This is Our Monthly Accounting Close Process
One of the central processes in any business is the monthly accounting close stage. Each month the financial books must be reviewed to ensure everything has been accounted for properly. If a specific process is not strictly followed, the consequences can be very painful for a company. There are always differences or accounts that need to be reconciled, and if strict vigilance is not maintained, the differences may slowly mount, and reconstructing prior transactions will be a lot more difficult. Recurrent accounting processes will also help you detect errors and when an action can be taken to correct any nascent issues. Taking care of the company’s numbers will ensure that all the hard work you have put in in other areas of the company will be accurately portrayed.
Over time, my company, Celaque, has developed a set of documents that we prepare on a monthly basis to ensure our accounting is always as flawless as possible.
What We Prepare
We perform weekly bank reconciliations to ensure that the cash balance in our books is the same as the cash balance per our bank accounts. If there are differences, they show up at the bottom of the reconciliation. These differences are usually outstanding checks or deposits in transit. Depending on the volume of your cash transactions, the frequency of the reconciliations may vary. We have found that weekly reconciliations help us stay accurate.
At the end of the month, we perform a final bank reconciliation. Our Enterprise Resource Planning (ERP) system, NetSuite, creates the report and we review it.
NetSuite produces the company’s financial statements on demand. However, these still need to be reviewed to ensure that all the accounts are reconciled. There are two to three monthly transactions, also, that need to be operated manually because the system doesn’t support them. After the financial statements have been reviewed, we prepare a comparison between the current period and the prior period to find any changes that don’t make sense and understand how the numbers are moving.
Monthly Tax Schedules
How a company reports to the fiscal authorities varies by country. In our case, we need to send a monthly report to our local tax authority. This report is generated from NetSuite and reviewed by our accounting department to ensure there are no mistakes. Also, we go into the tax authority’s system to ensure there are no alerts for the company on the system. These occur when, for example, the tax authorities didn’t record a certain document as received. The idea is to catch anything before another more serious problem arises.
Budgets by Department
At the beginning of the year, we establish budgets by department with projections of what we are going to spend on the company operations. Every month, each department manager reviews all the expenses that were charged to each department. At this juncture, they ensure that the transactions were properly recorded. More importantly, however, they explain any variances to ensure our costs don’t slowly start to increase unnecessarily.
Financial Analysis Reports
Finally, we look at the financial health of the company. We create a report where we measure our exposure to loans, what our costs are, and our cash flow, among others. We analyze trends and future obligations.
How We Review It
Each of these documents, due to their complexity and importance, have three levels of review. For more information on how we use these three levels of review, please refer to: Get the Best Result Every Time with Multiple Levels of Review and The Key Processes that Will Need a Three-Level Review. One person prepares them, another performs a detailed review, and the final level does an overall review for accuracy.
In addition to the documents we prepare, we take the main parameters from each of the documents and add them to our monthly metrics. Please refer to my blog Metrics: Implement Insight and Strategize Growth Today. The overall close must be completed by the seventh, and we have a hard deadline for the tenth of each month.
Finally, we are annually audited by an external auditor. The auditors’ review provides the final level of review for the overall accounting process. We perform a preliminary audit in October and then a final one in January. Having a preliminary audit process ensures that any issues are corrected during the year in question. An external review gives us further assurance that our documentation is always complete and provides the standard to have comprehensive support for all our transactions.