Introducing Professional Services. Learn how we can help accelerate your payments transformation.Learn more →
Month-end close is a critical process where the accounting team reviews and records financial transactions to close out the month. This process helps businesses accurately report their financial status and prepare for the next month by ensuring that all monthly financial activities are accounted for and reflected in the company's financial statements.
The month-end close process enables a business to provide accurate financial data regularly. Reviewing and reconciling account information regularly can help companies nip mistakes in the bud before they snowball into expensive errors. It also ensures the company is on track to meet performance objectives. With month-end close, it is easier for companies to make sound decisions, plan strategically, or properly invest funds.
How does month end close work?
Month-end close processes can vary in complexity depending on the size and nature of the business. A small business might have a more straightforward process with fewer transactions, while a large corporation may deal with a vast amount of data and a more complex system. Effective month-end close involves teamwork and coordination among the finance team. It requires attention to detail, as even small mistakes can lead to significant errors in financial reporting.
Month-end close means the accounting team reviews, records, and reconciles all account information to ensure accuracy. The entire process typically breaks down into several steps:
Data Collection: The first step is gathering data related to all financial transactions made during the month. Companies should collect invoices, receipts, bank statements, and any other documentation of financial activities. The team should also have petty cash total, bank account information, total revenue, financial statements, balance sheets, income and expense accounts, and general ledger information on hand.
Reconciliation: Accountants then reconcile the documents and information with the company's accounting system entries. This step is crucial to ensure that all transactions are recorded accurately and match the corresponding documentation.
Review and Adjustments: After reconciliation, accountants review the accounts for discrepancies or unusual items. Accountants may make adjustments as needed to correct errors or account for accruals and deferrals.
Financial Statement Preparation: After all accounts are accurate and up-to-date, the financial statements for the month – income statement, balance sheet, and cash flow statement – are prepared.
Analysis: The final step involves analyzing these financial statements to get insights into the company's financial health. This analysis helps in strategic decision-making and planning for the upcoming months.
Many companies keep daily journal entries of all transactions to streamline the reconciliation process at the end of each month. It’s also important to align the schedules and procedures of all departments that may impact financial records so that month-end close can happen promptly.
Why is month end close important?
Month-end close is vital for maintaining accurate financial records. It provides a snapshot of the company’s financial position at the end of each month, allowing management to track progress, identify trends, and make informed decisions. This regular financial check-up helps detect and address any issues promptly.
Month-end close is also essential for compliance with accounting standards and regulations. Accurate financial reporting is crucial for stakeholders, including investors, creditors, and regulatory bodies.
Try Modern Treasury
See how smooth payment operations can be.
Learn
Understand the underpinnings of one of the most critical and time-consuming processes in finance today and explore how it’s being brought into the 21st century.
Bank reconciliation is the process of verifying the completeness of a transaction through matching a company’s balance sheet to their bank statement.
Continuous accounting is the ongoing process of updating a business’s general ledger with reconciled bank statement transactions as soon as they become available.
Financial reporting empowers businesses to make informed financial decisions by identifying trends and tracking performance. It also offers insights into a company's assets, liabilities, and debt management strategies.
Month-end close is a critical process where the accounting team reviews and records financial transactions to close out the month.
Recoupment refers to the recovery of spent or lost funds, especially in business operations.
Incoming payment details are notifications that a company is going to receive a payment it didn’t originate—meaning the receiving funds were not initially requested.
Account reconciliation is the process of reconciling an account balance against a set of financial records to ensure that the balance is complete and accurate.
Balance Reconciliation is the process of verifying and ensuring: -That the expected and actual balances in a given account are correct -That the actual balance of an account is sufficient to cover planned transactions
Batch processing is a method of processing various types of transactions. As the name suggests, transactions are processed in a group or “batch.”
Multi-step reconciliation is the process of dealing with three or more systems of record, that all need to be reconciled against one another.
Transaction reconciliation is the process of matching two different data sets at the transaction level. This allows companies to verify that transactions have happened appropriately.
The 10-K is a comprehensive report mandated by the U.S. Securities and Exchange Commission (SEC) that publicly traded companies must file annually. This report provides a thorough overview of a company's financial performance over the past year.
Subscribe to Journal updates
Discover product features and get primers on the payments industry.