Month-end close: Definition, best practices, and resources

The month-end close is an essential accounting procedure for any business. It gives you visibility into financial activity for the month and ensures you have accurate data for financial statements.  

This post covers everything you need to know about the month-end close process, from the basics to best practices for a smooth close. Plus, you’ll find a downloadable checklist to help streamline your process.  

What is the month-end close?

The month-end close, also known as the monthly close or financial close, is the process of closing out all financial activity for a business for the previous month. This includes reviewing, documenting, and reconciling all financial transactions within that period, as well as making necessary adjustments.  

What is the purpose of the month-end close?

The main objective of the monthly close is to guarantee accurate accounting of all transactions, enabling businesses to prepare financial statements and reports and start the next month with a clean slate.

This process serves several important functions:

• It enables comprehensive review and documentation of all financial transactions that occurred during the month, ensuring that they are properly recorded and classified.  

• It allows accountants to identify and correct any errors and discrepancies found when reconciling accounts and verifying balances.

• It helps meet regulatory requirements and deadlines, such as tax filings and financial statements.  

• It provides management with timely financial information to make informed decisions and assess the company's performance.  

Ultimately, the month-end close process gives businesses a clear understanding of their financial position, facilitating transparency and accountability. It also prepares you for a successful year-end close.  

Month-end close process  

The month-end close process typically follows these steps:  

1. Preliminary activities

• Gather relevant financial documents and records.

• Review any open items or issues from the previous month-end close.

2. Account reconciliations

• Perform bank reconciliations to ensure the accuracy of cash balances.

• Reconcile general ledger (GL) accounts with supporting documentation.

• Investigate and resolve any discrepancies or variances identified during the reconciliation process.

3. Accruals and adjustments

• Review and record necessary accruals for expenses or revenues not captured in your accounting system.

• Make any required adjusting entries to correct errors or align financial statements with the accrual basis of accounting.

4. Review and approval

• Conduct a thorough review of the financial statements, including the income statement, balance sheet, and cash flow statement.

• Obtain necessary approvals from management or designated personnel to ensure accuracy and completeness.

5. Financial reporting

• Prepare and generate the final financial statements.

• Compile supporting schedules, disclosures, and footnotes.

• Distribute the financial reports to relevant stakeholders, such as management, board members, or external parties.

6. Closing activities

• Close the accounting period in the financial system to prevent any further changes or postings.

• Archive and store the necessary documentation and records for future reference and audit purposes.

Month-end close challenges

The month-end close process can be complex and time-consuming for companies of all sizes. Organizations often face challenges that can delay the close or lead to errors, including:  

Time-consuming manual procedures

The month-end close process can be full of manual and repetitive tasks, including entering data into spreadsheets, manually reconciling accounts, and entering transactions into the accounting system.  

The process can be time-consuming, tedious, and error prone. This means accounting teams often work overtime to complete the tasks in time for the end of the month, and these long hours can lead to burnout.

While the timeframe varies depending on the size of the company and the processes in place, Ventana Research found that, on average, businesses require six days to complete their month-end closing process and finalize their financial records.

But the process doesn’t have to take this long. As we’ll discuss below, using software to automate tasks can significantly reduce the amount of time spent on manual tasks, giving accounting teams valuable time back.  

Decentralized data

Accurate financial data is vital to ensuring an efficient and reliable close process. But manual data entry can lead to human error, and identifying and resolving discrepancies can be time consuming when data is stored across different spreadsheets and platforms.  

Lack of standardized procedures

Without established procedures in place, it can be difficult to ensure accuracy and consistency in your financial data. This can lead to costly errors that can harm the financial health of the business. To ensure a successful month-end close process, it’s important to establish a clear set of procedures for the accounting or finance team.

Best practices to improve the month-end close process

The month-end close can present challenges for accounting teams, as we just saw, but these are not insurmountable. The following tactics can help you improve efficiency and speed up the process.  

Use software to centralize data and automate tasks

Close accounting software can automate repetitive tasks—saving your team time, reducing errors, and improving overall efficiency. Plus, it can help you centralize your financial data and accounting processes, so you don’t have to constantly switch between spreadsheets, your enterprise resource planning (ERP) platform, and other software.  

Evaluate existing manual processes to identify tasks that you could automate, then explore close accounting software solutions to find the right one for your business. For example, using a close accounting solution embedded in NetSuite eliminates context switching and allows you to automate tasks to speed up the close process.

Consolidate systems for better integration

Consolidating and integrating systems enables you to centralize data, streamline processes, and eliminate the need for manual data entry and reconciliation. A unified system improves data accuracy and enhances visibility and reporting capabilities, allowing for real-time insights and faster decision-making.

Consider which systems you could integrate with your ERP, such as your content management software, e-commerce platforms, or third-party logistics solution.  

Standardize procedures

Standardization helps eliminate confusion and promotes consistency. Develop a standardized checklist or template that outlines the specific steps required for the month-end close (more on this below). Clearly define roles and responsibilities for each task, ensuring everyone understands their assignments and deadlines.  

Learn more about how to build a better close process through standardized procedures.  

Implement a closing calendar

Create a month-end closing calendar that includes all the important dates and deadlines leading up to the close. This calendar should include cutoff dates for transactions, submission deadlines, and reviews by management. Sharing the calendar with all relevant stakeholders helps everyone stay on track and ensures the timely completion of tasks.

Month-end close checklist

Month-end close tasks are often divided among different team members, and if the team doesn’t have an effective task management process in place, collaboration can become a challenge. Ineffective processes can result in inconsistent communication, missed deadlines, and costly errors.

On the other hand, a streamlined process can ensure the close goes smoothly, helping accounting teams collaborate effectively and saving time.  

A month-end close checklist can help you standardize processes by laying out the tasks that must be accomplished prior to finalizing monthly financial statements. It helps ensure you don’t skip any of the records that must be verified to generate accurate financial records, including:  

• Cash: Verify that your cash balance matches the bank statements and investigate any discrepancies or unprocessed funds.

• Expenses/accrued expenses: Ensure accurate recording and cross-referencing of the company's expenses for the given period.

• Accounts receivable: Review outstanding payments and determine if any bad debts need to be written off.

• Accounts payable: Verify payments made to suppliers during the month and ensure their accuracy.

• Inventory and fixed assets: Document the depreciation expense of fixed assets and maintain accurate tracking of inventory.

• Accrued taxes: Assess the accumulated tax liability for the relevant period.

• Payroll: Calculate employee payroll for the current period and record necessary reimbursements related to employees.

• Notes payable to the bank: Compute the monthly interest payable to the bank and track loan amortization.

For a full checklist of procedures, download our free monthly close checklist template.  

Streamline the month-end close with NetClose

Standardizing your monthly close procedures will go a long way toward creating a more efficient process. But close accounting software can have an even bigger impact by automating manual tasks, reducing errors, and saving your team valuable time.  

NetClose for NetSuite speeds up the monthly close with advanced task management and auto reconciliations, and it’s fully embedded in NetSuite. This means you can close the books inside your ERP and eliminate context-switching.  

Want to see it in action? Request a personalized demo to see how NetClose can help you stop dreading the monthly close.  

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