Whether you are a large company with a formal accounting department or a small, family-owned business with less than a handful of employees who are part of the financial reporting process, there are many benefits to having a shorter accounting close process. It enables management to review and interpret data regarding the company’s financial performance on a timelier basis, so they can make informed decisions more quickly about any necessary adjustments. Errors can also be identified and corrected more quickly. And management can concentrate more time and effort on sales trends, costs, and collections of receivables.
Here are four keys to tightening your accounting close process.
Develop a closing schedule and communicate it to those charged with doing the work.
Every company’s closing schedule is different; each has its own set of unique balance sheet items that require different levels of attention. However, there are some general guidelines to follow. Concentrate on your The first days of the close, concentrate on your balance sheet. General ledger balances should be agreed to any subledger reports, reconciling and adjusting when necessary, and a list of follow up items should be developed to go along with each balance sheet account. Once all balance sheet items have been adjusted and reviewed, compare the income statement to the prior year for reasonability. Reclassify any expenses that may have been posted to an incorrect general ledger account.
Challenge the way things have historically been done.
Say that you do not typically receive your bank statement until the fifth or sixth day of the month, and reviewing it is currently the first item on your month-end to-do list. The process is already a few days behind before you even get started. Most banks have online access to operating accounts, so even though your statement may not have been generated by the first of the month, you can still go online to obtain the prior month activity. If you do not currently have online access, find out whether you can set it up. This will enable you to get a head start on the process instead of having your schedule dictated by the U.S. mail delivery.
Apply this thinking to other parts of your current process, and determine whether there is a simpler, more efficient way to achieve the same results.
Identify items that can be done ahead of time.
I have often seen what should be a simple process turn into a multi-day project due to finding issues that were not on a client’s radar. You will surely find during your process that there are unanticipated issues that need attention; however, those items may not necessarily have to be done during closing week when you are working with a tight schedule. Take opportunities during lighter accounting duty days over the course of the month to perform these duties.
For example, from the accounts payable aging report, review any debit balances and determine whether a purchase order will be issued for the vendor in the near future based on purchasing trends. If not, call to request a refund check. Develop Excel schedules for prepaid expenses and future debt obligations over the course of the agreement; if you get an invoice that does not coincide with the schedule, it will be easy to identify. Make collections calls to follow up on any checks that have been outstanding on your bank reconciliation for longer than two months. These are just a few items that can be done on an ongoing basis, and not necessarily during close week.
Close the period in your accounting software.
Accounting errors can often be avoided if items are simply posted into the correct period. Most accounting software programs give you the option to “close” the month after you have gone through your month-end process. This is a simple way to ensure the integrity of the data that you just worked so hard to review and validate.
It may take some time and a few adjustments to employee schedules, but after you integrate these ideas into your day-to-day activities, your employees and your company will benefit as a whole. And management will be able to make decisions involving purchasing, investments in capital expenditures, and managing accounts payable with a more informed approach.
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