The monthly closing process, also known as the month-end close, is a big part of the finance and accounting department's responsibilities. This process helps businesses manage their financial health, from cash flow management to identifying financial issues. By understanding how it works, businesses can ensure smooth and accurate monthly financials. Let's explore the monthly closing process!
What is the Monthly Closing Process?
The month-end close is like a financial health check-up for your business. It's when your financial experts, mainly the bookkeepers, gather all the financial details from the past month, including anything from sales and expenses to invoices and payments.
Then, they check each transaction and make sure everything adds up. This helps keep your financial records clean and accurate, which is vital for planning and making business decisions.
During the monthly close, new problems, such as discrepancies or errors, can arise, which a bookkeeper must fix. At the end of the close, various final financial reports will be generated reflecting how a company did financially for the previous month - whether it was growing or slowing.
Why is the Monthly Closing Process Important?
Without a monthly closing process, businesses would have trouble keeping track of their finances accurately - here are some of the key reasons why this process is crucial:
Accurate financial reports: The monthly closing process ensures that all financial records are accurate and current. This is vital for creating reliable financial reports to help businesses make informed decisions.
Helps in tax returns: Monthly closing helps prepare your annual tax returns. When you have an accurate record of your finances, it becomes easier to file taxes and avoid any penalties or audits.
Find gaps for improvement: When you have a detailed report of your finances each month, you can identify any gaps that need to be addressed. This allows businesses to make improvements and adjustments as needed.
Track growth: The monthly closing process shows how your business grows over time. It shows trends and patterns in sales, expenses, and profits, which can help with future planning and goal setting.
Best Practices for Monthly Closing
Now that we understand the importance of the monthly closing process, here are some best practices to keep in mind:
Make sure all transactions are recorded accurately and promptly
Reconcile all necessary accounts to make sure there are no errors
Review the incoming and outgoing cash flows
Keep track of any outstanding invoices or payments
Fix any errors in the financial reports
Gather all the necessary documents, such as bank statements, general ledger, cash flow statements, income statements, balance sheets, etc...
These general guidelines can help ensure your monthly closing process is smooth.
Mistakes to Avoid in Monthly Closing
Any financial reporting process can be prone to errors, and monthly closing is no exception - here are some common mistakes to avoid:
Not taking advantage of automation and doing everything manually
Not reconciling accounts or ignoring discrepancies
Including data that are not applicable or relevant to the monthly report
Forgetting to get approvals from management before finalizing the report
Not communicating and collaborating with other team members involved in the process
By understanding these mistakes and avoiding them, you can ensure the accuracy of your monthly closing process.
Conclusion
The monthly closing process is crucial for any business. It projects a company's financial health and allows for better planning and decision-making. Accuracy is critical here, so the best way to handle it is to use software and automation. Following the guidelines and avoiding common mistakes ensures your monthly closing process is smooth, efficient, and error-free.
Contact Us if you have any questions about monthly closing or other bookkeeping needs.