What is the month-end close?

The purpose of the month-end close

The month-end close is the process of reconciling your financial data (often at the end of every month) in order to prepare financial statements such as balance sheets and income and cash flow statements. Its primary purpose is to ensure that the month’s financial transactions are recorded accurately and that your financial statements reflect the true position of your company. This is important for: 

• Providing stakeholders with accurate financial information.
• Ensuring your company complies with regulatory requirements.
• Evaluating your performance against budgets and forecasts.
• Assessing your company’s financial health and identifying any issues.

‍

The month-end close checklist

The exact process followed during the month-end close will depend on your specific business and industry. In general terms, the month-end close checklist looks something like this:

1. Create a closing schedule with important deadlines to ensure there are no surprises.
2. Record all financial transactions in your accounting system, including sales, purchases, expenses, and payroll.
3. Compare the balances in your general ledger with external statements, such as bank statements and vendor invoices, to ensure they match.
4. Adjust entries to allow for expenses and revenue that have been incurred but not yet recorded and deferred expenses and revenue that have been recorded but not yet incurred.
5. Record petty cash if you have it.
6. If your company holds inventory, it might be necessary to do a physical count to ensure your records are accurate. You can use inventory valuation methods like FIFO, LIFO, and weighted average to determine the cost of goods sold and your ending inventory.
7. Calculate the depreciation for fixed assets and amortization for intangible assets to ensure your expenses match the revenue they help generate.
8. Transfer the balances of your temporary accounts (such as revenues, expenses, and dividends) to your retained earnings account. In doing so, you reset your temporary accounts to zero in preparation for the next period.
9. Check the preliminary financial statements for accuracy.
10. Prepare your financial reports, including your business ledger and financial statements such as profit and loss and balance sheets, and submit them to management for review.

‍

Potential pitfalls and how to avoid them

The month-end close process can involve several challenges, including:

Data accuracy

‍Accurately recording all transactions can be challenging, especially if you have high transaction volumes. A modern accountancy solution will help by automating as many processes as possible to avoid human error.

‍Timeliness‍

Completing the close process promptly is critical. But delays can occur due to missing information, reconciliation issues, or staffing constraints. Again, smart tools will help ensure data is transferred smoothly and everything is completed on time.

Coordination‍

The month-end close process requires coordination between your accounting, finance, operations, and inventory management departments. Roles and responsibilities must be clear so everyone knows what’s expected of them.

Compliance‍

Keeping up with changes in accounting standards and regulations requires constant vigilance. Allocating responsibilities and ensuring compliance is a company-wide concern will keep you on the right track.

Technology

‍The right technology will streamline the process. But integrating new systems and ensuring data integrity can be challenging. Before bringing on a new technology partner, make sure everyone understands the objectives and how the software will fit into your existing ecosystem.

‍

What a good month-end close process looks like

Smooth and successful month-end close processes are: 

• Standardized: Developing and documenting standardized procedures for the month-end close ensures consistency and reduces the likelihood of errors.‍
• Automated: Modern accounting software will streamline repetitive tasks, such as data entry and reconciliation, so your team can focus on more strategic activities.‍
• Reviewed regularly: Don’t just wait until the end of the month. Conducting regular reviews will help you spot and fix issues early, making the month-end close process smoother.
• ‍Aligned: Fostering open communication and collaboration between departments ensures that all necessary information is available and you can address issues promptly.

‍

How Atlar can help with your month-end close

Atlar enables data to be synchronized seamlessly between your banks, ERP system, and other systems such as payment platforms and expense management tools. This lets you simplify bank reconciliation since your bank statements can be automatically fed into your ERP system and the transactions matched.

A fundamental benefit of using a modern treasury platform like Atlar is the ability to unify all of your financial data across banks, PSPs, and ERP systems into a single source of truth. Having normalized bank and ERP data in one aggregated view increases data reliability and means your finance, treasury, and accounting teams can work off the same data set without the need for manual file transfers.

Atlar offers no-code integrations with ERP systems like Oracle NetSuite and Microsoft Dynamics. To learn more about how Atlar helps automate accounting and reconciliation processes at scale, visit our Accounts Payable feature page.