Does Month end reconciliation consume a lot of time?

The decision-making processes of management, regulatory bodies, lenders, and stakeholders all depend on the accuracy of the financial accounts. The month end reconciliation process is necessary in order to make sure that a company&aposs financial status is accurately recorded. The month-end reconciliation might be extremely different depending on the volume and complexity of a business&aposs operations. Financial automation software can assist to streamline the process, save time, and eliminate errors.

What is the month end financial close?

An accounting procedure called the month-end close makes sure that all financial transactions have been recorded in the correct month. The month-end closing procedure is necessary to adhere to the matching principle of accounting, which states that costs must be recorded and recognised at the same time as the related revenue.
As an illustration, revenue collected and expenses paid out beyond the period in which they were incurred must be matched and documented in the period. The accountant must acknowledge that the expense has not been recorded and accrue for it in the appropriate period as part of the month-end closure process.

What is the Month End Reconciliation Close Process?

A series of accounting procedures to analyse, record, and reconcile accounts are referred to as the month-end closure process. It is necessary to gather data from numerous sources and confirm that records have been preserved properly in order to close books for each period.
While the process will vary depending on the kind of business and accounting techniques used, it is usual to review data such as:

Inventory totals
Chart of accounts
Aggregate fixed assets
Bank account information
Cash and Bank reconciliations
Information on the accounts for income and expenses
Data from general ledger

How to Reconcile Accounts for Month End?

For all organisations, the process of reconciling the accounts often looks similar. The actions you might anticipate taking when you want to reconcile your accounts for the month include:

1. Record Cash Inflow

Keep a record of all the funds you have received this month in the form of loans, revenue, paid invoices, etc. Verify that all of your documents and invoices line up.

2. Examine the payables

Check your payables because it&aposs possible that you haven&apost been documenting daily income that is due in your account. Make sure it is updated.

3. Account reconciliation

It's time to verify that the external account statements and all of your internal records match. Accounts should be divided into three categories: accruing accounts, bank loans and notes, and cash/checking/savings. Set out to reconcile each account one at a time.

4. Adjust the Petty Cash.

Don't forget about your cash on hand or petty cash. Make sure your final cash balance is accurate and list the receipts you paid for with petty cash.

5. Examine inventory and fixed assets

You must also keep track of your fixed assets, which are long-term investments that provide value to your company. They depreciate with time because they are often greater purchases. According to the depreciation schedule, record any payments for your fixed assets at this time. Count your inventory as well.

6. Arrange financial statements

You can analyse financial statements, profit and loss statements, and business balance sheets for variances and if all of your data are in order and transactions match.

7. Evaluation

Before closing your books and getting ready for the following month, make sure all of the information is correct.

Month End Close Checklist

A checklist can help ensure that nothing is overlooked throughout the month-end close process, whether it is done manually or mechanically.
Here are some details on what this entails:

1. Verify transactions in

After payroll (ensure timesheets have been approved)
Verify that your accounting system contains all of the accounts payable bills.
Create all recurring bills.
Check each account - whether there are receivable invoices in your accounting system.
Check to see if expense reports have been approved and submitted.
Keep track of all invoice payments.
Post every debit and credit card expense.

2. Entering closures in the overall journal.

Post-discounted, after-amortized, or other costs and profits
Make sure all records entered are accurate.
Deferrals, reversals, and post-accruals
Review revenue recognition and schedule posting

3. Shut down sub ledgers

4. Balance every account

Banking records

Expense accounts

Ageing accounts payable to sub-ledger (and sub-ledger to the general ledger)

Sub-ledger for accounts receivable aging (and sub-ledger to the general ledger)

Fixed assets, deferred revenue accounts, work in progress, and prepayments

Inventory

5. Examine reports.

Variation in profit and loss
Comparison of the budget and actual

Importance of a strategic financial close system

There is no denying that month-end close is a crucial task in the finance function that necessitates a prompt and correct book closing. It goes without saying that a good financial closure is necessary for accurate cash flow forecasts, strategic company decision-making, and financial planning.

How month-end closing is important for organisations in a number of ways

Businesses benefit from the month-end closing procedure in the following ways:

Information that is accurate and trustworthy is available on a timely basis, upon which business decisions are made
Awareness of the business&aposs financial situation
A framework for future planning
Controlling cash inflow and outflow
Ensuring stakeholder confidence
Avoiding accounting mistakes
Making preparations for a streamlined and easier tax filing process.

Financial close bottlenecks

The collection, analysis, reconciliation, and adjustment of account balances, financial transactions, and data from numerous systems are all necessary steps in the difficult month-end closure process. In order to be confident that the financial statements correctly reflect the financial activity for the month, the method includes a thorough evaluation of the financial activity and performance for the full month as well as accuracy adjustments.
Bottlenecks arise in the financial closure for the following reasons:

Without automation, the month-end closure procedure resembles a fire drill rather than being carried out throughout the month.
There are many procedures for various accounts and transactions:
Poor communication and coordination between the departments involved in the financial closure, ineffective workflow, and limited insight into the closing operations.
Numerous jobs need time since they are manual, require Excel analysis, and are not part of the ERP. -expensive modifications submitted to the ERP or EPM solution for error correction
No awareness of upstreaming mistakes or anomalous transactions
Limitations on capacity weighing precision against labor costs and closing times.

The causes of financial constraints

1.Absence of a clear process:

A Deloitte survey found that institutional memory rather than precise and defined procedure is frequently used to manage the month-close process. Since they have been doing it that way for years, various participants in the process "simply know how things get done."

2.Lack of automation in financial close:

The following ways that financial close software enhances the closing process:
i) Efficiency
ii) Visibility
iii) Timeliness - Due to a key stakeholder being out of the office or persistent delays on regular tasks brought on by competing priorities, tasks are frequently postponed in organizations without automated capabilities.

3. Lack of a well-defined procedure:

Each action in the close process must be assessed for its value and purpose throughout the close process since financial close automation cannot be especially useful without visibility into the bottlenecks impeding the month-close process.

4. Lack of business-wide standardization:

The number of stakeholders and the absence of established processes are two additional significant obstacles to automating record-to-report. The information provided to the finance teams by external teams from other business units sometimes differs substantially. People tend to do things their own way, which poses a problem for procedures that must be consistent throughout all company sectors.

5. Manual preparation of financial statements:

The traditional approach for preparing financial statements requires a lot of "cutting and pasting," incorporating information from several employees, from the previous month&aposs report. It is challenging to keep track of different revisions and adjustments, which makes it challenging to confirm the report&aposs veracity and correctness.

6. The approval process

also uses manual procedures, and in many businesses, executives must approve physical paper copies that are then kept on file for auditing purposes. But the human mistake is common in manual operations. Additionally, every financial statement inaccuracy has a negative effect on a company&aposs trustworthiness.

What can the finance team do?

The following are some ways that High Radius Autonomous Accounting helps in record-to-report automation:

Visibility of accounting transaction anomalies

can be achieved by means of advanced analytics and AI-powered anomaly transaction detection models can help the early detection of anomalies and their subsequent correction by Finance teams.

Manual chores are automated:

By automating time-consuming manual activities and arranging all financial close work papers for auditor scrutiny, the "connected workspaces" aid in financial close automation.

Enhances task overview and timeliness:

The ability to stretch out duties across the whole month while ensuring there are no delays caused by inter-dependent tasks is made possible by increased visibility over all the financial closing chores, access to real-time data, and an automated workflow to ensure optimal productivity.
In today's unstable and turbulent economic climate, CFOs and financial executives must guide corporate decision-making processes with knowledge, quickness, and confidence. The month-close and reporting cycle, however, still presents many financial departments with inefficient regular activities. It is therefore challenging to devote more time to value-added analysis and decision support.

In Summary

Reconciliation at month&aposs end of the month doesn&apost have to be difficult or stressful. Conciliation software may handle the procedure on your behalf. Accuracy, transparency, and efficiency are all improved by the capacity to gather, store, and compare records in a centralised system. Every business executive understands the need of an efficient and error-free month-end closing procedure and deploying the right tool by taking help from a Solutions Partner will enable faster realization of investment into such products.

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