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As discussed, making your accounting month end more efficient can not only give an accurate insight into the financial state of your company but also prevent future mistakes. Thanks to technology, the close has been getting steadily faster, according to surveys by. We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with PLANERGY. Besides having a well-thought-out plan and month-end workflow, lets review some best practices that can help make your end-of-the-month processes go as smooth as possible. The flowchart below provides a visual overview of the month-end close process and the key activities that take place in each step. is known as reconciliation. In 2017, the average accountancy team reported that month end close takes more than 8 days. This process may be viewed by those outside the accounting department as time travel or financial legerdemain. Hey FQ Customers! One software company attributed a sign checklist as a key reason to their success in reducing month-end close from 3 weeks to just 3 days. Income statement accounts track activity over a specific period, so those balances need to be zeroed out, or closed, so that the next period can start fresh from zero. So the $5,000 becomes a current liability and is placed in Accounts Payable, with a corresponding entry in the Office Supplies expense account. But fast-growing businesses with ambitious goals may need to establish the cadence of a monthly closing process so that decision-makers have a reliable baseline for future strategy. The closing process involves four steps to make that happen. A month-end close template like the one found here can get you started on developing the best process for your organization. How Do You Book a Revenue Recognition Journal Entry Under ASC 606? Another account is used to keep track of dividends paid out over the period, and it also needs to be zeroed out. Month-end close requires accurate and organized financial statements, including your general ledger, balance sheet, and profit/loss statement. Ensure everyone knows what tasks theyre responsible for completing. A software solution with advanced data analysis and reporting support can generate and populate these documents automatically, and then provide detailed analyses you can use to plan for the months and years ahead with confidence. Lock A/R. Your finance team already uses these, of course. NetSuite requires that these steps be checked off in a specific order. Review Inventory Activity. However, when its time to close the fiscal year, the actuals will need to be determined. Tribal knowledge abounds, and tasks can be easily overlooked, especially if a key person is out for a few days. , the accounts are permanent, so they reflect the aggregate of financial activity of the entity since inception. Definition & How to, What Is Gross Profit Margin and How To Calculate It, Best Practice Month-End Close Checklist for Client Accounting Service Firms, FloQast Vs. BlackLine: A Comparative Look, Report: Burnout in the Accounting Industry Is Widespread. Budget automation: how to pick the right budgeting tool, How HMRC research & development (R&D) tax credits work, Accrued expenses: how to use accrual accounting to measure company spend, Month-end close process: how to make accounting more efficient, time spent on month-end close is time spent away from added value, good financial tracking continues every day, week, and month, this month-end process could take between, build a clear picture of your overall business spending, six key steps in the month-end accounting process, the value of these assets drops over time, the balance sheet, profit, and loss, revenue and expense sheets, shave entire days off your month-end close process, reducing month-end close from 3 weeks to just 3 days, the end of the current accounting period, and transactions after this date will be carried forward to the next month, save time on your month-end closing processes to increase efficiency and deliver added value, Helps easily display your financial information, Keeps your records ready in case you get audited, Prepares you for simpler, easier tax filing, Consolidate all transactions in one place. This is just a bookkeeping reset for the next year. The more complete and accurate your financial statements are: Collecting the necessary information is just the first step. Team members dont know what needs to be done. In general, there are six key steps in the month-end accounting process for start-ups and SMEs: Start by recording all income received throughout the month, whether this is through cash, invoices, loans, or other revenue. Whether your process takes longer or youre getting your close done in less time, set a goal to shave a day off of the process next month or next quarter. But the truth is its the simplest and most effective way to ensure you can see, measure, and track expenses and revenue as they occur, and provide accurate, comprehensive financial records for internal planning, internal and external audits, and tax preparation. One of the bedrock accounting principles, closing the books is the process of verifying and adjusting month-end balances to prepare reports that reflect the companys true performance over a specific period. Verify that all expense reports have been submitted and approved and all invoice payments have been recorded. Done. Know a standout controller? Do any of the following sound familiar? Eliminate Intercompany Transactions. Sixty-one percent were closing the books within six days. Finally, its time to think ahead to the month in hand and create a business financial plan to address key risks. Bank reconciliations have to tie to balances on the closing date. . Revenue recognition for the period has to be squared away. When the customer pays their bill next month, the cash entry of $200,000 generates a corresponding drop in Accounts Receivable. This field is for validation purposes and should be left unchanged. Lock All. That brings up the Period Close Checklist. This is due to the depreciation and amortization process, which means that the value of these assets drops over time. That can work for a while, but as the accounting department grows, that process can become total chaos. Reconcile AP aging to sub-ledger and subledger to General Ledger. We'll get into how you can develop the management of your closing process. But a more streamlined month-end close process leads to fewer mistakes across your entire accounting procedure. Using estimates rather than exact calculations can shave hours or even days off the close. Post depreciation, amortization, and any other revenue or expenses from other modules. Stay up-to-date with news sent straight to your inbox, Sign up with your email to 88% of companies who apply automation can complete the monthly close process within 6 days, compared to only 40% of those who dont. The Spendesk Prepaid Mastercard and Spendesk Debit Mastercard are issued by Transact Payments Limited pursuant to licence by Mastercard International Incorporated. Verify that all accounts payable bills are in the system, including recurring bills. So it pays to do it right. After clicking on the green arrow on the Close line, click on the Reopen Period button. He helps growing companies create more efficient and effective spending processes, and move away from the traditional hassles of spending at work. Since Income Summary is a temporary account, that balance needs to be closed to Retained Earnings to track the companys cumulative earnings. Business owners and executives use last months financials as a starting point to make business decisions for the upcoming month. Verify that all entries that should have been entered actually were entered. Check for any transactions that are in draft form, recurring transactions that have failed, and transactions still awaiting approval. Only 29% were closing within four days. Get Your Numbers Lined Up Before Your Close. Whatever accounting system you use, the following checklist covers most of the tasks that need to be completed before you can close the books. Browse hundreds of articles, containing an amazing number of useful tools, techniques, and best practices. So most finance teams also close the books each month, letting them check transactions, journals, and reports on a more regular basis. This is also a good time to discuss issues that arose during last months close and make a plan for mitigating them, if possible. All of these steps need to be part of your regular accounting procedures. Income Summary is a temporary account used during the closing process. The purpose of the trial balance is to show that your financial records are properly balanced, with a net balance of zero for all credits and debits. But communicating cut-offs gives them enough time to attend tasks like paying your invoice while also completing the month end close. Again, a centralized, cloud-based, and fully integrated inventory/procurement/accounting system can be a lifesaver at this stage. case studies, client success stories, and testimonials. Once you have all your numbers nailed down, youre ready to close the books. hbspt.cta._relativeUrls=true;hbspt.cta.load(2694209, '2195c353-0513-4788-a487-07c082086648', {"useNewLoader":"true","region":"na1"}); The month-end close is the collection of financial accounting information, review, and reconciliation of records each month. Remember, the sooner you get the books closed, the sooner you can do the cool stuff in accounting. Prepare management, FP&A, and external/SEC reporting, Record accrued liabilities, including payroll, employee vacation, notes payable interest expense, and taxes, Assemble required documentation for internal and external auditors, Review fixed assets and perform an inventory count, Reconcile intercompany accounts to ensure payables and receivables match between both businesses, Post journal entries for depreciation and amortization. All of these issues can be overcome with close management software. Accruals are adjusting entries made to ensure that all transactions that take place within a given period (e.g., a month) are recorded properly. But in their 2019 survey, only 49% needed seven or more days, and nearly half (46%) were closing in four days. Intercompany transactions need to be eliminated. On one end of the spectrum are the accountants, controllers, and CFOs who keep it all in their heads and use a lot of manual processes. How AP can improve relationships with your key suppliers. Most accounting teams use some sort of month-end close checklist and have some sort of month-end close process. Keeping in mind that many of these tasks must be completed sequentially, you may be able to speed up the close by completing some tasks in the current period, and not waiting until after the end of the period to get started. Sixty-one percent were closing the books within six days. This cutoff point is created by zeroing out the balances in income statement accounts so those accounts can start fresh at zero for the next period. Streamlining the process better prepares you in case of an audit, and for when tax season eventually rolls around (far too soon, might I add!). Step 2: Close Your Books in QuickBooks Online. Spend management software with multiple user accounts lets your accountancy team verify all transactions company-wide. So the sooner they get final numbers, the sooner they can see what worked last month and what didnt work so they can start making changes for the current month. The exact steps in the month-end close process may vary from company to company, depending on the type of accounts and transactions that make up its financial data. Some work with products, meaning they'll have the extra steps of tracking both inventory. That means that the year-end close will likely take at least an extra day or two. If you have recurring transactions, those sometimes fail when a change is made to the system, so youll want to verify that those all went through correctly. This step also involves verifying that youve received the correct amounts from customers and are chasing unpaid invoices. Like many ERP packages, the NetSuite ERP has a formal closing process. Setting up a saved search to look for negative inventory items well before period end can save time at closing. Depending on your organization and your organizations business processes, you may find that completing them in a slightly different order works better. Review Inventory Cost Accounting. That means that the year-end close will likely take at least an extra day or two. The number one step you can take to make life significantly easier when it comes to month-end? Financial reports and statements are incredibly important for providing an accurate view of the companys financial data and informing future strategies. Since assets are expensive, you're allowed to spread the cost of depreciation in the form of expenses as the years go by. Go to Settings (the gear in the corner) and select Accounts and Settings. Be sure to close the books again after you make your changes so no one else can inadvertently make changes to a closed period. for depreciation and amortization need to be calculated and posted. Whether its revenue, invoice payments, or loans, you need to record all the funds your organization received during the month in question. Fix the close process today, for good. Prior to founding FloQast, he managed the accounting team at Cornerstone OnDemand, a SaaS company in Los Angeles. Once everything is correct, its just one step: If you need to reopen the books later, thats pretty simple also. For many small businesses, performing a formal year-end close may be enough. Depending on your organization and your organizations business processes, you may find that completing them in a slightly different order works better. Now that youve got the general month-end process down, you can start divvying up the tasks among your team members. This helps to ensure all accounting data is organized, accurate, and complete. This is highly recommended. Tribal knowledge abounds, and tasks can be easily overlooked, especially if a key person is out for a few days. Straight to your inbox. . Sign in to QuickBooks as a master or company admin. But in their 2019 survey, only 49% needed seven or more days, and nearly half (46%) were closing in four days. Remember, the sooner you get the books closed, the sooner you can do the cool stuff in accounting. It also provides a virtual benchmark for your physical inventory counts that can reveal areas in need of improvement or blind spots that create needless ongoing expense. Did you know that you can put the responsibility of receipt collection onto your employees, rather than chasing them every month? Calculate Consolidated Exchange Rates. Complete and timely financial statements are the most powerful strategic tool for any organization. Intercompany transactions need to be eliminated. Verify that all accounts receivable invoices are in the system and that all recurring invoices have been generated. Company-wide cut-offs are specific dates at the end of every month that every employee should know and respect. Next, well go into the specific steps for closing the books in QuickBooks, NetSuite, and Sage Intacct. can get you started on developing the best process for your organization. Deferred revenue has to be reclassified. Depending on your organization, you may have additional adjustments, allocations, and accruals to make. Imagine losing access to all of your data, reporting, and analysis? This ensures that all inventory costs have been picked up. First, go to. Youll use these documents to establish your listing of final balances for all accounts, known as your trial balance. GAAP requires foreign currency balances to be revalued at the rate at the end of the period. Saved searches can help you identify problems and resolve them before they blow up. Depending on your organization, you may have additional adjustments, allocations, and accruals to make. What Is Cost of Goods Sold (COGS) in Accounting? Customers say that our software saves approximately 4 days' worth of work at the end of each month. Depending on your accountancy team's speed, this month-end process could take between 5 and 10 days. Closing the books is an essential part of the accounting cycle and serves as a cutoff point for transactions: they either occur before or after the closing date. Reconcile AR aging sub-ledger and subledger to General Ledger. Intangible assets (intellectual property, brand names, Internet domains, etc. Accruals need to be posted. Closing the books can be time-consuming, and while its good to have a goal of reducing your time to close, you should never cut corners. In turn, this simplifies and streamlines a number of other accounting procedures, including month-end for each month to come and the annual version of month-end known as year-end close. This is just a bookkeeping reset for the next year. After youve made your changes, youll have to repeat the closing process for any periods you had to open to make those changes. Accountancy is the job thats never finished. Complete all the tasks in the checklist above. That said, generally youll need the following items to perform a month-end close: Remember, your specific procedures may vary based on your industry, accounting methods, available technology, etc. This is a reporting requirement for some companies, and helps businesses keep accurate records throughout the year. After expenses are closed to Income Summary, the balance in that account is net income for the period. This includes transactions in Draft state or that are waiting approval. Recording any change in value to these assets (including repairs or amortization) is important to keep your books steady and avoid sudden jumps in profit or loss. and bring up the checklist for the period you want to reopen. How Do I Close a Month End in QuickBooks? The process is a bit different depending on whether youre using QuickBooks Desktop or QuickBooks Online, so well go through those close processes separately. Manual accounting involves tracking receipts and cross-checking them with withdrawals from petty cash. Over on the. Youll also have to. The most important closing period comes at the end of the financial year. Once all of these tasks are completed, youll be ready to follow the specific instructions for closing the books in QuickBooks, Netsuite, or Sage Intacct. Invest in developing a fully integrated software environment to slash the grunt work of tedious manual workflows and eliminate obstacles like rogue spend, fraud, and human error. Ideally, your checklist should make it easy to swap tasks between team members to keep the process moving efficiently. On the other end of the spectrum are accounting teams that follow a well-thought-out and optimized process with interactive checklists, workflow tools, and who leverage all the automation they can. Month-end close is an essential process that can be refined and streamlined to achieve maximum efficacy with minimum error, waste, and disruption. Increasingly, collecting and organizing this information has been greatly simplified with help from tech tools such as comprehensive procurement solutions. What are the 4 steps in the closing process? When you set the year-end in Intuit QuickBooks, the program automatically zeroes out all the income and expense accounts and transfers the balance of net income to Retained Earnings when your fiscal year ends. Cloud-based, mobile-friendly, and designed to help you achieve lasting and continuous improvement through data analysis and process automation, these software solutions give you complete and transparent access to, and control over, all of your spend data. Starting with a complete checklist can help you get started as you optimize your processes to speed up the close. Accruals need to be posted. If your company uses a petty cash fund, that spend will likely become invisible unless you have systems in place to track it. Post or import all credit and debit card charges. He began his career at Ernst & Young in Los Angeles where he performed public company audits, opening balance sheet audits, cash to GAAP restatements, compilation reviews, international reporting, merger and acquisition audits and SOX compliance testing. Instead, they may generate expenses for your company in the form of repairs, depreciation (for tangible assets), amortization (for intangible assets), or impairment costs (if an asset dips below its net book value). Choose the Entity and the Period you want to open. , closing the books is the process of verifying and adjusting month-end balances to prepare reports that reflect the companys true performance over a specific period. As with Step 1, this part of the month-end close is much more transparent, accurate, and swift if youve been recording and tracking spend automatically in your accounting system. This means all invoices must be issued and all calculations for revenue recognition must be complete. This includes transactions in Draft state or that are waiting approval. Verify all invoices have been sent. . How better management in AP can give you better flexibility for cash flow management. Revalue Open Foreign Currency Balances. Once all vendor invoices have been submitted to accounts payable for payment, A/P can be locked. Generate an adjusted trial balance and draft income statement, balance sheet, and A/R and A/P Aging Reports. When you set the year-end in Intuit QuickBooks, the program automatically zeroes out all the income and expense accounts and transfers the balance of net income to Retained Earnings when your fiscal year ends. For the purposes of the month-end closing process, you simply need to record any of these expenses that occur for each of your fixed assets. Back up your data using a reliable cloud-based system that can be stored securely. Reconcile Prepaids, Fixed Assets, Work in Progress, and any Deferred Revenue accounts. Of course, all of these tips and tricks can also be applied to year-end closing and might benefit some of your other accounting systems. Whatever accounting system you use, the following checklist covers most of the tasks that need to be completed before you can close the books. In accounts payable, accruals record expenses, losses, and any associated liabilities incurred during the month that have not yet had their transactions recorded. Automated payment reconciliation, built-in employee debit cards, and seamless approvals can all be done using the power of Spendesk. Common Challenges in a Month-End Close Process. This usually indicates a process problem that must be fixed. Ensure all revenue and expense transactions have been recorded in the ERP, Reconcile cash, checking and savings accounts, petty cash fund, and credit card accounts. Supporting documents are in peoples email, on their local drive, or not organized properly in a shared drive. Doing so can result in errors or even missing signs of fraud. Journal entries for depreciation and amortization need to be calculated and posted. In accounts receivable, accruals are used to report revenue (and corresponding accounts receivable) earned during a given month that have not yet had their transactions recorded. NetSuites integrated Period Close Checklist includes all the steps that need to be completed before a period can be closed, but like most things in accounting, its not as simple as checking boxes on a to-do list.

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