The purpose of a month-end close is to balance the account and verify it at the end of a period of time in order to produce reports that can help show the financial position of a company. These reports serve to inform investors, lenders, the management and regulatory agencies. However, without the help of services that simplify the process, many business owners find themselves struggling with the long hours and high effort required in closing every month, and some may not be performing it correctly. Read on to find out more about how month-end closing should be done.
How to Begin with Month-End Closing
The first thing you will need to look at is the general ledger. In this ledger, the bookkeepers, clerks and accountants will record debits and credits, and take down bills paid or payments received by the business. With accounting software that is cloud-based, automation and bank feeds, a lot of the tediousness is reduced as the work can be automated. What you get at the end is the trial balance, which lists the different bank accounts and the balances of these accounts at the end of a period of time.
Financial information will need to be reported quarterly and annually so that stakeholders like investors and banks are informed of the company’s financial position. In order to get to the reports, businesses need to close the books. This essentially means that account balances need to be adjusted from cash basis to accrual basis. Results should be presented according to the Generally Accepted Accounting Principles (GAAP).
Month-End Closing can be Complicated and Confusing
The accounting team will take over once all cash transactions have been recorded. The entire process of month-end closing can be chaotic, complicated and messy. Information from different sources and systems will need to be reconciled and consolidated. After which, the numbers will be adjusted. Team members will need to work together closely in order to complete this task.
Those doing the closing must be meticulous and careful. Expenses should be recorded in the same time period as the related revenue. Some expenses may be paid out after that particular period, so these expenses need to be accrued for.
With the advancement of technology, the process of month-end closing can be sped up. Accountants will then be able to work on other tasks before the period ends, which reduces the workload later on. Apart from the high amount of workload, closing requires the meticulous management of data and the process. Documents, checklists, schedules and more may need to be pulled from different places across the network, and it may be confusing to see who has accomplished which tasks, and whether further adjustments need to be made.
Ideally, a month-end closing should reconcile as many accounts as possible monthly. However, every account requires time and it is always a battle between getting the month-end closing done and recording all the numbers correctly. Tiny variances can snowball over time, which makes thing even more complex and harder to sort out in the future.
If the month-end closing process is extremely confusing and difficult for you, Fourlane offers a range of process and services that can help simplify the process. Contact us to find out more about the services we offer today!