Generating accurate monthly financial reports depends directly on a well-executed month-end close. This accounting procedure aims to verify financial transactions, identify and correct discrepancies, and produce financial statements reflecting your company’s financial performance during the previous month.
Each step of a month-end close directly impacts the financial accuracy and timeliness of the information you’ll ultimately use to make crucial business decisions. Using a month-end close checklist that includes a few best practices is a great way to make your monthly closing process consistent and efficient.
What is the month-end close?
The month-end close is an important accounting procedure that companies perform at the end of each month to finalize and “close” their financial records for the previous month. It’s a systematic process of reviewing, documenting, and reconciling all financial transactions that took place before starting the next accounting period.
A monthly closing process ensures accurate reporting, increases your company’s efficiency, and helps you identify errors and mitigate fraud risk, all while creating a clear audit trail.
Month-end close checklist for small-business owners
- Collect all financial information and record transactions
- Reconcile accounts
- Review and adjust entries
- Prepare monthly financial statements
- Analyze financial performance
- Perform final review and approve
A typical month-end close involves collecting and recording all your business transactions before reconciling accounts and reviewing entries. You can also prepare financial statements and analyze your financial performance before performing a final review and approving the month-end close. Here’s how:
1. Collect all financial information and record transactions
This includes gathering data on income (revenue payments received), expenses (supplier invoices, payments made), and other financial activities. Your data will likely come from various sources, including sales records, bank statements, vendor invoices, payroll information, and more.
Make sure every transaction is entered in your accounting system, paying attention to correct dates, accurate amounts, proper categorization of income and expenses, and clear descriptions. You may find it helpful to create recurring month-end journal entries for routine expenses, such as lease payments, internet service, and software subscriptions.
2. Reconcile accounts
Compare each transaction on your bank statement to the corresponding entry in your cash account to identify and resolve any discrepancies, such as outstanding checks, deposits in transit, bank charges and fees, and interest earned. Common reconciliations include bank, petty cash, accounts receivable and accounts payable, inventory, and other balance sheet accounts such as prepaid expenses, accrued liabilities, and fixed assets.
3. Review and adjust entries
Review your accounts for any unusual items or errors and make any necessary adjustments. This can include accruals, recognizing revenue earned or expenses incurred that aren’t yet recorded in cash transactions. Deferrals—adjusting for revenue and expenses that have been received or paid in advance but not yet earned or incurred—are also included.
Don’t forget to recognize and record expenses related to the value depreciation of any long-term assets (such as equipment that will eventually need replacing) over time.
4. Prepare monthly financial statements
Once all transactions are recorded, reconciled, and adjusted, you can prepare your financial statements. This includes your profit and loss statements, balance sheet, and cash flow statement. If you’re using accounting software, you can easily generate these reports and customize them as needed.
5. Analyze financial performance
Next, you can analyze these prepared financial statements to understand the financial health of your business, identify trends, and compare your actual performance against your goals. During this step, you may want to meet with your business’s accountant for any feedback or insights they have after reviewing your statements.
6. Perform final review and approve
Whether you are working on your own or need to consult with external experts or in-house finance teams, the final step on your month-end close checklist is to approve your financial statements to complete the monthly closing process. After the account statements are reviewed, the books can be officially “closed” for the month, meaning no further transactions can or will be recorded for that period.
Month-end close best practices
- Set realistic deadlines and stick to them
- Reconcile key accounts early
- Review and analyze, don’t just process
- Clearly document any entry adjustments
- Automate repetitive tasks
- Establish a review and approval process
- Maintain accurate financial records throughout the month
There are a few month-end close best practices that will give you the most accurate and efficient closing every time:
Set realistic deadlines and stick to them
Figure out a reasonable time frame for completing your month-end closing process (e.g., within the first few business days of the following month) and stick to it. Keeping a schedule means that every month, you’ll have timely financial insights for the many ongoing decisions involved in running your small business.
To determine your target closing schedule, ask yourself how quickly you need each month’s financial data to make informed business decisions. Track the progress of each task on your checklist, and if certain steps consistently cause delays, try to identify the root cause behind the delay and find a solution.
Reconcile key accounts early
Avoid waiting until the very end of the monthly closing process to reconcile your critical accounts (such as your bank accounts, accounts receivable, and accounts payable). Performing these reconciliations early in the process allows more time to investigate and resolve any discrepancies, which is often a time-consuming process.
Prioritize bank reconciliation to keep your cash balance accurate, and identify and resolve issues with customer payments early to improve your cash flow. Reconcile your accounts payable to understand your obligations and plan for upcoming invoice payments.
Review and analyze, don’t just process
The month-end close isn’t just about ticking boxes. Take the time to review your monthly financial statements and company metrics. Compare the current period to past periods, and analyze actual performance against your budget. Look for trends, anomalies, and areas that require attention.
Taking the time to analyze the information is how you gain valuable insights into your company’s performance. Keep an ongoing record of your observations, findings, and any questions that arise during your monthly reviews.
Clearly document any entry adjustments
Any needed entry adjustments (accruals, deferrals, etc.) need to be well-documented. This provides an audit trail and makes it easier to understand your financial results in the future. For every adjusting entry, provide a clear and concise explanation of why the adjustment is being made (e.g., to record accrued salaries for the last week of the month).
Link each adjusting entry to the relevant supporting documents, such as payroll reports for accrued salaries and vendor invoices for accrued expenses. Clearly outline how the adjustment amount was calculated, and always include the date it was made.
Automate repetitive tasks
Accounting software like QuickBooks Online or Xero often includes features such as recurring journal entries for predictable monthly expenses like rent or insurance, automated reconciliations, and report generation. This sort of accounting automation saves time and reduces your risk of manual errors. To figure out what you might be able to automate, look for manual processes that are performed every month, such as recording incoming cash and regular expenses, and generating recurring invoices.
Establish a review and approval process
Whether you have a financial or accounting team in-house or work with an outside bookkeeper or accountant, implement a process for reviewing and approving your month-end close before finalizing associated reports. Specify which aspects of the month-end close will be reviewed (e.g., reconciliations, adjusting entries, financial statements, etc.).
This adds a layer of oversight and helps catch potential errors. The reviewer should document their findings, any questions or concerns, and whether they approved the month-end close.
Maintain accurate financial records throughout the month
Your month-end close will run significantly smoother when you record transactions and organize supporting documentation throughout the month. Don’t let expense receipts, invoices, and other financial documents pile up. Enter them into your accounting system as soon as possible. Use clear and consistent names for customers, vendors, and accounts. Whenever possible, attach digital copies of invoices and expense receipts to the corresponding transactions in your accounting system.
Month-end close checklist FAQ
How long does a month-end close take?
The typical monthly closing process can take five to 10 business days, but this varies based on the complexity of your company, the volume of transactions, and the general efficiency of your processes.
What accounts do you close at the end of the month?
In a routine month-end close process for generating financial reports and analysis, you don’t formally “close” any accounts in the way you do at the end of the fiscal year. Temporary accounts—revenue and expense accounts—are tracked and reported on an income statement for that particular month. Permanent accounts—asset, liability, and equity accounts—are not closed at the end of the month or fiscal year because their balances are continuous.
What should be included in the end-of-month report?
Your end-of-month report should include core financial statements such as an income statement and balance sheet to show your profitability and financial position. Highlight three to five key performance indicators (KPIs) relevant to your business and include a brief summary of your cash flow, along with any actionable next steps.
