What is the month-end close?

The month-end close is the set of steps an accounting team completes after each month ends to make sure the books for that month are complete and accurate, before locking the period. It usually covers reconciliations, accruals, adjustments and a review before reports go out.

What it usually includes

  1. Reconcile every bank, credit card and loan account to its statement.
  2. Make sure all sales invoices and supplier bills for the month are entered, and review the AR and AP agings.
  3. Record accruals for costs incurred but not yet billed, and spread prepaid expenses such as annual insurance.
  4. Record payroll, depreciation and any inventory adjustment.
  5. Reconcile the main balance sheet accounts to supporting detail.
  6. Review the P&L for variances and fix anything that looks wrong.
  7. Lock the period so nothing changes after reports are sent.

Worked example: a bank reconciliation

ItemAmount
Balance on the bank statement, October 31$49,400
Less cheques written but not yet cashed- $3,100
Add a deposit made October 31, not yet on the statement+ $1,900
Adjusted bank balance$48,200
Balance in the books$48,200

The two match, so the bank account is reconciled. If they didn't, the difference would be a missing or wrong entry to find before closing.

Common mistakes

  • Closing before the bills are in. The P&L looks better than it is, then next month absorbs the costs.
  • Reconciling only the bank. Credit cards, loans and payroll liabilities drift too.
  • Not locking the period. A late change to a reported month means the client's copy no longer matches the books.
  • No checklist. The same steps every month, in the same order, is what makes the close fast.

Related terms

  • Accrual vs cash basis: Accrual basis accounting records revenue when it is earned and expenses when they are incurred, whatever the date cash moves.
  • Variance analysis: Variance analysis is the process of comparing actual results with a budget, forecast or prior period, measuring the difference and explaining why it happened.
  • AP aging (accounts payable aging): An accounts payable (AP) aging is a report that lists unpaid supplier bills grouped by how long they have been outstanding or how soon they are due.

Further reading