What is the month-end close process? Everything you need to know

The month-end close is an essential accounting procedure that helps businesses reconcile their financial activity and keep accurate, up-to-date records. 

By meticulously reviewing and documenting transactions throughout the month, accounting teams can close their books with confidence, get clear insight into their organization’s financial health, improve their decision-making, and stay compliant with regulatory requirements. 

Accounting software is transforming the month-end close process with automated amortizations, reconciliations, and flux analysis. What was once a tedious, headache-inducing process is now a standardized, streamlined event so you can reclaim your time and invest it in higher-impact tasks. 

In this guide, we’ll break down the month-end close process, highlight best practices, and share tips to streamline your workflow. Plus, we’ve included a downloadable month-end close checklist to simplify your procedures. 

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.

At Netgain, we’ve made a monthly close checklist that covers all the major steps of a successful month-end close. 

Information accounting teams need for the month-end close

Month-end close best practices recommend gathering the information you need before you start to minimize errors and avoid delays. Here are the key data points you’ll need:

• Bank statements and reconciliations. Ensure all bank transactions are accurately recorded, and reconcile bank statements with the general ledger (GL).
• General ledger details. Review GL accounts to verify that transactions have been properly classified and coded.
• Accounts receivable (AR). Analyze outstanding customer invoices and assess the need for any bad debt write-offs or adjustments.
• Accounts payable (AP). Confirm vendor payments, account for all outstanding liabilities, and verify the accuracy of AP reports.
• Accrued expenses and revenues. Identify and record any expenses or revenues that have been incurred but not yet captured in the financial system.
• Payroll reports. Verify payroll data, including salaries, bonuses, and reimbursements, to ensure accurate recording in the financial statements.
• Inventory and fixed asset details. Update inventory counts and review fixed asset records for depreciation, acquisitions, or disposals.
• Financial statements. Prepare draft versions of the income statement, balance sheet, and cash flow statement for management review.
• Supporting schedules and documentation. Compile schedules for accruals, prepayments, depreciation, and tax liabilities, as well as any other necessary supporting documents.

How long does a month-end close take?

According to 2023 Ventana Research, 58% of businesses take six days to close their books and complete their month-end closing process. There is no right or wrong timeframe, with periods varying based on company size and transaction complexity. 

However, organizations that rely heavily on convoluted spreadsheets and manual processes may find their close stretching well beyond this average, taking up to twice as long. A manual approach invariably leads to delayed reporting and increased workload for accounting teams​. 

Between 2019 and 2023, Ventana noted very little difference in how long companies took to carry out their month-end close. This suggests that early digital transformation efforts haven’t had much impact on closing process streamlining efforts. 

However, NetClose customers report that our automation platform doesn’t just reduce their monthly close time; it gives users real-time alerts about transactions. This allows you to iron out discrepancies in real-time, rather than trying to identify and fix inaccuracies retrospectively. 

More than a single solution for a single process, NetClose works in tandem with NetCash to automate bank imports and reconciliations throughout the month, shaving hours off your accounting team’s schedule. 

For instance, 48% of accountants say their team spends over 10 hours each month simply preparing and uploading spreadsheet files. NetClose generates critical reports with the click of a button—much faster and much less stressful than manual reconciliations. 

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, frustrating, and error-prone. Fifty-six percent of accounting professionals say they work longer hours per day during the month-end close period, and these long hours can lead to burnout.

But the process doesn’t have to take this long. As we’ll discuss below, using software to automate tasks can significantly reduce the 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. 

For example, mismatched transactions occur when a payment or invoice is recorded in one system but not in another. These discrepancies can lead to hours spent investigating and correcting errors. Decentralized data exacerbates this problem, as accounting teams often pull information from multiple sources like spreadsheets, enterprise resource planning (ERP) platforms, and manual records.

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.

Standardized procedures help eliminate ambiguity by clearly defining the steps, roles, and responsibilities involved in the close process. For instance, assigning specific tasks—such as reconciling bank statements or reviewing journal entries—to designated team members reduces the risk of overlapping efforts or missed steps. 

Detailed checklists and predefined templates ensure that you complete all critical tasks consistently each month. This approach not only boosts the accuracy and efficiency of the close but also helps new team members ramp up more quickly by providing a clear roadmap for their responsibilities.

Importance of a streamlined month-end close process

A streamlined month-end close process gives businesses operational efficiency, accurate financial reporting, and informed decision-making. Here are key reasons why optimizing this process is vital: 

Improved financial accuracy and compliance

A streamlined month-end close reduces errors and ensures that financial records are accurate and complete. This doesn’t just help you monitor your financial health—it keeps you in line with regulatory standards too. Accurate financial data is essential for audits, tax filings, and maintaining stakeholder trust. The fewer discrepancies you have, the easier it will be to avoid costly penalties and earn a strong financial reputation.

Timely decision-making

Completing the month-end close quickly means management can access up-to-date financial insights, allowing for faster, data-driven decisions. These timely insights help leaders respond to market changes and seize new opportunities before competitors. With real-time data, companies can also better forecast and plan for upcoming financial periods.

Enhanced team efficiency and morale

Streamlining the close process reduces the time accounting teams spend on manual, repetitive tasks, helping accounting teams find work-life balance during month-end close periods. It also prevents the need for excessive overtime, which can lead to burnout and decreased productivity. Improved workflows and effective collaboration make team members feel more valued and less overwhelmed which, in turn, boosts morale and long-term engagement.

Cost savings and resource optimization

Optimizing the month-end close reduces the costs associated with prolonged manual processes, such as overtime and error corrections. It allows businesses to reallocate resources toward growth initiatives, like investments in new technologies or product development. Over time, these efficiencies contribute to significant cost savings and better resource allocation.

Foundation for year-end close success

An efficient month-end close keeps your financial data accurate and current, simplifying the more intensive year-end close process. By addressing discrepancies monthly, accounting teams reduce the risk of year-end bottlenecks and last-minute corrections. This approach also helps companies meet annual reporting deadlines with confidence and ease.

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.  

1. 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 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.

2. Consolidate systems for better integration

Consolidating 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.  

3. Standardize procedures

Standardization helps eliminate confusion and promotes consistency. Develop a standardized checklist or month-end close 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.  

4. 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 stops you skipping any of the records you need to verify 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.  

Learn more about the month-end close

Find answers to some of the most common questions about the month-end close.

What is the difference between month-end close and year-end close?

The month-end close is a recurring financial process that takes place at the end of each month, focusing on reviewing and reconciling financial data to ensure accuracy. It helps businesses maintain up-to-date financial records for informed decision-making. 

In contrast, the year-end close is a more comprehensive process, incorporating additional steps like tax preparation, audit readiness, and annual financial reports. Both close processes are crucial for maintaining financial health, but the year-end close builds on the groundwork established during monthly closes. 

What is a month-end close checklist? 

A month-end close checklist is a standardized tool that outlines all the tasks accounting teams need to complete before finalizing monthly financial statements. This includes reconciling accounts, reviewing journal entries, and verifying cash balances. 

Using a checklist ensures consistency and reduces the risk of errors, making the close process more efficient and reliable. It’s particularly helpful for delegating tasks among team members and keeping everyone on track.

Why is the month-end close important?

The month-end close ensures that financial data is accurate, timely, and ready for reporting. It allows accounting teams to identify discrepancies, correct errors, and provide leadership with a clear picture of the company’s financial health. Moreover, a reliable month-end close supports regulatory compliance and lays the foundation for a smooth year-end close, reducing the workload during critical periods.

What are the month-end close activities? 

Month-end close activities typically include reconciling bank accounts, verifying accounts payable and receivable, recording necessary accruals and adjustments, and preparing financial statements. These tasks are designed to ensure all financial transactions are properly documented and classified. By following these steps, accounting teams can provide accurate financial insights, enabling businesses to make data-driven decisions.

Streamline the month-end close with NetClose

Standardizing your monthly close procedures will go a long way toward creating a more efficient and accurate process. But close accounting software can take your efficiency to the next level by automating manual tasks, reducing errors, and freeing up valuable time for your accounting team.

NetClose by Netgain speeds up the monthly close with advanced task management and auto reconciliations. Fully embedded in NetSuite, it allows you to complete your close process directly within your ERP, eliminating the need for context-switching and ensuring seamless integration with your existing workflows. 

For bank reconciliations, NetCash connects you to financial institutions through secure open banking APIs (application programming interfaces). It streamlines reconciliation processes, keeping your cash management accurate, even for banks that don’t support automated connections. 

And that's just the beginning. Working together with lease accounting and fixed asset management solutions, Netgain's close accounting solutions provide a comprehensive toolkit to optimize every aspect of your close.

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