Month-End Close

What is month-end close?

The month-end close is a critical accounting process that happens at the end of each month, with the goal of finalizing a company’s financial records for that period.

A well-conducted month-end close follows a structured sequence to ensure data accuracy, completeness, and compliance with accounting standards.

Traditionally, the month-end close often involves an all-hands-on-deck effort from the finance team, with long hours and high stress, but new developments in automated accounting are helping to reduce the stress of the time-to-close.

Key steps in the month-end close process.

Here’s a high-level overview of the five main steps in the monthly close.

1. Transaction review and input.

The month’s financial transactions are carefully reviewed and entered into the accounting system. This includes invoices, expense reports, bank transactions, and other financial activity.

2. Account reconciliation.

Bank statements, credit card statements, and key accounts (like inventory and pre-paid expenses) are reconciled against internal records. Reconciliations ensure the accuracy of financial data by identifying discrepancies and resolving them.

3. Adjusting entries.

Next, make necessary adjustments to reflect accruals, deferrals (pre-paid expenses or unearned revenue), and other items.

4. Generating financial statements.

Produce key financial statements, including:

• Income statement: Shows revenues and expenses for the month, providing the net profit or loss.
• Balance sheet: Presents a snapshot of the company’s assets, liabilities, and equity at the end of the month.
• Cash flow statement: Summarizes the flow of cash during the month, from operating, investing, and financing activities.

5. Review and analysis.

Review and analyze statements to identify trends, variances, and key performance indicators (KPIs).

6. Closing the books.

After review, the accounting period is “closed” to prevent any more transactions from being posted to that month.

The transformative impact of supply management.

Cost optimization.

One of the primary objectives of supply management is cost optimization.

Through strategic sourcing and negotiation, organizations can optimize costs in the procurement process. This not only contributes to improved profitability but also enhances competitiveness in the market.

Operational resilience.

Supply management plays a crucial role in building operational resilience. By establishing robust supplier relationships and implementing risk management strategies, organizations can navigate disruptions more effectively.

This resilience is particularly evident in times of crisis, such as the challenges posed by global events or unforeseen market fluctuations.

Innovation and collaboration.

Supply chain management fosters innovation through collaborative relationships with suppliers. By sharing insights, and jointly working on improvements, organizations and their suppliers can drive innovation in products, processes, and technologies.

Enhanced customer satisfaction.

A well-executed supply chain management strategy directly impacts customer satisfaction.

Timely deliveries, consistent product quality, and effective risk management contribute to a positive customer experience.

Satisfied customers are more likely to be loyal, resulting in increased repeat business and positive word-of-mouth referrals.

The role of accounts payable (AP) in the month-end close.

Accounts payable is a core part of the month-end close process.

During the month-end close, AP must:

• Record and process invoices to ensure all vendor invoices that arrived during the period are accurately entered.
• Perform payment runs due to vendors in alignment with company policies and payment terms.
• Reconcile accounts to identify and resolve discrepancies, helping prevent overpayments or duplicate payments.

The importance of an efficient monthly close.

Timely completion of the month-end close is crucial for several reasons:

• Accurate financial reporting: When the close is completed quickly, decision-makers have current information.
• Fraud prevention: Quick discrepancy resolution reduces the potential for errors and fraudulent activities.
• Compliance: Many organizations, particularly public companies, have regulatory and reporting deadlines.
• Forecasting and planning: Up-to-date information supports more accurate forecasting and business planning.

Tips for a faster month-end close.

• Real-time transaction recording: Recording transactions as they occur to minimize workload at month-end.
• Automation: Automating repetitive tasks such as invoice processing and account reconciliations takes hours off the close.
• Clearly defined roles: Making sure everyone knows their role will help eliminate redundant processes.

How Airbase helps with the month-end close.

Our customers consistently tell us that they’ve cut their month-end close in half with Airbase, as streamlined workflows, automation, and real-time data consolidation dramatically reduce the time and effort required for the month-end close.

Airbase syncs all transactions to the GL as they take place, including a complete audit trail with relevant documentation, receipts, and approvals, eliminating the need for time-consuming data transfers at month-end.

Assisted reconciliation highlights inconsistencies in GL data, so the finance team just needs to view the reconciliation report to see the reconciliation items between Airbase and the GL. This saves hours of tedious reconciliation work.