How to Supercharge Your Accounts Payable Month-End Close Process
A month-end closing process improves your efficiency and reduces mistakes in the AP Automation process. We will get into how you can develop the management of your closing process. But first, let us look at the month-end close and the exact steps you might take for your business.
Companies that wait until the year-end to produce their financial reports are likely to find it time-consuming and challenging. Most firms create monthly financial statements to receive a continuous standpoint of their financial KPIs and to make the year-end process go more smoothly.
After each month, businesses gather all essential economic information to examine and reconcile their records for the month-end close. It aids in maintaining correct records and identifying any anomalies well before the end of the fiscal year. It also provides a birds-eye perspective of the financial health of an organization and facilitates planning with actionable insights.
It is critical to understand that the month-end close is a formal process for finalizing the balance sheet data.
What is a Month-End Close Process?
The month-end close is essential in the monthly accounting cycle, where reports are kept and created. These month-end closing books reflect how the business performed during that month. The month-end close process consists of a thorough review of financial activities and performance for the entire month and the creation of monthly financial statements. It enhances your capacity to complete accurate and efficient quarterly and year-end financial closures.
The date on which the month-end closure procedure begins and the books are closed — typically a week before the end of each month — is the cutoff point for all business transactions for the month. Every transaction should get recorded. Every month, transactions should get recorded so that you can maintain a proper balance sheet and your company can begin fresh the following month. Keep in mind that the closing details of the books for a given month get reflected within the first week of the upcoming month.
To-Do's in Month-End Close Process:
The month-end close process thoroughly examines financial activity and performance for the entire month and prepares monthly financial statements. It enhances your ability to conduct accurate and efficient quarterly and year-end financial closes.
However, during a month-end close, many accounting departments will need to conduct the following processes to ensure their books are accurate and finalized:
• In your accounting system, enter all customer and vendor invoices.
• Reconcile all bank accounts and inventory assets
• Make financial statements
• Examine all statements thoroughly
• In your financial system, close the period
• Distribute the financial report
• Prepare for the upcoming close
Month-End Close in Accounts Payable Process
Accounts payable is a critical component of the month-end closing process. Of course, accounts payable significantly impact the final expenses that should get addressed after the books are closed.
If the accounts payable system gets handled promptly and precisely, liabilities might easily be represented at month's end, thereby overstating net income and throwing off business indicators for months.
Furthermore, your accounts payable records can affect everything from cash flows to its capacity to recruit outside investors, credit rating, and borrowing prices.
Because accounts payable is such an essential part of closing the books, strengthening AP workflows is critical for the health of your entire organization, we will focus on the month-end close approach as it relates to accounts payable from now on.
How to perform the Month-end process?
Here is a checklist of tasks to assist you in getting through your month-end close:
1. Collect all financial information
The first step in the month-end closing procedure is to gather all pertinent financial data. It includes entries from the revenue statement (for example, accounts receivable), expense records (for example, accounts payable), and other daily transactions.
2. Verify and reconcile the data
All balance-sheet accounts, such as cash, savings, and checking, must be reconciled. It provides the company with a clear picture of its cash flow after gathering all the data, receipts, bank statements, and other sources of information that the company may have.
3. Assess fixed assets
Fixed assets like equipment, technology, storage, housing, vehicles, etc., must be assessed. It is also essential to consider that these assets depreciate, and the depreciation amount gets categorized under expenses.
4. Make financial statements
It is time to prepare your financial statements now that you have all of the information and have validated it. The financials - balance sheet, income statement, and cash flow statement are examples of these. Check that the entries are correctly recorded and that there are no discrepancies between the financial statements.
Produce financial statements that include:
• Profit and loss statements
• Financial Statement
• Statement of cash flows
• Additional reports tailored to your company or industry
5. Conduct a final review
Every business relies on the month-end closing procedure. As a result, the last review gets performed before the completion of the closure procedure. The top management or someone not involved in the closure process conducts the final review to obtain a fresh perspective on all the facts. It ensures the accuracy of the monthly financial accounts.
Once completed, review these statements carefully and make modifications depending on new information, calculation errors, or budget deviations. Compare your results to your forecast if you follow a financial plan. If you need to catch up, this will assist you in changing your plan. Finally, you must officially finish the period and distribute the financial statement in your financial system with the help of AP software.
Why do you need Month-End Close Process?
Closing the books on a month-on-month basis can be time-consuming but knowing the financial health of your organization is critical. The month-end closure can assist you in identifying deviations from your financial plan early on, allowing you to adjust promptly. On the other hand, it might find new prospects for business growth and inspire intends to capitalize on them.
It all boils down to proactively analyzing business performance to gain a competitive advantage. You should be able to do so if you master the month-end closing process using accounts payable software.