Closing your books every month is an important bookkeeping task that should be part of your monthly bookkeeping routine. By closing your books on a monthly basis will help you have cleaner books, be more organized, and you will have an easier time preparing your books to give to your tax preparer at the end of the year. Here is a 12 Step process to follow when you close your monthly accounting records.
- Accounts Receivable
- Verify all clients have been invoiced for work completed during the month.
- Double check your deposits and monies received have been posted to QuickBooks.
- Reconcile your Aging Accounts Receivables report against your Balance Sheet and against your General Ledger. Make any changes or adjustments to ensure all records match.
- Accounts Payable
- Make sure all bills have been paid.
- Double check all automatic bill payments and any recurring payments have been posted to QuickBooks (example – loan payments, monthly car insurance payments, etc).
- Post any outstanding bills to Accounts Payable so you can track what needs to be paid next month.
- Reconcile your outstanding vendor bills and vendor statements against your Accounts Payable Reports and your Balance Sheet. Make sure your records match those of your vendors. Make any adjustments or changes.
- Monthly Reconciliations
- Reconcile Bank Accounts – Reconcile all bank accounts using your monthly bank statements and monthly credit card merchant statements. Print and file the reconciliation reports and bank statements when finished.
- Reconcile Loan Balances and Lines of Credit – Reconcile your loan balances and lines of credit against your monthly statements. Print and file the reconciliation reports.
- Track your Fixed Assets
- Record your monthly depreciation.
- Prepaid Income and Expenses Adjustments
- Record your monthly journal entries to allocate your prepaid income and expenses.
- Write Off Bad Debt
- Write off any uncollectable invoices to bad debt. In QuickBooks, this can be done using a Credit Memo.
- Verify all Checks and Invoice Numbers are Accounted For
Checks and Invoices are generated in numerical order. If any check numbers or invoice numbers are missing, figure out why and record the missing transactions. If they were voided or deleted, make sure you keep a record as to why they were voided and/or deleted.
- Review Financial Statements
Look for any unusual balances, missing items, or mistakes. If anything looks or feels “off” look into it and figure out why the balance seems odd to you. Make any corrections or necessary adjustments.
- Update Budget
Update your budget and review your budget vs. actual numbers. Determine why some budget amounts are off for the month. Feel free to adjust your budget as needed.
- Print and File Financial Statements and Financial Reports
- Close Books
If you’re using QuickBooks, use the “Closing Date” feature. This great feature allows you to lock previous months and protect with a password. This keeps yourself and your bookkeepers from accidentally changing previous months. The “Closing Date” feature can be found under the company drop down menu. If you find any errors later on, those errors need to be corrected in the current period.
- Back Up
Back up your QuickBooks, Peachtree, or other accounting software.
There you have it – 12 steps to follow to close your books at the end of each month. Adding these tasks to your monthly bookkeeping routine will help you have cleaner books, be more organized, and you’ll have an easier time preparing your books to give to your tax preparer at the end of the year.
Michelle is the owner of Trailhead Accounting Solutions CPA, LLC, an Erie, CO based CPA firm focused on providing small and mid-sized businesses with day-to-day accounting, bookkeeping, and business solutions. Michelle is a CFO turned consultant who loves working with small businesses and entrepreneurs. When she’s not crunching numbers, she can be found hiking, remote camping, gardening, quilting, and hanging out with her family.