Understanding Financial Close: What is It & What is The Process? | Tipalti (2024)

1. Record all incoming cash

   When performing an end of the month financial close, you must record the funds received during those past four weeks. Incoming cash you might need to document includes:

   • Loans
   • Invoice payments
   • Revenue

   Compare invoices with your records to ensure you aren’t missing any customer payments. Make sure you have sent an invoice to every customer where work was performed during that month. This is also a good time to run a trial balance and contact any customers for late payments.

2. Update the accounts payable

   Chances are you haven’t recorded transactions every single day. If this is the case, you should always keep receipts and write down all purchases for later financial consolidation. After tracking transactions, record them in your books and cross-check the records against all bills and invoices.

3. Reconcile accounts

   Account reconciliation must also happen during the financial closing. Match all records to account statements from outside entries, like the bank. Reconcile your bank statement to ensure all monthly input is accurate. Typically, you can break your accounts down into three categories:

   • Prepaid or accrued accounts
   • Bank loans and notes
   • Cash, checking, and savings accounts

   Start with one of the above and then work your way through the others. Divvying up the records during reconciliation can help stay organized and catch mistakes quicker.

4. Review all petty cash

   If your business uses petty cash or has a petty cash fund, you must account for that money at month-end too. Record all receipts for items purchased using petty cash and make sure the records match the balance of your petty cash fund. If something is off, chances are you are missing a receipt or forgot to record petty cash that was used.

5. Look over fixed assets

   Fixed assets are long-term items that add value to your business and are comprised of things like:

   • Vehicles
   • Equipment
   • Buildings
   • Furniture
   • Land

   See Also

   3.4 Purpose of the closing process and prepare closing entries – Accounting Business and Society

   These typically do not convert directly into cash. Since fixed assets tend to be larger purchases, they can depreciate in value over time. When closing any books for month-end, always record any payments you have made related to fixed assets. This includes things like maintenance, parts, and replacements.

6. Count stock and inventory

   If you want your stock and inventory numbers to be accurate, you must perform monthly inventory counts. Counting your stock every few weeks allows a business to decide what items need to be replenished and how frequently. Some types of inventory may need to be monitored more than others.

   If you do not accurately track inventory, a business could experience problems like shrinkage. Use inventory count to make adjustments and reconcile the books when you complete month-end procedures.

7. Organize and review financial statements

   At the end of the month, you have the responsibility of organizing all business units and reviewing the financial statements. The period-end documents mainly include:

   • The general ledger
   • Business balance sheet
   • Profit and loss statement

   Each month, these statements should be consistently organized. That way, you’re not scrambling the last week, looking for documents.

8. Check expense and revenue accounts

   At month-end, it’s always best to check on the performance management of your revenue and expense accounts. Look to see all expenses have been recorded in the correct accounts for the proper time period. Make sure all accruals, debits, and prepaid expenses are also accurately documented in the books.

9. Review data before closing

   Before you completely close all accounts at the month-end, consider having a second set of eyes review the work. This is the last chance to perfect your audit trails in real-time before the books are shut. The person reviewing your accounting information should be a supervisor or manager who has experience handling the accounts.

10. Prepare for the next month

    To keep on top of all monthly accounting responsibilities and cut down on the time spent closing, it’s a good practice to create a financial calendar. This can help an accounting team prepare the books for next month’s close and avoid falling behind.

    On the calendar, plan on which days you will collect reports, record transactions, and close the books. Establish a date by which all expenses and income must be posted. Communicate this with anyone that has access to adjusting the ledger. As time goes on, you can tweak the calendar when you find processes that work better.

Brianna Blaney

Brianna Blaney began her career as a fintech writer in Boston for a major media corporation, later progressing to digital media marketing with platforms in San Francisco.She has worked as a financial writer for Tipalti for 7+years, keeping a close eye on shifting trends and reporting on the ever-evolving landscape of financial automation.She prides herself on reverse-engineering the logistics of successful content and implementing techniques centered around people (not campaigns).In her spare time, she loves to cook and take care of her pet squirrel, Marshmallow.

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