Why Is The Month End Closing Process So Vital?

The accounting cycle’s closing of the previous month’s accounts is significant. Closing the books is ending a month’s financial transactions and creating its financial accounts.

Reasons why the operation is necessary include:

  • A monthly method checks all financial activities to ensure proper financial reporting. To create accurate financial accounts (, management and other stakeholders must do so.
  • Monthly financial statements are required to comply with laws and regulations. One of several laws. End-of-month bookkeeping helps meet these criteria.
  • Monthly book-closing is standard practice since it provides management with a timely chance to assess the company’s financial health and address any issues that may have arisen since the last review. This may help management discover issues and take action before they worsen.
  • Month-end close lets management monitor actual expenditures and revenues vs forecasts. This helps management estimate income and expenses.
  • Budgeting
  • Improving internal controls
  • Closing the books each month ensures that internal controls are working properly. This is crucial to preventing fraud and other financial irregularities.

A correct month end procedure follows a template similar to this:

  • Email suppliers about unpaid bills. Check sales pipeline data and revenue issues with sales. Verify manual entries.
  • Reconcile cash and bank accounts. Note where cash is going and why. To guarantee organization and bucketing, double-check clearing accounts.
  • Account operations: Check and reconcile AR and AP (AP).
  • Accrual estimates: Review accruals for month-end and following month. Pay pay in advance.
  • ASC 606 reviews: Verify both the electronic and manual data streams used for tracking sales and bonuses. To verify consistency and reasonableness, go over the report with the team.
  • Adjust flux: Review your month-end closure results monthly and quarterly to compare them to your company’s growth objectives. If anything is wrong, consider year-over-year. ‍

Automate Monthly Close Tasks

Business owners need past data to predict the future. Financial data becomes staler as accounting takes longer, reducing projection accuracy. Business partners demand financial data quicker. Automating tiresome chores speeds up insights.

Finance and accounting should automate monthly closure duties wherever possible: This allows them to close quicker and participate in critical business discussions. These are frequent month-end closing automation methods.

Be Sure You Plan Adequately

For the purposes of achieving alignment between marketing, finance, and accounting, it is essential to be aware of the main one-time costs that will soon be incurred. If you use a calendar to track when you confirm items and establish budgetary goals, you may include them into your planning for the month-end close and beyond.


Between month-end closures, department heads may replace or upgrade their tools and systems. Finance and accounting lose data if they don’t discuss these adjustments with department executives. Automation fills that gap.

Accrual automation is unfinished. These tools may help you conduct follow-up discussions quickly to determine whether unexpected purchase orders are ongoing spending or one-time purchases to record and anticipate for next month.

ASC 606 Revenue Recognition

Tracking product and service revenue helps you meet your expected budget and file compliant taxes.

Board Reports

Board reporting and flow analysis depend on efficient month-end closures. As you seek to justify the “why” behind your figures, errors and inefficiencies in the closure will scupper each of these procedures and harm your reputation with investors.

If monthly book close is done incorrectly, a corporation may suffer several severe issues.

Repercussions include:

  • False financial statements
  • Financial statements are inaccurate if monthly book closure is not done correctly. This might lead to poor management choices and financial reporting violations.
  • Reporting lag
  • Financial statements may be delayed by late month-end closing. Publicly listed companies that must regularly provide financial statements may struggle.
  • Difficulty spotting fiscal anomalies
  • Management may struggle to identify problems without good financial data. This might lead to financial losses when concerns worsen without management’s knowledge.
  • Inaccuracies
  • Management struggles to budget and forecast with inaccurate financial records. Click here to read more about budgeting and forecasting. This makes budgeting and forecasting tough. Budgeting and forecasting are explained here. This makes it simple to make bad financial judgments.
  • Poor internal controls
  • If the month-end book closure is done incorrectly, it may suggest a lack of internal controls. Fraud and other financial problems may go undiscovered.
  • Image Damage
  • Inaccurate financial accounts and late reporting may harm a company’s image, costing it money. It may also lead to fines, penalties, and criminal charges.

To make sure those mentioned above will not be experienced it is always best to trust professionals to do the month end closing process for your business.

To sum up, closing the books on the accounting for the previous month is a crucial step in the bigger accounting process. It improves internal controls, budgeting, forecasting, financial reporting, compliance with legislation, and problem detection and resolution.

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