Optimized Procedures of Month End Reconciliation

The work in accounting is never done. There is hardly any time to breathe while you prepare for tax returns, present financial reporting data, or even complete month-end closure. However, time spent on the month-end closure is time not spent creating value. Your to-do list is already endless, and the closing process diverts your focus away from duties that will help your firm make money and will help you provide strategic insights. Your efficiency will increase and errors will be decreased with a clear month-end closure procedure. We'll talk about how you can manage your closure process development. However, let's first examine what the month-end closure entails and the precise actions you can be performing.

What is the month-end close?

The gathering of financial accounting data, evaluation, and record reconciliation occur each month as part of the month-end closure. Some firms use this as part of their fiscal reporting requirements since it helps them maintain accurate records all year long.
End of each month, quarter and year ends up being a peak period for all finance teams due to the sheer number of tasks and reconciliations that need to be done.
Majority of finance teams’ close books each month, enabling them to review transactions, journals, and reports more often. Additionally, it entails verifying receipts, invoices, and other transaction documents to ensure that revenue and spending reporting match the actual transactions.
This month-end procedure might take between 5 and 10 days, depending on how quickly your accounting team works. The month-end accounting process is a crucial component of your company's financial system due to the following reasons.

Report your financial information more readily.
Maintains your documents so they are ready in case you are audited
Assists in avoiding upcoming accounting errors
Enables you to file taxes more quickly and easily

You may get a comprehensive understanding of your monthly expenditures by developing clear visibility on your cash inflows and outflows. The month-end closure shows you where spending isn't really essential and helps in maximising the company's cost optimisation efforts. However, a more efficient month-end closure process results in fewer errors across your whole accounting process. Therefore, doing things correctly pays off.

Significant actions for month-end accounting

Since every company differs, there is no ideal month-end close checklist. For start-ups and SMEs, the month-end accounting procedure often consists of five essential steps:

Accounts receivable
Accounts payable
Reconciliation of accounts
Permanent assets
Statements

Accounts receivable

Record every money that was received throughout the month, including cash, invoices, loans, and other sources of income. This phase also entails making sure you've gotten the right amounts from your clients and pursuing delinquent debts.Each of these transactions has to be entered into the books accurately by your finance department.

Accounts payable

Accounts payable is the amount of money you spend each month on bills and purchases as opposed to income. You'll need to keep track of your spending, including how much you spent and on what items or services, using corporate cards, expense reports, and invoice payments.

Reconciliation of accounts

Every transaction must be compared to and verified with that of the appropriate bank, vendor, or company during this phase of the monthly closure.

Permanent assets

Sometimes larger equipment, technological advances, and other assets are converted to cash in your ledger. This is because over time, the value of these assets decreases as a result of depreciation and amortisation. You are permitted to spread the cost of depreciation in the form of costs across the years since assets are expensive.
To maintain consistency in your accounts and prevent jarring increases in profit or loss, it's crucial to record any change in the value of these assets (including repairs or amortisation).

Statements

Your monthly closing financial statements, including the balance sheet, profit and loss, revenue, and expense sheets, should now be organised. Naturally, the balance of your account should be equal to the net worth of all of your credits and debits. For presenting a truthful picture of the company's financial facts and guiding future goals, financial reports and statements are crucial.
It's now time to consider the upcoming month and develop a corporate financial strategy to meet important concerns. Consider developing an automated procedure if, for instance, something was especially manual this month. When automation is used, a significant share of businesses can finish the monthly closure procedure in a lesser number of days as opposed to companies that do not automate.

Hints to improve the effectiveness of the month-end closing

The number of days it takes to complete your month-end closure process may be reduced significantly by using templates and checklists for each stage in the process.
The main advantage of employing templates for your financial closing is that they streamline procedures. It has been demonstrated that developing a Standard Operating Procedure (SOP) would increase the efficiency and precision of your month-end process.

Streamline all transactions into one location

It's crucial to compile all transaction categories in one location. We discuss costs, income, and other things. Your accounting staff can validate all company-wide transactions with spend management software that supports multiple user accounts. Additionally, you may use labels to more quickly organise and present expenditures visually.

Make a data backup

Let's face it, nobody nowadays should rely on paper. It's time to become more adaptable if you haven't been able to switch your accounting procedure online. However, it's crucial to back up all of your papers, even if you use online or digital accounting software. Consider the possibility of losing all of your data, reporting, and analysis. Such occurrences might treble the month-end process as a whole and will undoubtedly have an impact on other accounting procedures. Use a trustworthy cloud-based solution that can keep your data securely to create a backup of it.

Put corporate cut-offs into action

The employee has to be aware of and respectful of company-wide cut-off dates, which are precise dates at the end of every month. The transactions that occurred after this date will be carried over to the following month as they represent the conclusion of the current accounting period. For instance, if a freelancer you're working with doesn't turn in their invoice by the deadline, they'll normally have to wait until the following billing cycle to get paid.
Of course, your finance staff already employs them. However, letting customers know what deadlines are allows them adequate time to handle activities like paying your invoice and finishing the month-end closure.

Use automated systems

What is the one most important thing you can do to make the month-end much simpler? Make your systems automated. Did you know that instead of hounding your staff about collecting receipts every month, you may assign the task to them?
Even though accounting is a never-ending process, you may boost productivity and provide value by cutting time from month-end closing procedures. All of these strategies can, of course, be used for year-end closure and may be advantageous for some of your other accounting systems.

Automation for month end closing

Many of the issues of month-end closing activities may be made easier using accounting software. Automation may assist in the consolidation of all pertinent data into a single platform as well as the classification and field-level organisation of the data to facilitate reconciliation and report preparation. The advantages of automated month-end closings are as follows:

Savings in time

Manual monthly close takes time. For instance, it has been stated that low-level, automatable jobs account for 47% of the time spent by the AP department. Naturally, this causes delays and related challenges. It may be possible to prevent holdups and bottlenecks by automating part or all of the monthly closing process's tasks.

Savings on costs

Manual accounting closure demands a significant human resource investment. According to a McKinsey study, 45% of current paid jobs, which cost $2 trillion in compensation annually, might be automated. Additionally, performing redundant, potentially automatable jobs by hand reduces a company's efficiency, and low productivity can cost companies about USD 1.8 billion annually.

Minimising errors

When under time pressure and stress, manual accounting duties can become error-prone. When completing repetitious labour, a human is likely to make one in ten instances on an average, according to various studies.

Heightened attention on strategic tasks

An average worker spends more than three hours a day on boring, repetitive chores, according to a global study on process automation, which takes time away from higher-value jobs that need human thinking and planning for the benefit of the business. Spending time on engaging and satisfying parts of one's job increases productivity and job satisfaction, which lowers staff turnover and improves employee retention.

Audit-readiness

The ability to prepare for an audit may be the most compelling benefit of automated month-end closing. Automated business processes guarantee that records are kept up to date throughout the year, allowing for the standardisation of operations and the creation of an audit trail.

Scalable

An organization's customer base and financial holdings may grow, making human monthly account closure cumbersome or impossible without automation. It should come as no surprise that more businesses are automating the account closure procedure.
According to a Verona study, 83% of businesses now use at least some automation, up from 60% in 2015. As a result, 61% of participants said their organisation completes its monthly closure in less than six business days, with nearly half (46%) saying it happens in under four. Compare that to the old, manually recorded seven or more-day period.

In Summary

The work of an accountant is seldom a singular activity with a start and finish. To ensure that the account closure procedure does not become burdensome at the conclusion of the financial year, it can, at best, be divided into manageable monthly reconciliations. Any business may benefit from automation of the monthly accounts closure process, which will help it stay on top of its current status as well as be ready for the future.

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