Accounting

2023 Month-End Close Checklist Excel Template

Accounting teams looking for ways to streamline and simplify their month end close process typically look at standardizing their reconciliations and documentation templates, and their month end close checklist.

Don’t worry, we’ve got you. Here’s a list of common month end closing items, but we are also happy to provide you with our own best practice month end close checklist template. Then, you can customize your new, standardized month end checklist as you see fit for next month. But first, let’s talk a bit about the month-end close. 

WHAT IS THE MONTH-END CLOSE PROCESS?

During the month, accounting clerks, bookkeepers, and staff accountants record transactions in the general ledger. Apps and bank feeds that connect to your accounting system may also be adding transactions automatically, depending on your accounting procedures. But at the end of every month, that raw data needs to be transformed into reports that represent the company’s true financial position. The month-end close is how you get there. 

WHAT ARE THE 4 STEPS IN THE CLOSING PROCESS?

Income statement accounts are used to track income and expenses during the month. At the end of the month, those temporary account balances need to be zeroed out, or closed, so that the next period can start fresh from zero. Another temporary account is used to keep track of dividends paid out over the period, and it also needs to be zeroed out. The closing process involves four steps to make that happen.

1. Close revenue accounts to Income Summary.  Income Summary is a temporary account used during the closing process. First, all the revenue accounts are closed to Income Summary with a journal entry. 
2. Close expense accounts to Income Summary. After expenses are closed to Income Summary, the balance in that account is net income for the period.
3. Close Income Summary to Retained Earnings. Since Income Summary is a temporary account, that balance needs to be closed to Retained Earnings to track the company’s cumulative earnings.

• Close dividends to Retained Earnings. Cash distributions or dividends paid out to owners during the period need to be closed out to Retained Earnings so that the balance reflects the earnings that are retained by the company for future needs.

In many accounting systems, such as QuickBooks Online and Netsuite, this four-step process happens behind the scenes as soon as you check a box to close a period. But before you can get to the close, you need to make sure that everything has been recorded in your accounting system so that your month-end reporting is accurate. 

HOW CAN FINANCIAL REPORTING SOFTWARE HELP WITH MONTH-END CLOSE PROCEDURES?

Financial reporting software can automate many of the time-consuming, manual tasks associated with the month-end close, including consolidating accounting data, posting journal entries, reconciling accounts, and preparing reports.

When all of these tasks are done manually, they’re not only time-consuming and tedious — they’re also invisible to other members of the team.

Using financial reporting software allows your organization to create a unified, digital environment where all members of your accounting team can collaborate on your close checklist and monitor progress in real-time.

WHAT IS INVOLVED IN MONTH-END REPORTING?

As cash comes in and goes out, bookkeepers record transactions on the cash basis. But GAAP-basis financials are reported on an accrual basis. This require a number of adjustments to ensure that the numbers are reported according to the rules that govern income and expense recognition. This means that before the books can be closed, you need to make sure that the balances are correct. Later in this article, we’ll give you a list of potential tasks for each section of your financials.  

Generally accepted accounting principles, or GAAP, is a set of rules that make it possible for investors and other stakeholders to compare financials from different companies. Following GAAP is mandatory for public companies. Lenders or investors may require private companies to report on the GAAP basis as a condition of receiving funding. Companies that are considering going public may want to adopt GAAP-basis accounting and begin the cadence of a monthly close, even if their current investors don’t require GAAP financials. 

Performing bank reconciliations ensures that you’ve captured all the transactions moving in and out of the cash accounts. Operating bank accounts have a heavy load of transactions and may need to be reconciled weekly or even daily, while savings accounts may need only a monthly reconciliation. Don’t forget credit card accounts — these also need to be reconciled on a regular basis.

Adjusting the books to GAAP basis requires making a number of journal entries to accrue income and expenses so the correct amounts are recorded in the correct periods. One of the most common monthly journal entries is to record depreciation expense for the period. Recording accrued payroll and other expenses that have been incurred but not yet paid ensures that liability accounts present a true picture of what a company owes to employees and outside parties. 

THE IMPORTANCE OF CLOSING YOUR BOOKS MONTHLY

For many entrepreneurs and small business owners, performing a monthly close seems like a lot of unnecessary work, especially when you’re out there hustling to make things happen. But getting an accurate picture of your business’ performance every month is the first step to take if you want to work on your business, not just in it. You can see what’s working, and what’s not so you can change course quickly and avoid disaster. 

Better information means you can make better decisions. Those decisions can be based on actual data, not just your gut-level instincts (though those are also important!). With up-to-date financials, you can perform cash-flow projections, and compare your previous projections to actual performance. Your banker and other investors will be more willing to continue supporting your business when you can show them your progress towards financial milestones. 

Tax time becomes a breeze instead of a nail-biting surprise when you know ahead of time how much (or how little) income you’re generating. Setting aside cash to make estimated payments can be less painful when you have an idea of what that final tax bill will be.

With a monthly close, you can find accounting mistakes more easily. Fixing those discrepancies is simpler when memories are fresh. If an app, bank feed, or another part of your accounting procedures isn’t working correctly, it’s vastly easier to straighten out the problem when you catch it early. Looking at your numbers regularly helps you spot trends that look out of whack. A sharp increase in an expense account might be an early sign of fraud, which will only get worse over time.  

Lastly, closing your books draws a line in the sand. It’s much harder to change past transactions when they’re locked down. 

HOW LONG SHOULD A MONTH-END CLOSE TAKE?

Depending on your team’s speed, the tools you use, and the processes you follow, your month-end close process will likely take anywhere from five to 10 days.

Typically, companies that leverage technology and automation fall on the faster side of that range. According to Ventana Research, 88% of companies that apply a substantial amount of automation to their month-end close are able to close their monthly books within six business days, compared to 50% that apply some automation and 40% that apply little or none.

HOW CAN MONTH-END CLOSING BE IMPROVED?

While the four-step process outlined above looks simple, most accountants who have been through the chaos of the monthly close know that there’s a lot of work that has to be done, and in a precise order so that all the pieces of your financial statements fall into their correct places. 

Developing standard processes and procedures is the first step to taming the chaos of the close. Our list below gives you a start on thinking about what tasks are involved in each area of the close. Making sure those processes are all documented in detail, and not stored in someone’s head is essential for eliminating tribal knowledge. Cross-training your team on those processes makes it possible to keep the flow going when a key person can’t be there. 

Some tasks, such as creating the journal entries to record depreciation expense, can be performed mid-month to alleviate the time crunch at the end of the month. For other tasks, a quick estimate may be materially close enough until year-end, when the actual balance is determined. 

A best practice is to put those processes in a closing checklist so that you can be sure that everything gets done. To get you started, we have a checklist template that you can customize for your particular situation. 

Get the checklist template here.

CASH AND CASH EQUIVALENTS

Every business has cash so this is an easy one. Here’s a sample of potential tasks related to cash:

• Ensure journal entries are being recorded in relevant accounting software or bookkeeping systems (i.e. ERPs such as NetSuite, Sage Intacct, Quickbooks, etc…)
• Post all applicable cash receipts
• Perform bank account reconciliation by agreeing ending balance per ERP to bank statement
• Review outstanding check list for checks aged 60+ days
• Review prior month undeposited funds and agree to deposits cleared in the month

RESTRICTED CASH

Also common is restricted cash; that is, cash that is earmarked for a particular use. 

• Confirm balance sheet accounts classification of restricted cash. If expected to expire in less than one year, they should be current.

SHORT-TERM INVESTMENTS

Many organizations hold short-term assets that aren’t as liquid as cash. These are usually held by a custodian or other third party. Oftentimes a company plans to dispose of these assets in less than one year.

• Obtain investment statements
• Verify reasonableness of calculated realized and unrealized gain/loss

ACCOUNTS RECEIVABLE

Sales made on credit and still unpaid will wait in accounts receivable (“AR”). There are a lot of elements to the sales process so naturally there will be a lot of closing procedures. And because sales is a HEAVILY SCRUTINIZED AREA BY AUDITORS, you’ll want to be sure that AR is in good shape.

• Prepare, post and distribute all remaining invoices. Upon completion, verify all invoices are properly posted to the sub-ledger and notify the revenue team
• Review accounts receivable aging for any unapplied credits
• Rollforward prior period Master Billing Schedule and update for contracts closed in the month
• Generate and review AR aging for non-standard terms; calculate current period Days Sales Outstanding (DSOs) to monitor aging performance
• Identify significant account balances past due and document collection status as part of the Allowance for Doubtful Accounts (ADA) analysis

INVENTORIES

Inventories are a key account for any small business that sells physical merchandise. There’s tons of activity in inventory accounts, especially at the end of the month when sales teams are trying to hit monthly goals.

• Perform perpetual inventory sub-ledger review to ensure all goods activity confirmations were properly posted to the general ledger. Investigate any errors as needed and resolve in a timely manner
• Review perpetual inventory listing for reasonableness (high quantities, high dollars, etc.)
• Meet with CFO, Controller, VP of Operations, and — if relevant — business owners for monthly inventory reserve discussion. Update inventory reserve calculation, as needed
• Determine if any excess, obsolete or planned end-of-life (EOL) inventory exists that needs to be written off or fully reserved

PREPAID EXPENSES

Whenever a business pays for an expense in advance, its value is recognized as an asset. As soon as a period of time expires, the appropriate portion of the asset comes off the books and the expense is recognized.

• Add current period new prepaid additions
• Review expense coding and calculate current period amortization
• Remove fully amortized items from the schedule
• Generate list of current period general ledger detail and review whether monthly amortization expense is in accordance with internal prepaid policy

PP&E

Property, plant and equipment (aka fixed assets, aka long-term assets) are assets that a company will keep in service for longer than one year. This is a diverse account with many different kinds of assets as well as a variety of depreciation methods used to recognize the devaluation of these long-term assets over their useful lives

• Generate fixed assets additions listing from the system and randomly review invoices to verify proper asset classification
• Create any manual fixed assets in the system, as necessary
• Inquire with department managers on fixed disposals
• Update useful lives as necessary
• Run depreciation in the system, review results for any significant errors
• Record journal entries for depreciation expense

GOODWILL

Goodwill represents the excess of the purchase price of an acquisition over the fair value of the underlying net tangible and intangible assets. Usually any closing tasks would not recur monthly, rather on an annual or as-needed basis.

• Perform an annual goodwill impairment test whenever events or changes in circumstance indicate the carrying value of goodwill may not be recoverable
• Review results with Controller to determine if an impairment gain/loss needs to be recorded

ACCOUNTS PAYABLE

Every small business has bills to pay and most of the time these short-term obligations come with a grace period to remit payment to the vendor. Similar to its asset counterpart, accounts receivable, accounts payable (AP) is closely scrutinized by auditors who are trying to ensure that the ending AP balance is complete and not understated.

• Perform 3-way match (purchase order/receipt/journal entry/invoice) and prepare check signature packets
• Request Statement of Accounts (SOAs) from all applicable vendors
• Generate and review AP aging for non-standard terms
• Review AP aging for any unapplied credits
• Review reconciliation of Open PO’s with FP&A

ACCRUED LIABILITIES

Obligations that are not appropriate for accounts payable are often included in accrued liabilities. This could be anything from compensation related liabilities to special services to other long-term arrangements. Like AP, auditors will look closely at accrued liability accounts to ensure they are complete.

• Email various department heads for any one-time, significant estimates for unvouchered services rendered to date
• Record accrued bonus.
• Confirm reasonableness of outstanding service periods by cross referencing to invoices posted in AP

DEFERRED REVENUE

A business that receives cash in advance for goods delivered or services rendered at a future date must record deferred revenue. As this is satisfied, the liability comes off the books and revenue is recognized.

• Perform deferred revenue acceptance analysis by cross referencing customer acceptance criteria to current period standard contracts in order to ascertain whether revenue recognition criteria has been satisfied.
• Rollforward prior period “Deferred Revenue by Customer” report. Ensure beginning trial balance of the current period accurately agrees to the ending balance of the prior period and capture all relevant deferred revenue transactions within the GL. Review for any non-routine transactions as defined within the Deferred Revenue Memo
• Generate “Billings by Customer” report
• Using current period revenue and current period billings, perform rollforward by customer and review balances for unusual items

SOX

Good news, if you’re not a public company, you can skip this section! If your team is part of a public company, grab the Excel bookkeeping close checklist template below, it’s full of great reminders.

REPORTING

If you have regular financial reporting obligations, either monthly or quarterly, this becomes a key area for you. If your financial reporting is less frequent then many of these tasks are likely to be performed on an annual or semi-annual basis.

• Perform debt covenant calculations
• Perform gross margin analysis and review with Director of Finance and CFO
• Compile all relevant monthly metrics for CEO package
• Generate final financial statements for CFO and/or business owners (Balance Sheet Accounts, Income Statement and Cash Flow)
• Create audit committee slides and review with CFO for distribution to auditors and Board

TAX

Every business has its own tax obligations to consider. Income, property, sales and payroll are all common and should be considered as regulations that require remittance to the proper authority. Here’s just an example of some closing tasks; yours should be customized to meet your needs.

• Review annual tax returns with CFO and file prior to 9/15 deadline
• File each applicable state return for the current period
• Review tax provision with Controller and record necessary tax provision JEV

Don’t Forget Your Month End Close Checklist Template

All the above is just a taste of our month end closing checklist template, built from our collective expertise helping hundreds of companies streamline and organize their month end close process. Download a free copy of the Excel template below for your accounting team’s month end close checklist and customize it as you see fit. Happy closing!

Michael Whitmire

As CEO and Co-Founder, Mike leads FloQast’s corporate vision, strategy and execution. Prior to founding FloQast, he managed the accounting team at Cornerstone OnDemand, a SaaS company in Los Angeles. He began his career at Ernst & Young in Los Angeles where he performed public company audits, opening balance sheet audits, cash to GAAP restatements, compilation reviews, international reporting, merger and acquisition audits and SOX compliance testing. He holds a Bachelor’s degree in Accounting from Syracuse University.