Complete and prompt financial books are one of the essential strategic tools for guaranteeing organizational success. But it can prove challenging for you as a small business owner to keep and maintain your business’ financial books in order all the time.
You can easily find yourself falling behind when it comes to recording and keeping your financial statements due to many business transactions remaining unrecorded. When this happens for several months, it is a recipe for disaster. Your hard-established business risks imminent failure.
Keeping and closing your business’ monthly books can be hectic. A monthly closing process and checklist can help you finish accounting tasks and reconcile your accounts easily and promptly. All you need are several simple procedures and tips for a workable month-end closing strategy.
This article looks at what a month-end close is and some valuable tips for an effective month-end close strategy for your business.
What’s a Month-end Close Process?
A month-end close process defines a list of steps that a business follows to review, record, and reconcile account information to ensure that every transaction for that monthly period is recorded and reflected on financial reports.
Your month-end close may be different from that of your friend’s, depending on business type, accounts, and accounting procedures. But a typical month-end close will include:
- Total revenue
- General Ledger(GL) data for that monthly period
- Petty cash
- Balance sheet information, including total fixed assets, income, and expenses
- Financial statement
- Inventory totals
- Bank statements, and,
- Accounts receivables
Steps in the Month-end Closing Procedure
Now that you know what to include, use the tips below to establish a smooth and effective month-end close process.
- Record Incoming Cash and Accounts Receivables (AR)
Record all the money the business received for the monthly period, including loans, revenue, and payments on invoices. Cross-checking invoices against customer payments will help ensure that you did not miss any payment. Inform any customer of a missing payment to balance your AR.
- Update Your Accounts Payable
Month-end close processes can also take place daily or weekly, making it easier to monitor transactions. But this can be hectic. If you don’t keep a daily record of transactions, write all the purchases and organize receipts for your accounts payable.
- Count Inventory
Monthly inventory counts help monitor your inventory levels. It also becomes easier to know what products you need to replenish to avoid inventory shrinkage.
- Check Revenue and Expenses Accounts
Check these accounts for accurate entries and recordings for the monthly period. Also, ensure to include accruals and prepaid expenses in your books for easy at the month-end close compilation.
- Check Petty Cash
I’m pretty sure your business uses some petty cash. That being the case, it is important to account for all the petty cash in your month-end close by balancing all your records against receipts. You then need to count whatever petty cash you have remaining, your records/receipts, and what you had in your petty cash fund before to make sure everything balances.
- Consider Fixed Assets
You need to account for everything, including fixed assets. It is essential to record any payments or costs such as depreciation related to buildings, furniture, vehicles, or other equipment that don’t directly translate to cash for your business.
- Reconcile All Your Accounts
Reconcile and match your cash, checking, loans, prepaid, or accrued accounts when doing a month-end close to for consistency and to identify any errors.
- Assess Your Financial Statements
Evaluate and organize your financial statements, including General Ledger (GL), balance sheet, and profit and loss statement. You can do this with the help of accounting software to save you the struggle of “manual” book-keeping.
- Inspect the Work and Prepare for the Following Month
Consider having another experienced individual look at your work for any errors before completing the month-end close process. You can also double-check yourself if there is no one to help you out.
Preparation is key to a successful month-end close process. Having a calendar in place will save you time and effort and help you be up-to-date with your books. Anyone who can adjust or affect your business’ ledger needs to be aware of the closing dates for a smooth month-end close.
The Bottom Line
Closing your books every month is a sure way to track the business’ progress, measure its performance, and have an accurate cash flow projection for the future. Having your financial books in order will also help you make informed decisions, save you time, and reduce the stress that comes with bookkeeping.
A consistent month-end close strategy also simplifies tax filing and auditing while preparing you better for the future.
Although the month-end close process is a big plus to your business, it can be overwhelming, especially if you have a backlog. But don’t worry. DOAAR is here to help with accounting and financial services. Please contact us today for a booking or to learn more about our services.