Closing the Books: The Month End Close Accounting and Bookkeeping Checklist

What separates a successful business from a failing one? I get this question all the time from aspiring entrepreneurs and business owners that are working diligently to get to the next level. The answer is extremely simple – systems. A successful business needs systems for on-boarding staff, allocating marketing spend, launching new products, and most importantly – generating financials.

Those outside of the world of accounting believe that generating financials is simply clicking a button on the computer. Yes, it can be a very minute task. However, the steps needed in the preparation of getting to where all it takes is ‘one-click’ are certainly more challenging and time-consuming.

To get to the one-click as mentioned above, a business must have a checklist to ensure their financials are correct. Some businesses have relatively simple lists, while others are more complicated. Some require a team of people and others simply require the owner to go through the list.

Below we will dive into all necessary items that need to be addressed for a small but growing business.

Download the excel version of the month end close checklist here.

The month close checklist is extremely important and for that exact reason I spent a whole chapter of my book on this. For those who came here via different means, let’s take a look at the three main components of the checklist:

1. Asset Account and Revenue Recognition (think assets)
2. Accounts Payable and Liability Accounts (think liabilities)
3. Reporting (think income statement)

Let’s take a deeper look at each individual section, the subsections and their associated tasks:

Asset Account and Revenue Recognition

Cash Accounts

1. Reconcile Checking Accounts.
2. Reconcile Savings Accounts.
3. Reconcile Cash on Hand to ending amounts.
4. Review uncleared checks and deposits to ensure accuracy.

Accounts Receivable

1. Accounts receivable aging total agrees with balance reflected on trial balance
2. Identify significant account balances past due and document collection status.
3. Determine whether any past due balances need to be written off.
4. Review accounts receivable aging for any unapplied credits.

Prepaid Expenses

1. Establish and record pre-paid expenses (e.g., insurance, interest expense, etc.) to recognize the expense in proper month.

Fixed Assets

1. Review new purchases made in the previous month to verify they have been recorded properly with the correct depreciation schedule.
2. Review disposals of fixed assets and remove from fixed asset records.
3. Record depreciation expense for the current month.

Investments

1. Post interest and dividend income to General Ledger
2. Reconcile any investment activities for the period

Inventory

1. Perform perpetual inventory subledger review to ensure all goods activity confirmations were properly posted to the General Ledger.
2. Review perpetual inventory listing for reasonableness (high quantities, high dollars, etc.)
3. Determine if any excess, obsolete or planned end-of-life (EOL) inventory exists that needs to be written off or fully reserved.

Other Assets

1. Ensure any other asset accounts are current and reconcile as necessary.

Accounts Payable and Liability Accounts

Payroll

1. Ensure all payroll journals are entered properly.
2. Review all net checks to ensure a proper zero ending balance.

Accounts Payable

1. Perform 3-way match (purchase order/receipt/invoice)
2. Request Statement of Accounts (SOAs) from all applicable vendors.
3. Verify vendor balances against the Statement of Accounts.
4. Review AP aging for any unapplied credits.
5. Close AP and post to General Ledger.
6. Review AP and other payables for possible accrual.

Notes Payable

1. As applicable, analyze notes payable accounts (e.g., notes payable for mortgages or lines of credit) and post any unrecorded interest and principal outstanding; reconcile to statements received from source(s) of financing.

Sales Tax Payable

1. Balances in accounts agree to respective sales tax reports filed the following month.

Other Liabilities

1. Ensure any other liability accounts are current and reconcile as necessary.

Financial Reporting Activities

1. Run preliminary budget-to-actual expense reports by department
2. Review and analyze month-end financial data; record adjustments as necessary.
3. Generate full final financial package and complete month-end financial statements for key stakeholders.

This is a great starting point for a business without an accounting month-end closing checklist.

Download the excel version of the month end close checklist here.