Closing the business accounts regularly is as important as recording the transactions and preparing the financial statements and reports. Besides the yearly accounts closing process, the month-end closing process is also required.
It helps keep the business accounts up-to-date and avoid issues while preparing the year-end statements. It is a process that requires time and resources; thus, it is best to outsource it to a good bookkeeping services provider. They keep track of all business activities diligently and help manage accuracy.
Let us understand month-end closing and how it can be streamlined to assist the business.
What does a month-end closing process mean?
Month-end closing process means finalizing the business’s accounting data by recording, reconciling, and reviewing the transactions. The month-end workflows of the business depend on the accounting basis used by the business; cash basis and accrual basis.
Whether the business uses in-house or outsourced bookkeeping services, it must collect all the financial data for an accurate month-end closing process. A business must have some basic information to ensure an accurate and smooth month-end closing process, including:
- Income and expense information
- Bank statements, including loan and credit card statements
- Inventory data
- Accounts payable and accounts receivable
- Accruals and prepayments
- Fixed assets data
- General ledger
- Financial statements
Why is the month-end closing process required?
With the businesses busy managing the day-to-day business activities, it is easy to ignore the requirement of the month-end closing process. However, keeping the financial books up-to-date and reviewing them monthly makes it easier to prepare the financial statements at the year-end.
For this purpose, businesses now prefer to hire outsourcing accounting and bookkeeping services. They make the accounting process more accessible by breaking it into parts and regularly updating it.
Month-end closing is a part of the accounting process and must be done on time. Completing the month-end closing process regularly, without any delay, is beneficial for businesses in many ways, such as:
- It helps make the financial records more accurate, comprehensive, and up-to-date
- Provides context to make good business decisions
- Helps address any business issues immediately
- Makes the tax filing process easier
- It helps save time and costs spent to catch up on business bookkeeping
- Makes the auditing process smoother
- It makes the year-end closing process less stressful
Top steps to complete the month-end closing process
The bookkeeping services need to carefully check and review the books of accounts for the month-end closing purpose to avoid any inaccuracies or missing data. They must follow a step-by-step guide to complete the month-end closing process. The steps to complete the procedure include:
1. Record the expenses and incomes-
Record all cash inflows and outflows during the month. Verify every invoice and cross-check them to ensure all the payments have been made. Review all the invoices and make a note of any missing invoices. Check that all the debit and credit entries are made correctly and journal entries are posted accurately in the general ledger.
2. Accounts payable and receivable updation-
Review the accounts receivable and ensure that customers make payments within the credit term. Also, remember to check the accounts payable and make sure that the payments to vendors are made on time. If more time is required to make payment, a business can negotiate better credit terms with its vendors.
3. Prepare bank reconciliations-
Accounts reconciliation helps detect any mistakes and fraud in the books. Businesses must prepare a bank reconciliation account to reconcile the bank data with the financial data as per business records. Reconciliation helps understand the business’s cash position and prevent bank overdraws.
4. Review inventory-
Carefully monitor the inventory to manage an efficient working capital. Inventory overstock causes wastage and unnecessary money trapping, while understock leads to missed revenues, production losses, and reputation damage.
5. Review the petty cash balance-
A petty cash fund doesn’t seem important; thus, the small payments are easily missed while recording. However, daily or weekly reconciliation of the petty cash fund is important as numerous missed small payments can cause huge losses over time.
6. Review fixed assets-
Fixed assets like buildings, equipment, motor vehicle, and intangible assets form a big part in determining a business’s financial position. They are required to keep the business operation running; thus, it is important to track the value and condition of every fixed asset.
7. Reconcile prepaid and accrued accounts-
Prepaid and accrued accounts come under the current assets and liabilities and affect the business cash flow and market reputation. Reconciling the accrued accounts helps ensure all the due payments are made on time.
Reviewing the prepaid accounts prevents the business from making double payments. Timely and proper reconciliation of prepaid and accrued accounts helps maintain a good market reputation and credit terms with the vendors.
8. Prepare financial statements-
Financial statements are prepared once the business has completed the accounts reconciliation process. Financial statements help determine the business’s profitability, cash flow, and value. The financial statements compulsory for every business are income statements, balance sheets, and cash flow statements.
9. Review your financial information-
Before completing the month-end closing process, review the business’s general ledger and financial statements. The best way to ensure accuracy in the accounts is to get them reviewed by someone besides the one who prepared them.
10. Implement corrective measures immediately-
The business must take immediate corrective measures if any inaccuracies or issues come to light after the review process. It will help avoid any major losses due to mistakes in the business accounts.
How to streamline the process?
Month-end closing is important for a business to stay up-to-date with the numbers and on the right track. Businesses can hire outsourcing bookkeeping services to avoid last-minute rush and smooth the month-end closing process. Following are some steps that a bookkeeping services provider can take to streamline the process:
a. Maintain good records-
The first and most important thing is maintaining good and organized business records. It helps keep the records updated, find any inconsistencies, and fix them on time.
b. Have a closing date-
Based on the business and its personnel’s workload, a business must fix a deadline to complete the month-end closing process. Don’t rush the process nor delay it too much but fix a closing date within 7-10 days of a month’s completion.
c. Automate your bookkeeping-
Manual accounting and bookkeeping are time-consuming and tedious. So, to streamline the process, the best solution is to automate the bookkeeping process. Using good accounting software helps make the process simpler and faster.
d. Hire an in-house team or outsource-
A business needs to hire in-house personnel to handle the accounting software, leading to increased costs of hiring and training the personnel and purchasing the accounting software. To save costs, a business can outsource its accounting and bookkeeping function to a small finance team or bookkeeping services provider.
e. Allow time for data analysis-
Don’t just fixate on closing the books but also analyze the business data provided by the accounting books. It helps in tracking and correcting the inconsistencies and errors in the accounts.
f. Build a flexible staffing model-
A flexible staffing model helps businesses access specialized personnel. Without such personnel, the business might become shorthanded and fail to fulfill some important functions. Businesses must also have a cross-training program for their personnel.
Though the month-end closing process is important, it doesn’t have to be a stressful affair. Outsourcing accounting and bookkeeping services help businesses manage their accounts and make the closing process accurate and smooth. However, getting a service provider best suited for the business is compulsory to get the best out of the closing process.