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How to create an Efficient, Accurate monthly close process for Bookkeeping

How to create an efficient, accurate monthly close process for Bookkeeping

Accurate and timely financial statements are critical for making quick decisions in today’s business. In order to look forward and plan effectively, a business owner must be able to review and discuss the financial performance of the business to date. A fundamental component of accurate and timely financials is a well designed monthly close process.

There are several key processes that must be completed prior to the close: –

1. Purchase orders and sales orders are closed for the period

2. AR, AP and inventory reports are printed and all the associated modules are closed for editing

3. Any additional documentation is gathered (i.e. fixed asset addition/disposition documentation)

Once all of this information is completed then the closing process can begin. The best method to use when closing the books is to develop a reconciliation template for all balance sheet accounts. Typically this is done by using Excel, but many accounting systems provide reconciliation processes for cash, credit cards, banks and other accounts. Many small businesses only have cash reconciliations, which is important but not all. Monthly estimates and adjustments can be derived from these reconciliations, such as accruals or amortizations.

Debt schedules should be maintained with ending balances tied back to statements from the lender. Accounts payable and accounts receivable agings should be reviewed for overdue balances and potential write-offs. By reconciling all accounts, from cash to equity, the balance sheet should properly represent the current financial position of the company.

When all balance sheet accounts are reconciled the income statement must be reviewed. Classification of expenses is the main issue with regard to the income statement. Management fees, allocations of facilities or benefits, and reclassification of costs or expense are the most common points for review. Also, it is beneficial to review monthly trends in the income statement to identify unusual variances. We should to give more importance at the time of review on the classification of GL accounts as per nature of business.

The monthly close should have a calendar which sets a deadline for each step in the close process. The business owner should have a clear understanding about the financial position of the firm/company after review the finanacila statements. All reconciliations should be available as supporting documentation when presenting the final financial statements to management.

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