Preparing for Month End

January 26, 2018 | Article

It’s the end of the month, which means it's time to see how your business did. All you have to do is run the magical reports out of your accounting system, and you get to see how much money you made, right? Probably not. Technology has made things a lot easier and gives us quicker access to our information, but there are still certain items that need to be taken care of, or at least looked at, when each month ends.

Every organization should strive to be able to produce timely and accurate financial information within a reasonable period of time after a month has ended. This information is vital to understanding your business and allows you to make informed decisions—that’s what you want, right? The best way to do this is to create a monthly close process. The process should be thoughtful, documented and communicated to all parties involved.

How to Create a Monthly Close Process

  1. Record daily transactions. It might seem straight-forward, but accurately recording day-to-day transactions is the basis for all financial reports. Ideally these transactions should be recorded when they happen, which incorporates much of the work into the daily operations instead of waiting until the end of the month. Recording these transactions daily also allows you to see some very important information throughout the month, such as who owes you money or who you owe money to. A little extra daily work amounts to saved time at month-end.

  2. Record monthly journal entries. Some entries don’t fall into the daily transactions category. These transactions, such as recording accrued expenses, amortization or depreciation expenses, are often only recorded once a month to present accurate monthly financial statements. Let your system work for you—set up it up to help remind you and automate some of these recurring entries.

  3. Reconcile balance sheet accounts. The first account you should reconcile is the cash account. What exactly is reconciling? Well, it’s the process of making sure you’ve captured all transactions. Nearly every accounting system has a built-in reconciliation feature, and going through this exercise is the easiest way to uncover any missing transactions since cash is a part of most transactions. Once cash is reconciled and any missing transactions are recorded, you can move on to reconciling other balance sheet accounts, like credit cards, accounts receivable and accounts payable.

  4. Review revenue and expense accounts. This step is often overlooked by business owners because they generally feel they’re watching them enough during the month. Why look at it again at month-end? We’re not saying that you need to go through every revenue or expense transaction, but take a quick look through the balances in the revenue and expense accounts and assess if they look reasonable or not. This can help make sure things have been recorded in the right period, or on the right date.

  5. Prepare financial statements and have management review. Now that you’ve recorded all the transactions and made sure everything looks good, you’re ready to put together the financial statements. Most of the time, you can run a basic financial statement directly out of your accounting system. Consider running a balance sheet, income statement, accounts receivable aging, and accounts payable aging. After this, it’s important to have them reviewed and approved by management: the owner, the CFO or the Director of Finance.

  6. Close the accounting system. After the financial statements are approved, it’s important to close the month in the accounting software. This prevents future transactions from accidentally being recorded in this month, and keeps people from accidentally changing a transaction.

Following these steps will get you on the way to your goal: Generating accurate and timely financial records. It puts the right information into your hands and allows you to make informed business decisions. If this sounds too intimidating, we’re happy to help. We have the expertise and technology to help ease the headaches.

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