Importance of Closing Procedures

The end of the month can be a hectic time in any office, and it can be easy to focus on just getting the job done for now, thinking you’ll develop a more organized process in the future.  It will come as no surprise that having a monthly checklist can help ensure that all financial transactions are recorded timely and accurately.  In turn, your managers and directors will have the accurate financial information available that is critical in enabling them to respond to changing conditions. Simply put, it is impossible to make informed decisions without accurate information, and implementing a month-end process or checklist for your organization’s closing procedures will achieve three main things:

1. Increase Efficiencies:  Having a written month-end closing process will speed up the time it takes to prepare and have internal financial statements available since the accounting staff will have a well organized list of items to complete and will be able to stay on task.  Setting a deadline for the month-end close can help too (for example the second Monday of the following month).  Once this process is implemented, the accounting staff and managers will be on the same page as to when to expect reports.
2. Increase Reliance on Internal Financial Statements:  Without a systematic method for timely and accurate monthly closing procedures, it leads to a continuing and growing backlog of transactions and journal entries that are not posted into the accounting system, which renders the accounting information virtually useless in making well informed business decisions.  Beyond the inconvenience of inaccurate records, this accounting disorganization will ultimately cause significant errors in the financial records and financial statements, as well as allow possible irregularities, including fraud, to exist and continue without notice.
3. Reduce Adjustments at Year-End:  Generally, organizations that have a well written and implemented checklist will identify errors early.  Of course, there are the usual day to day activities to post, but there are several unique transactions that only get posted on a monthly basis that need to be accounted for. Identifying mis-posted transactions and errors throughout the year will lead to fewer adjustments at the end of the year, saving time and money on compilations, reviews, and audits.

A good rule of thumb when closing a month is to print a trial balance and thoroughly check each balance sheet account.  Balance sheet accounts should reconcile to either a bank statement or internal schedule, such as a spreadsheet or list.  Utilizing, a comprehensive month-end checklist will help your organization gain efficiencies throughout the year, but creating your own checklist can be overwhelming.  That is why we developed a month-end checklist and have posted it to our website – www.berganpaulsen.com/monthlychecklist.html.  The checklist covers an abundance of areas and will need to be tailored to fit your organization’s needs. 

If you would like to learn more about developing a customized checklist for your organization or other ways in which you can benefit from accurate and timely financial statements, please get in touch with one of the nonprofit experts at Bergan Paulsen.