What the Close Process Actually Is
Month-end close is a controlled series of steps that transitions your accounting from "live and in-progress" to "complete and reliable" for the period. It's the quality control checkpoint for your financial data.
Businesses without a formal close process have financial data that's always somewhat uncertain. Were all the invoices entered? Were all the payments recorded? Are any transactions still in the wrong period? Until you close, you can't be sure.
The Pre-Close Checklist (Days 1–2 After Month End)
Before closing the books:
- [ ] All invoices for the month are entered
- [ ] All vendor bills received and entered
- [ ] All bank and credit card transactions through the last day of the month are entered
- [ ] Payroll for the month is posted
- [ ] Any accruals (expenses incurred but not yet billed) are entered
- [ ] Recurring journal entries for the month are posted (depreciation, prepaid amortization)
The Reconciliation Phase (Days 3–5)
- [ ] All bank accounts reconciled to end-of-month statement
- [ ] All credit card accounts reconciled
- [ ] AR aging reviewed — no unexplained items over 90 days
- [ ] AP aging reviewed — no unexplained items over 60 days
- [ ] Inventory count (if applicable) reconciled to book value
- [ ] Intercompany accounts balanced (if applicable)
The Review Phase (Days 5–7)
- [ ] Income statement reviewed by a senior person — does it make sense?
- [ ] Compare to prior month and prior year. Any unusual variances? Explain them.
- [ ] Balance sheet reviewed — are there any accounts at zero that should have a balance, or with a balance that should be zero?
- [ ] Tax calculations reviewed for the period
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The Sign-Off and Lock
After all checks pass:
- The CFO, controller, or senior bookkeeper signs off on the financial statements
- The period is locked in the accounting system — no backdating without explicit approval
Common Close Problems and Their Fixes
Close takes too long: Usually caused by data quality issues (transactions entered incorrectly requiring research), missing information (invoices not received yet), or lack of clear ownership (who's responsible for each step?). Fix: assign tasks, set deadlines, and run the pre-close checklist before attempting to reconcile.
Variances discovered during review: If review finds material variances (more than 5% of the comparable period), trace to the source before closing. Close with known problems, and the problems become harder to find next month.
