“The books” means the business’ records of transactions, and “closing the books” describes the accounting process of finalizing the reports on income and expenses. Learn how the process works, the problems slowing it down, and how you can finish the month-end close process faster than ever.
- Closing the books in accounting can take anywhere from three to ten days, and the process is usually handled by an accountant, bookkeeper, or an accounting team.
- Disorganization and outdated processes can slow down your month-end close.
- An expense management system can help you organize, automate processes, and close the books without any headaches.
What is the month-end close?
The month-end close is the process of collecting and filing all financial information at the end of the month. This is also called closing the books.
What does the accounting closing process look like?
This month-end close checklist outlines the general steps a bookkeeper or accounting team takes to close the books.
1. Record accounts receivable and accounts payable
Recording accounts receivable (income) and accounts payable (expenses) is an ongoing process, but during the month-end close you’ll track down any missing items. Make sure your customers have paid the correct amounts, and keep track of unpaid invoices.
2. Account reconciliation
Double check your financial records against your bank accounts and vendor transactions. You should also review your petty cash receipts and deposits to clear up any discrepancies. This can help avoid overspending and also assist you in identifying any fraudulent transactions.
3. Create a flux analysis
A flux analysis will allow you to compare your budgets to the amount actually spent. This is also useful for comparing the current month to previous months. The process can help you determine if your company went off budget, where the extra funds were spent, and where to focus your efforts in the future.
4. Review fixed assets
Track the value of long-term assets such as buildings and equipment. Their value can change (usually decreasing in the long term), so frequent assessment is important.
5. Transfer journal entries to the general ledger
If you have been making journal entries for your transactions all month long, it’s time to move those entries to the general ledger account. The general ledger is a master source for all business transaction data, and it contains the information you need to create a company’s financial documents.
6. Prepare financial statements
7. Double check everything
As they say in woodworking, measure twice but cut once. Bookkeeping uses a similar system for accuracy. Have someone who didn’t create the financial statements or general ledger review all new information to make sure everything is correct.
How long does the month-end close take?
The accounting closing process might take anywhere from three to ten days, depending on the size and complexity of your organization and the efficiency of your processes. Some businesses set a goal of closing the books in three days, but several factors can make the process more time consuming than it needs to be.
Factors slowing down your month-end close
If your accounting procedures are disorganized, everything can take longer than it should. If you don’t know whether expenses have been approved, you’ll waste time contacting different departments to approve every line item.
Chasing down receipts
Receipts are often necessary for monthly closing, but tracking down each receipt can take excessive time and effort. Or worse—the receipt you need might have been thrown away weeks ago. Accounting teams might have to waste precious time reaching out to people to find out the purpose of various expenses so they can be categorized.
If you’re still entering expenses manually, you’re spending more time on expense reports than you really need to. And if you use multiple software programs that aren’t integrated with each other, you might be stuck transferring information by hand.
Creating everything from scratch
You don’t have to do everything yourself—there are plenty of free business templates online that you can use to save a little time.
How to close the books faster
Divvy’s automated expense management software can make the month-end close much faster and easier.
Automatic expense reports
Expense reports are automatically generated, so accountants don’t have to create them manually. This real-time spend visibility also allows teams to gain immediate insight into areas where expenses can be cut to increase cash flow.
No more chasing receipts
Employees can also upload their receipts to the Divvy app as soon as they receive them, so you’ll never have to track them down weeks later.
Divvy integrates with many popular accounting software programs, so it’s easy to track transactions, and you won’t have to manually copy files over to your other programs.
No more overspending
With Divvy, every employee who spends has a budget limit on their card every month, which means they can’t overspend. There are no month-end close surprises, so accountants won’t have to move expenses around to meet budgets.
Create budgets that every department can actually stick to—Divvy allows you to limit budgets and make overspending a distant memory. This saves time you would otherwise spend on reporting and approvals every time a team goes over budget.
In addition, Divvy can foster better communication between the finance and the operations teams, because every expense is tracked automatically and can be categorized immediately.
The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.