An Accountant’s Guide to the Month-End Close Process (+ Checklist)

What is the month-end close process? 

In an accounting context, the month-end close process refers to the measures taken to create and verify the accuracy of financial reports covering business activities from the preceding month. This may include adjusting balance sheets, reviewing bank records, reconciling transactions, auditing accounts, investigating fraud, and preparing documentation, among other efforts.

These closings and associated month-end reporting are commonly subject to legal mandates—at least for publicly traded businesses—and will need to comply with some formal standards, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

What should month-end reports contain? 

You’d be wise to check with any regional statutes to determine what you should specifically feature—commonly, this will involve at least the first three items on the list below. But beyond the bare minimum, we recommend adding any records that could help monitor the performance and health of your organization. This might include:

• Income statements
• Balance sheets
• Cash flow statements
• Profit and loss statement
• Operational data (e.g., inventory, sales totals)
• Accounts payable (A/P) aging reports
• Accounts receivable (A/R) aging reports

Why is a financial close system important? 

When it comes to accounting operations, accuracy is critical. And without a formalized routine guiding your closing efforts, irregularities or unknown variables can creep into your reports and mislead key decision makers. Further, by conducting these efforts monthly, you’ll have access to much more current information, which is critical when making choices that affect cash flow, budgeting, and overall financial strategy.

At the same time, the insight delivered by a month-end close process can help you identify weak points, bottlenecks, and potential fraud within your production efforts and your invoice-to-cash (I2C) cycle. And the assembled historical record you build over time will streamline associated year-end closings, tax preparation, and audits.

Month-end close steps 

As previously mentioned, there are typically general guidelines regarding what information you’ll need to use and how it should be managed. However, the individual business has a lot of nuance regarding the actual execution of the reporting efforts. As such, we recommend that you draft an internal plan outlining specific actions and then repeat those steps every month without variance. 

In general, though, your process will look something like:

Step 1: Gather your records

Before you begin your closing efforts, you’ll need to assemble all of the relevant documents and data you’ll need to create the corresponding financial reports. This will include any finalized reports you made the previous month, if only to create a baseline. 

Common items you’ll need to assemble are:

• Accounting key performance indicators (KPIs)
• Accrued expenses
• Balance sheets
• Bank statements
• General ledger
• Income statements
• Inventory counts (or estimates)
• Receipts
• Sales totals
• Transaction records

Step 2: Verify and reconcile

With this information in hand, begin an account reconciliation, validating that the financial totals reflected in your general ledger, financial statements, external accounts, and enterprise resource planning (ERP) solution align with the exact totals. For example, the A/P account in your general ledger should match any related sub-ledgers, company credit card statements, or other records of outgoing payments. Similarly, the cash account in your general ledger should match with external bank statements and A/R documentation. 

You’ll need to research the cause for any variance you discover thoroughly and then amend relevant records to explain the discrepancy. For example, an invoicing error might force you to amend that file with credit notes or create a whole new, this time accurate, payment request.

Step 3: Evaluate fixed assets

Beyond the cash recorded on various bits of paper and in critical applications, you’ll also want to assess the relevant value of any actual assets, such as property, equipment, and inventory owned by your business. At the same time, don’t forget to consider any intangible assets you might also hold (e.g., trademarks, patents, brand names).

You need to determine the appropriate value for these resources and account for any corresponding expenses, such as maintenance, repairs, depreciation, or amortization.

Step 4: Create financial statements

Having updated and ensured the accuracy of your general ledger and other records, you’ll generate the relevant documents (see above list) to produce your month-end report. Again, you’ll at least want to make a balance sheet, income statement, and cash flow statement.

Step 5: Check your work

Before these records are finalized and shared, you’ll want to perform a last review for accuracy. This analysis should be performed by someone who holds financial authority within the organization, such as an accounting manager or controller, but has not been involved in the closing efforts until now. Upon their authorization, the financials from the month can be officially closed, allowing no further amendments or changes.

Month-end close checklist for accountants

Common challenges of the month-end close process

Given the comprehensive nature of this recurring task, there are, unfortunately, many opportunities for process bottlenecks or other inefficiencies to undermine your efforts. Some of the more likely issues you might face are: 

• Data silos: The more systems that you need to access to compile the relevant records and information for a closing, the more time you’ll spend on Step 1. And if any of the pertinent details are contained within paper records, you’ll waste much time capturing or transcribing this critical data.
• Inaccuracies: If the information you’re working from is flawed, it will be challenging to produce the right results. Even worse, the potential causes for these incorrect figures are voluminous—from duplicate payments to transcription errors to outright fraud—making it difficult to eradicate them.
• Missing records: Proper documentation is critical for an efficient month-end close process, so it can be challenging to reconcile accounts properly when you aren’t correctly recording expenses or individual transactions. If you compile too much information to review, you may also waste time on irrelevant research and unnecessarily extend the entire process.
• Outdated information: When it takes excessive time to record and route incoming and outgoing payments, your financials will lag behind reality, which will expand the timeline needed for closing efforts and may force key decision makers to rely on stale data.
• Process variances: Depending on the complexity of your business and financials, you may need to dedicate several personnel—or even several teams of personnel—to complete this undertaking on time. If those employees use different methodologies across teams or periods, the compiled information will likely be less accurate and potentially misleading.

Best practices to improve the month-end close process 

Fortunately, there are several actions that you can take to sidestep these common challenges and drive increased efficiency and accuracy throughout your closing efforts and overall financials. Some common ones we recommend are to:

Centralize operations

When the work is done the same way through consolidated workflows, regardless of who is doing it or when it’s done, you can create more consistent, reliable processes and records. Look into standardizing your documentation and financial data across systems. Whenever possible, leverage integration to ensure that the duplicate files and underlying information are accessed, manipulated, and reported on by staff, regardless of their location or responsibilities.

Do the prep work

To ensure that your month-end close is efficient, you’ll need to examine the business and financial processes that support this effort. Are there significant delays in your A/P or A/R processes? Do you routinely update and reconcile your general ledger and balance sheets? Have you conducted an inventory recently? When the small details are taken care of, larger projects become much easier.

Focus on accuracy

Give yourself sufficient time to complete your month-end close without rushing. While streamlining and accelerating processes can be helpful, don’t employ any strategies or shortcuts that put the accuracy of your data or final records at risk. A simple mistake or overlooked file early in the process will complicate your reconciliation efforts and can potentially cause even greater headaches for subsequent audits or year-end closings.

Optimize the process

There is always room for improvement, and as you conduct these closings 12 times each year, you’ll have plenty of opportunities to flag duplicated efforts or common delays. We recommend that you routinely bring together any stakeholders or participants and have them discuss what is and isn’t working. By crowdsourcing their experiences, you can often identify process dependencies or cross-departmental inefficiencies that would otherwise go unnoticed.

Automate everything

If you can offload a repetitive or time-consuming task onto technology, do it. With automation, you’ll be able to cut down on errors in your data and complete calculations and reconciliations in seconds. Further, you can eliminate unnecessary process delays caused by waiting for staff to begin the next step in the chain.

How to automate the month-end close process 

Put simply, you’ll need to invest in software. Given that we specialize in accounting automation software, it should come as no surprise that we here at Invoiced (a Flywire company) believe that automation offers you the fastest, most cost-effective strategy to streamline your month-end close process. Not only will this approach help you eliminate the potential for common, human-caused errors that delay your reporting, but it will also accelerate verification and validation procedures far beyond your staff’s best efforts. 

For instance, our Accounts Receivable Automation platform will streamline your invoicing and billing through centralized, automated workflows that help create a single version of truth and keep your records accurate and up-to-date, thanks to our broad integration capabilities. Further, with our Smart Chasing feature, you can accelerate the I2C cycle with more efficient, consistent dunning, bringing your bank account and your A/R account into closer alignment.

We’ve also bolstered our solution with a Cash Application AI feature, which leverages the power of artificial intelligence to ensure that incoming payments are routed to the proper customer accounts and recorded accurately in your income statements and general ledger. And thanks to the capabilities delivered by Flywire software, this cash application can be readily applied to payments from across the globe in 140 different currencies.

Invoiced: Streamline Your Month-End Close with A/R Automation

Given the frequency of month-end closings, you and your accounting staff would be well served to make this process as easy and efficient as possible. By taking advantage of our Accounts Receivable Automation platform and Flywire software, you can drive that simplicity throughout your A/R efforts, saving you time, labor, and money.

Schedule a demo today, and experience how hassle-free your closing efforts can be.