Accountancy is a never-ending job. Be it your taxes, financial reporting, or performing a month end close, you barely get a chance to breathe.
The time you spend on the month end close is time spent away from added value. There are a thousand tasks on your mind and the closing process diverts your attention from making important business decisions and developing strategies.
In today’s article, we will talk about improving your month end close process and how to reduce errors. We will dive deep into the exact steps you need to take for better efficiency.
What Is The Month End Close?
The month end closure involves gathering a corporation’s accounting data, reviewing documents, and reconciling them. For certain companies, it is essential because it helps them to keep accurate records throughout the year.
The most important period is at the end of the financial year, but if you keep track of your finances every day, the year’s end will take care of itself.
Most financial teams close their books once a month. This allows them to verify transactions, journals, and summaries regularly. It also allows them to compare bills, income, and expenses to physical records like receipts, invoices, and documents.
The month end close process could take anywhere from a week to 10 days, based on how fast the accounting team works and how much data they are handling.
A good month end close process can help to achieve the following:
- Corporate decisions that are more data-driven
- A dependable and thorough accounting system
- Smoother & more efficient financial auditing
- Improved visibility into the company’s financial performance
- Simpler tax preparation
The Key Steps In Month End Accounting:
Since every company is unique, there is no ideal month end close protocol. Some companies deal with products, which means they will have to take extra efforts to keep account of both inventory systems and their sales data. Others are service-oriented or have petty cash and administrative costs to consider.
- Accounts Receivable
Your financial team should start by recording all income received. This includes:
- Other Revenue
Make sure the finance team records every transaction in a journal.
- Accounts Payable
Compared to income, accounts payable is the revenue you spend on bills and purchases. You have to keep a record of how much you have spent on which products and services. This includes expense reports, invoice payments, and company cards.
- Reconciliation of Accounts
Reconciliation of accounts includes matching and verifying every transaction with the corresponding vendors, banks, or businesses. This comes under the umbrella of the accrual process.
- Fixed Assets and Inventory
Not everything of value in the company can be assigned a monetary value. Fixed assets, such as machinery, real estate, and automobiles, add long-term value to an organization. Take into account that their worth may fall with time as these assets depreciate. As a part of the monthly closing procedure, conduct an inventory count.
- Financial Statements
Accounting records and statements are critical for getting a clear picture of corporate accounting facts and developing a future course of action. Organize your monthly closing financial statements such as profits, losses, balance sheets, expense sheets, and total revenue. Make sure the credits and debits hold a net value of zero.
- Prepare for the next closing Process
The month end closing process goes beyond just compiling and setting records straight. Think about creating a financial plan to address risks. If you feel like you need an automation process, you can go for it. Companies that deploy automated systems are known to complete their closing process on an average of six days as compared to those that do it manually.
7 Tips For Better Efficiency In The Month End Close Process:
Making your accounting month more efficient will allow you to have an accurate insight into your company’s current financial state. Moreover, you will be able to make better decisions for the future. Follow these 5 steps to ensure a smooth month end close procedure.
- Use Templates
Having templates and checklists will shave off weeks from your month end close process. The process may sound taxing but it is worth it.
One of the key benefits of using templates is the standardization of your operations. These procedures will improve both speed and accuracy of your month end process.
Having a checklist can reduce your month end closure from weeks to days.
- Consolidate Your Journal Entries
As a basic guideline, start by updating the most recently posted entries and make your way ahead. Start with the entries from the previous day. Examine the procedures taken and the time the data was received. Make a list of the underlying causes of the problem with the staff. In case the procedure is ineffective, or any other obstacle is preventing an efficient closing process, try to narrow down towards the problem to help find root reasons. Then continue to the next day until all of the last-day entries are done early in the closing.
- Automate Your Systems
One of the most important things you can do to make the month end much simpler is to make your systems more automated. Payment verification that is automated, worker debit cards that are built-in, and simple approvals are great options.
Many organizations rely on spreadsheets to perform these tasks. But in today’s age, sheets will not do the job for you. Manual procedures are full of errors and inconsistencies.
The best approach here is to deploy tools that will provide linkage between spreadsheet and source data within your ERP. This will ensure accuracy and keep the information up to date.
- Backup Your Data
Consider the possibility of getting denied access to all of the company data, reports, and evaluations. Such incidents have the potential to double the month end procedure and have terrible consequences for the rest of the accounting operations. Maintaining a protected backup of the data employing a dependable cloud-based method is a good idea.
This is necessary even if your company believes in using digital accounting software systems or internet tools.
- Schedule Staff Meetings Before And After The Closure
Review the closing timetable and time frame, developments in progress and concerns to examine, and follow-up issues from the prior month’s post-close discussion in pre-close discussions. Analyze and debug what performed well and what didn’t in post-close discussions, this includes claimed or scheduled journal entries (complete dates and times).
Examine the progress of team members’ tasks from the previous month. Address any non-value-added processes, hazards, restrictions, and irregularities from the prior period, as well as characteristics of the data obtained during the operation.
- Establish A Thorough Closure Plan
The closure process is more disciplined and structured when precise timetables are used. Make a plan that shows when each task will be completed. Begin with small regular additions. Every month, update the plan to reflect the modifications that have been made.
Extend the plan to half-day increments after a few months. Last but not least, divide the plan into hourly intervals. In post-close discussions, document actual completion days and times, examine deviations and share the data gathered with your financial team.
- Regularly Monitor Transactions
To save time examining transactions at the end of the month, track, analyze, and assess transactions throughout the month. Three or five days before the month end closure; look for large customer receivable accounts to save time and make revenue revisions. Resolving funds every week also speeds up an accountant’s capacity to document cash at the end of the month.
Although accounting is never fully completed, businesses may increase productivity and generate value by saving time on month end closing activities. All of these suggestions and tips that we have suggested can be used to further suggest efficient processes for year-end closing and may be beneficial to some of the other accounting systems as well.
The important point that should be the key takeaway from this article is that closing time takes a business’s time, attention, and effort that may be better invested in making smart decisions. Users of accounting information can improve job satisfaction, staff morale, save money, and increase profits. So, you must fix the closing process to make it more efficient.