final review: Conduct a thorough review of all financial records to ensure accuracy. 

    In conclusion, while the month-end close process may seem repetitive, it plays a pivotal role in maintaining your company’s financial health. Embrace it as a proactive tool to navigate the dynamic world of finance, ensuring accuracy, compliance, and strategic advantage for your business. Mastering this process is a testament to your commitment to financial excellence.

    To continue learning about this topic, check out our article below.

    Blog article

    Closing the Books Faster: How to Make Accounting More Efficient

    Learn how spend management software can accelerate the month-end close process through timely and accurate financial reporting, so you can close the books on time.

    Lars Mangelsdorf,

    Co-founder & CCO, Yokoy

    Simplify your spend management

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