Month End Close Process: Steps, Checklist, and Best Practices

Key Takeaways:

• Month-end close is a critical finance process that validates, reconciles, and finalizes monthly financial data to ensure accuracy and audit readiness.
• Choosing a monthly close over an annual one offers timely visibility, early issue detection, and stronger control over financial health.
• The key steps in month-end closure include gathering financial data, reconciling accounts, reviewing fixed assets and inventory records, logging adjusting entries, preparing financial statements, and closing books after the final review.
• A well-structured monthly close process helps ensure accurate reporting, enhance compliance, and facilitate informed financial decisions.
• Common issues, such as manual errors, fragmented data sources, poor collaboration, and stringent deadlines, can slow down traditional reconciliation and reduce its accuracy.
• Utilizing AI reconciliation solutions such as Recogent helps automate data fetching, transaction matching, and report generation. It also helps standardize workflows, minimizing effort and enabling faster account closure while retaining accuracy.
• Moving from traditional to continuous reconciliation enhances the accuracy of financial records and resolves discrepancies before they disrupt your reporting.

A quick question: What forms the backbone of reliable and accurate financial reporting?

Ask any finance leader, and their answer will be “account closing”, which involves collecting, reconciling, and documenting all the information you need to prepare financial statements.

While you can close your books annually, financial leaders don’t generally recommend it, especially if you handle large transaction volumes. The reason?

In the annual fiscal close, the issues you could have addressed earlier keep accumulating throughout the year, stretching the close cycle and increasing inaccurate financial reporting risks.

Therefore, most organizations prefer a month-end close to an annual closure, as it provides timely, accurate financial information for more frequent, informed decision-making.

In this post, we’ll walk you through what a monthly close means, the benefits it provides, the steps involved, common challenges, and best practices to overcome them. You’ll also get a detailed month-end closure checklist by the end of the blog.

What Is Month-End Close?

Month-end close is an accounting process of reviewing, consolidating, reconciling, and documenting all transactions from the preceding month to ensure financial data is accurate and free of irregularities.

The month-end close involves several steps, including matching actual transactions against external statements or receipts, verifying alignment, identifying discrepancies, adjusting records to account for them, and preparing financial reports.

You can consider the month-end close a cutoff point for your company’s accounting tasks. You can’t record any additional transactions or make adjustments to the records of a given month beyond this cutoff point. It means the data is final and reflects your organization’s actual financial status.

Why Is Month-End Close Important?

Month-end close is essential as it ensures the financial accuracy and transparency that you need for informed decision-making, regulatory compliance, and cash flow management.

Reconciling accounts monthly can help nip mistakes in the bud and produce reliable financial statements and reports, which are crucial for gaining the confidence of stakeholders such as investors or sponsors.

Below are the key benefits of the month-end close discussed in detail:

Timely and data-driven decision-making

You can’t expect well-informed decisions for long-term success and stability unless you have accurate and trustworthy fiscal data.

Month-end close provides a view of the final numbers from the previous month, which serve as the starting point for the upcoming month. These records help understand what went well and what they need to focus on, facilitating proactive adjustments backed by data.

Visibility into the financial health

You wouldn’t want to delay resolving a financial discrepancy unless it hampers your cash flow and reporting accuracy, would you?

Closing the books monthly is key to identifying errors and detecting emerging risk patterns early. It helps catch and address minor discrepancies and anomalies before they cause major disruptions and require extensive correction measures.

Monthly financial statements provide a holistic view of your financial KPIs that indicate where your business stands. They also reduce the time to finalize year-end financial reports, as you have month-wise reconciliation data already available. All you need to do is simply consolidate them to prepare a final report.

Strategic planning

You can’t forecast the budget you need, the revenue you’ll earn, or the savings you’ll make over a period without any past data to analyze. Neither can you make a strategic growth plan.

Reconciling your accounts monthly provides you with the data you need to track trends, analyze budget variance, and measure performance against your success benchmarks. It thus enables you to align your budget plan and revenue/saving goals with reality and allocate resources accordingly.

Cash flow management

Sustaining a business without adequate liquidity is virtually impossible, isn’t it? Monthly account closures provide visibility into your overall financial status, including assets such as accounts receivable and liabilities such as outstanding payables.

Month-end financial reports provide a snapshot of your entire cash flow and identify the bottlenecks you must address immediately to optimize your operational costs.

Audit-readiness and compliance

Unchecked account irregularities can affect not just the accuracy of your financial records; they can also leave you scrambling for explanations during audits.

A well-structured month-end process helps you maintain complete and accurate financial reports, ensuring you stay audit-ready at all times. Plus, it helps streamline your tax filing process and reduces the risk of penalties or fines for compliance violations.

What Are the Steps Involved in the Month-End Close Process?

The month-end process involves collecting and verifying transactional data information, reconciling accounts, making necessary adjustments, reviewing assets/inventory, preparing financial statements, and creating a final closure report.

Here are the steps of monthly account closure discussed in detail:

Collect all your financial data

The first step in monthly reconciliation is collecting all relevant financial information and documents from the previous month, including accounts receivable, invoices, and bank statements.

Ensure you have all the data you need from every department whose activities affect financial records. Follow consistent schedules and set deadlines for data submissions to prevent last-minute data chases and ensure a smooth closure.

Reconcile all accounts

Once you have gathered all the data, the next step in the month-end close is to tally your internal system records with external statements, including receipts and bank/card statements.

You must also reconcile accounts payable (AP) and accounts receivable (AR) to ensure you’ve accounted for all your outstanding invoices and payments. If you notice any discrepancies, investigate them to trace the source and make necessary adjustments to resolve them.

Pro Tip: Ensure you compare and validate transactions line by line. You can also use advanced AI-powered reconciliation solutions, such as Recogent, to automate transaction matching.

Review and record fixed assets

If you have fixed assets, including equipment, technology, storage, housing, and vehicles, you must also assess them. Accurate accrued asset depreciation, using standard depreciation methods, such as straight-line, double-declining balance, sum-of-the-years’ digits, as appropriate.

Review asset disposals, acquisitions, or impairments that occurred during your evaluation month and post necessary adjustments so your records align with your current asset value and condition.

Similarly, you must compare and validate internal stock records to ensure they align with the actual physical inventory count.

Record adjusting entries

Once you have reconciled your data, it’s time to post adjusting entries for recurring monthly transactions, accruals (such as utilities/wages earned but not yet paid), and prepayments (such as paid rent).

These adjustments ensure your income statement aligns with actual expenses incurred during your month, irrespective of payment timing.

Prepare financial statements

After verifying accounts and posting adjusted entries, the next step in month-end close is creating financial statements, including the income statement, balance sheet, and statement of cash flows.

Ensure you record all entries correctly, without any irregularities. Review your revenue/expense accounts and verify that you properly segregate them for accurate financial records.

Conduct a financial review and close

Before you complete the month-end close process, review your reconciled accounts. Ensure you involve someone from senior management or someone not directly involved in the closure, as this will help provide a neutral, fresh perspective. It will also reduce the chances of fraud.

This final check reaffirms the accuracy of your monthly financial statements that you can record forever. Once the review is done and approved, close the accounting period to prevent any further transaction entries.

What Are the Common Challenges in Month-End Close?

Common month-end close challenges include manual data entry errors, reconciliation delays, poor interdepartmental communication, lack of standardization, poor real-time visibility, and tight deadline pressures.

The reasons behind these issues include outdated technology, disparate data systems, inconsistent reconciliation processes, and inadequate staffing.

Fragmented data systems

Finance teams across departments may be using multiple ERPs or spreadsheets, creating data silos. Consolidating data from these fragmented sources can also lead to high time consumption and transcription mistakes, delaying consolidation.

Manual, error-prone processes

Relying on spreadsheets or manual journal entries often leads to errors due to inconsistencies, typos, or oversight. Moreover, manual reconciliation approaches also make the month-end close accounting more time-consuming.

Tight deadlines, high pressure

Most organizations are under constant pressure to complete the month-end close accounting within 5-10 days.

However, they often end up taking longer than they do due to multiple issues, such as inconsistent data formats, fragmented data, or poor collaboration. This pressure to close your accounts faster while ensuring accuracy leads to stress and burnout.

Poor visibility and communication

A lack of well-defined roles, constant follow-ups with multiple teams involved in financial activity, and data silos leads to poor visibility and collaboration.

When team members don’t have a clue about what’s complete and what remains, it can create confusion and hinder closure.

Legacy and outdated systems

If you rely on outdated, homegrown tools, handling multi-entity, multi-currency, or regulatory complexities becomes challenging, forcing you to resort to manual workarounds.

If your systems lack integration capabilities, you are more likely to encounter duplicate data entry and manual reconciliation errors across platforms during closure.

Lack of standardization and robust internal controls

Without a consistent reconciliation and closure process defined across all your departments, entities, and currencies, consolidation errors are bound to happen.

These inconsistencies accumulate throughout the month, hampering your financial data audit readiness and making the month-end close harder.

Delayed accrual and data availability

Sometimes, submissions of accrual data from different departments arrive late, delaying entries. It results in delays in month-end updates, leaving less time for finalization and closure of final accounts.

What Are the Best Practices for Month-End Close?

The best practices for month-end close include standardizing workflows and procedures, using checklists, automating redundant processes, establishing clear communication, and implementing thorough reconciliations and reviews. Other monthly closure practices include continuous improvement and enhancing cross-department relations to ensure accuracy.

Standardize procedures and use checklists

Don’t use different approaches across departments or teams. Instead, set a standardized workflow and approach for your organization to follow, regardless of entity or location.

A uniform month-end close approach helps ensure consistency, accuracy, and accountability among team members. Plus, it won’t create confusion on how to collect data, reconcile it, or identify and address discrepancies, reducing errors.

You can also consider monthly closure templates and checklists to avoid missed steps when creating financial reports. The comprehensive checklists must lay out the sequence of tasks to be carried out, along with guidelines for performing them. A clearly defined logical flow of steps avoids costly rework.

Utilize automation

No matter how meticulously you match accounts, you are still prone to human errors. Plus, repetitive tasks drain your time and energy.

So, you must automate the multiple steps involved in monthly closure, from collecting data to matching accounts to flag variances. Automation of financial closing processes serves two purposes: 1) Speeds up workflows dramatically, and 2) Reduces errors and simplifies financial statement consolidation.

Recogent’s reconciliation solution captures financial data from multiple sources, including ERPs and payment processors, through seamless integration, enabling real-time collection of transaction details.

Conduct pre- and post- close meetings

Before you begin the month-end account, conduct pre-close meetings where you discuss follow-up items from the previous month’s post-close meeting. It will help you determine your current month’s close schedule and timeline so everyone knows about responsibilities and deadlines.

Once you close the books for your month, discuss what you did, whether it worked or failed, and review assigned roles and responsibilities for the next month. Document any findings and lessons learned, and welcome proposed changes to the process if they sound effective, so you can continually improve your closure processes.

Maintain clear communication

Transparent communication is key to keeping the month-end close process on track. So, foster strong inter-departmental collaboration to avoid bottlenecks and last-minute surprises.

Continuous collaboration among accounting teams across different entities or countries to ensure the real-time, seamless exchange of crucial data, making monthly closing processes timely and efficient.

Switch to continuous accounting

Perform reconciliations and reviews on an ongoing basis throughout the month, especially for high-volume or critical accounts transactions.

You can set the reconciliation frequency to daily or weekly based on your transaction volume and complexity. This approach will help catch errors earlier, giving you more time to resolve them and reducing the stress as the month-end approaches.

Explore Recogent’s financial close automation capabilities—download our solution overview. Get the overview.

Month-End Close Checklist

A month-end close checklist includes critical steps such as collecting financial data, performing reconciliations, posting adjusted journal entries, and preparing financial statements.

Data gathering and recording

• Gather and record transactions across all your bank statements, accounts receivable, and accounts payable accurately.
• Ensure the data your departments submitted is completed and reconciled to source documents.
• Document all the cash receipts and disbursements for the month under evaluation.

Adjusting entries

• Record accrued expenses, including utilities, wages, and interest
• Allocate prepaid expenses to the appropriate periods
• Calculate and record depreciation and amortization
• Adjust deferred revenue accounts

Reconciliation activities

• Reconcile all bank and credit card statements
• Complete balance sheet account reconciliations
• Verify subsidiary ledgers match general ledger balances
• Resolve all outstanding reconciling items

Financial statement preparation

• Generate balance sheet, income statement, and cash flow statement
• Review the general ledger for accuracy and completeness
• Examine revenue and expense classifications
• Verify intercompany eliminations for consolidated entities

Final review and approval

• Conduct variance analysis comparing actuals to budget and prior periods
• Review financial ratios and key performance indicators
• Obtain management approval for financial statements
• Document the close completion and secure the accounting period

Final Thoughts

Month-end close is key to ensuring accurate financial records and supporting strategic business decisions. If you fail to optimize your close process, you are sure to face extended timelines, team burnout, and delayed insights for decision-makers.

The good news: you can transform your month-end close using AI-powered automation solutions like Recogent.

With Recogent’s AI-powered reconciliation solution, you can automate data capturing, match transactions, and get notified of anomalies in real time so you can address them proactively.

The result? You get faster closes, fewer errors, and finance teams focused on strategic analysis instead of manual tasks! After all, that’s what you’ve wanted to achieve, haven’t you?

So, wait no more, and transform your month-end close right away with our automation solution.

Request a personalized demo of Recogent today. Schedule your demo now.

Frequently Asked Questions on Month-End Close