Why is it important to use a month-end closing process for my business?
As we wrap up another month, July to be specific, I wanted to note the importance of month-end closing procedures and how they impact business finances.
The kinds of business that put into practice this type of accounting activity vary from large corporate multi-tax ID entities to mid-size companies.
If you are struggling with your accounting procedure or need some fresh ideas on what another companies does in comparison I hope this article sheds some light.
What is a month-end closing process?
Month-end is a process at the end of the calendar month where you “close the books” to your accounting transactions to gather a snapshot of all of the months activities.
“The monthly accounting and bookkeeping closing process is important because it provides management with vital financial information. This process should be standardized by creating a list of standard journal entries to promote consistency between monthly closings.” (Chron)
How often must this take place?
This all depends on the complexity of your business. There are some businesses that have a better financial review if month-end procedures are done every month. Others can extend that to every quarter to once per year.
Why should companies employ this practice?
It’s easy to lose sight of the financial transactions. Consider it an opportunity to pause and take stock of how the company is performing.
“These adjusting entries produce accurate financial books, which are the basis for correct financial statements.” (Chron)
5 Reasons Why Month-End Closing Should Be Done
1. Bank reconciliations - take a look at the bank transactions to make sure they reflect accurately the transactions that are in the books.
2. Accounts receivables - assess if there are any past dues or invoices that require special attention for collections.
3. Accounts payables - look at invoices that need to be paid and the age of the invoice. Also, assess what has been spent during the month.
4. Inventory - review the inventory on-hand. Analyze the inventory that has turned and the inventory that needs replaced.
5. Whole financial picture - assess how the business is performing versus anticipated forecast. Is the revenue coming in as expected? Are the expenses flowing as forecasted? Does the owner need to tweak some of the activities to get back on track?
Can a business owner do all of this themselves?
Quickbooks, for example, facilitates a month-end close for business owners and makes it easy to record transactions for the non-accountant.
However, the software is not a replacement for accounting best practices that are analyzed by an experienced accounting professional.
For example, there might be times when an account used, such as fixed assets, might need to be expensed rather than depreciated.
Take some time to review your month-end closing process.
- Are you satisfied with how it is performing?
- Do you have concerns with how it helps you gather a financial picture for your business?
If you need further help with this and other accounting concerns feel free to call us anytime for a free consultation. We are glad to offer Tulsa accounting help and advice.