From Insights to Growth: Harnessing Month-End Close for Financial Success
By Lillian Njovu and Choolwe Chileshe.
The end of month close accounting process is important for maintaining accurate financial records, enabling timely decision making, ensuring compliance with regulations, enhancing internal controls, and facilitating performance evaluation and planning. It contributes to the overall financial health and stability of a business.the six-step process for an efficient month-end close accounting:
Step 1: Reconcile Accounts Receivable, Accounts Payable, and Inventory
For Accounts Receivable, review all invoices generated during the month and ensure that payments have been received and recorded. Reconcile customer accounts and verify that all transactions are accurately recorded.
In the case of Accounts Payable, review supplier invoices and ensure they have been recorded in the system. Match payments made to suppliers with the corresponding invoices and reconcile supplier accounts.
If your business deals with inventory, conduct a physical stock take to verify the actual quantity of goods on hand. Value the stock based on its cost and ensure that the recorded stock value matches the physical count.
Step 2: Perform Account Reconciliation
Reconcile your bank accounts, including checking your bank statements and comparing them to the transactions recorded in your accounting system. Also, reconcile any mobile money accounts or cash transactions.
By reconciling accounts, you can identify any missing expenses or transactions that were not properly recorded. This step helps ensure the accuracy of your financial records.
Step 3: Create a Budget Analysis
Compare your actual expenses and revenues with the budgeted amounts for the month. Analyse the variances to understand where you exceeded or fell short of the projected budget.
This analysis provides valuable insights into your business's financial performance and helps you make informed decisions for the upcoming month. You can identify areas where you need to adjust your spending or maintain your budgetary discipline.
Step 4: Review Fixed Assets
If your business owns fixed assets such as machinery, vehicles, or land, review their status. Check for any maintenance or depreciation needs and evaluate their current value.
This step ensures that your fixed assets are in good condition and that their recorded value aligns with their actual worth. It helps you plan for any necessary repairs or replacements.
Step 5: Transfer Journal Entries to the General Ledger
Consolidate all the individual journal entries into the general ledger. This process involves summarizing your various accounts, such as expenses, sales, and purchases, in one centralized ledger or accounting system.
If you're using an accounting software, you can input the journal entries to automatically generate reports and summaries of your financial transactions. This step provides a comprehensive view of your accounts and facilitates accurate financial reporting.
Step 6: Prepare Financial Statements
With the data now consolidated in the general ledger, prepare financial statements such as the balance sheet, income statement, and cash flow statement.
These statements provide a comprehensive overview of your business's financial position, performance, and cash flow. They are essential for decision-making, obtaining financing, and fulfilling reporting requirements.
Bonus Step: Double-Check the Accuracy of your Work
To ensure the utmost accuracy, have another person review your work. Ask a colleague or supervisor to verify the figures, entries, and calculations you've made.
This extra step of double-checking helps minimize errors and ensures the reliability of your financial information.
By following these detailed steps, you can perform an efficient month-end close accounting process, resulting in accurate financial records and insightful reports for your business.