Bookkeeper Group

Keeping it Real

The Comprehensive Monthly Close Checklist

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This guide is designed to take the guesswork out of your month-end accounting. While every business has unique needs, the core steps of a monthly close are universal. This checklist is not just a list of tasks; it is a workflow designed to ensure accuracy, compliance, and peace of mind. By following these steps in order, you build a financial foundation that can support strategic decision-making.

Prerequisites

Before you start the close process, you should have:

  • Access: Login credentials for all bank and credit card online portals.
  • Documents: All physical receipts and invoices for the month collected and scanned.
  • Reports: Payroll reports for all pay periods ending in the month.
  • Environment: A quiet block of time to focus—interruptions are the enemy of accuracy.

Phase 1: Preparation

1. Confirm the Period Is Ready to Close

Before you dive into the numbers, ensure you have all the necessary ingredients.

The Checklist:

  • Log into your bank and credit card accounts and download the monthly statements.
  • Open your accounting software and navigate to the "Banking" or "Transactions" tab.
  • Click "Update" to pull in the latest feed data.
  • Enter all invoices you sent to customers in the last few days of the month.
  • Enter all bills received from vendors, even if you haven't paid them yet.
  • Check your "Draft" or "Pending" folder for transactions that were started but not finished.

Context & Elaboration:

  • Why it matters: You can't reconcile what isn't there. Starting the close with incomplete data guarantees you'll have to redo work later. It's like trying to bake a cake before you've bought the flour.
  • Consequence of Skipping: You will likely miss expenses or revenue, leading to understated financial reports and tax filings that require expensive amendments.
  • Pro Tip: Set a strict deadline for employees to submit expense reports (e.g., "Expenses for the month must be submitted by the 3rd of the following month").
  • Real World Example: If a salesperson forgets to submit their travel expenses until the books are closed, your profit for that month will look artificially high, and you might make spending decisions based on false optimism.

Phase 2: Cash and Banking

2. Reconcile Bank Accounts

This is the single most important step in the entire process. It verifies that your "books" match reality.

The Checklist:

  • Go to the Reconciliation module in your accounting software.
  • Select the bank account and enter the ending balance and ending date from your actual bank statement.
  • Match the transactions in the software to the lines on the statement.
  • Investigate any differences immediately (duplicates, missing fees, uncleared checks).
  • Once the difference is $0.00, click "Finish" or "Reconcile."

Context & Elaboration:

  • Why it matters: Cash is reality. If your books say you have $10,000 but the bank says you have $8,000, your financial statements are fiction.
  • Consequence of Skipping: You risk overdrafting accounts, missing fraudulent transactions, and presenting a completely false picture of the business's liquidity.
  • Pro Tip: If you can't find a discrepancy, look for a transaction that is the exact amount of the difference. If that fails, look for a transaction that is half the difference (you might have entered a debit as a credit).

3. Reconcile Credit Cards and Loans

Just like cash, debt needs to be verified.

The Checklist:

  • Follow the same reconciliation process as for bank accounts.
  • Credit Cards: Ensure that payments made from your checking account are matched to the payment received on the credit card.
  • Loans: Verify the ending principal balance against the lender's statement.
  • Loans: Make a journal entry to split the monthly payment into "Principal" (reduces the loan liability) and "Interest Expense" (an expense on the P&L).

Context & Elaboration:

  • Why it matters: It ensures all expenses are captured and liabilities are accurate. It also catches duplicate charges or "subscription creep" where you are paying for software you no longer use.
  • Consequence of Skipping: Expenses are understated (inflating profit artificially), and liabilities are incorrect. This can lead to surprise tax bills because you thought you were more profitable than you actually were.
  • Pro Tip: Create a recurring journal entry template for your loan payments so you don't have to calculate the split manually every time.

Phase 3: Accounts Receivable & Payable

4. Review Accounts Receivable (A/R)

Know who owes you money and if they are actually going to pay.

The Checklist:

  • Run an "A/R Aging Summary" report.
  • Scan the list for customers with balances in the "60+" or "90+" day columns.
  • Follow up with these customers via email or phone.
  • Identify any uncollectible debts and consider writing them off as "Bad Debt Expense."

Context & Elaboration:

  • Why it matters: Revenue is vanity; cash is sanity. If you have "revenue" on the books that you'll never collect, your profit is misleading. You are paying taxes on money you don't have.
  • Consequence of Skipping: You may pay taxes on phantom income. You also lose leverage to collect on overdue debts if you let them slide too long.
  • Pro Tip: Send monthly statements to all customers with an outstanding balance automatically from your accounting software.

5. Review Accounts Payable (A/P)

Know who you owe and avoid paying things twice.

The Checklist:

  • Run an "A/P Aging Summary" report.
  • Review the list of unpaid bills. Do these represent real obligations?
  • Check for duplicate bills from the same vendor for the same amount.
  • Check for vendor credits that haven't been applied to open bills.

Context & Elaboration:

  • Why it matters: It helps manage cash flow and prevents overpayment. It also ensures expenses are recognized in the month they occurred, not just when they were paid (accrual basis).
  • Consequence of Skipping: You might double-pay vendors or miss due dates, incurring late fees and damaging supplier relationships.
  • Pro Tip: Ask key vendors for a monthly statement of account to reconcile against your A/P ledger.

Phase 4: The "Accounting" Steps

6. Record Accruals and Adjustments

This moves your books from "cash basis" to "reality basis."

The Checklist:

  • Accrued Expenses: Identify services received but not yet billed (e.g., legal, consulting).
  • Record a journal entry: Debit Expense, Credit Accrued Liabilities.
  • Accrued Revenue: Identify work completed but not yet invoiced.
  • Record a journal entry: Debit Unbilled Receivables, Credit Revenue.
  • Set these entries to reverse on the first day of the next month (if applicable).

Context & Elaboration:

  • Why it matters: It aligns revenue and expenses to the period they actually generated value or cost, giving you a true measure of profitability for that specific month.
  • Consequence of Skipping: Margins swing wildly from month to month based solely on when bills are paid or invoices sent, making it impossible to spot trends.
  • Pro Tip: Only accrue for material amounts (e.g., over $500). Don't waste time accruing a $20 office supply purchase.

7. Review Prepaids and Depreciation

Allocating long-term costs.

The Checklist:

  • Prepaids: Amortize prepaid expenses (e.g., insurance).
  • Journal Entry: Debit Expense, Credit Prepaid Expenses.
  • Depreciation: Record depreciation on fixed assets (e.g., vehicles, equipment).
  • Journal Entry: Debit Depreciation Expense, Credit Accumulated Depreciation.

Context & Elaboration:

  • Why it matters: It spreads the cost of large purchases over their useful life, preventing a massive "loss" in one month and artificially high profits in others.
  • Consequence of Skipping: Your balance sheet overvalues assets, and your profit and loss statement shows lumpy, unpredictable earnings.
  • Pro Tip: Maintain a separate spreadsheet (a "schedule") for Prepaids and Fixed Assets to track these monthly entries.

8. Review Expense Categorization

Cleaning up the details.

The Checklist:

  • Run a "Profit and Loss Detail" report for the month.
  • Scan the rows for oddities (e.g., meals in "Office Supplies").
  • Identify any personal expenses that slipped into business accounts.
  • Reclassify any errors to the correct account.
  • Check for consistency with prior months.

Context & Elaboration:

  • Why it matters: Consistency is key for analysis. You want to compare apples to apples when looking at "Travel" or "Marketing" year over year.
  • Consequence of Skipping: Your tax deductions could be disallowed during an audit if personal expenses are mixed in or categories are clearly wrong.
  • Pro Tip: Create "Bank Rules" in your software to automatically categorize recurring transactions, but always review them.

9. Reconcile Payroll

Because nobody likes payroll errors.

The Checklist:

  • Run a "Payroll Summary" from your payroll provider (like Gusto or ADP).
  • Compare "Total Wages" on the report to the Wages Expense in your General Ledger.
  • Compare "Employer Taxes" on the report to the Tax Expense in your General Ledger.
  • Verify that the payroll clearing account balance is $0.00.

Context & Elaboration:

  • Why it matters: Payroll is often the largest expense. Discrepancies here can lead to massive tax penalties and incorrect W-2s.
  • Consequence of Skipping: Inaccurate W-2s at year-end, potential fines from the IRS, and disgruntled employees if their withholdings are wrong.
  • Pro Tip: Reconcile payroll every single pay run, not just at month-end. It's much easier to fix a mistake the day it happens.

Phase 5: Review and Finalize

10. Perform Analytical Review

The "gut check."

The Checklist:

  • Run a "Profit & Loss Comparison" report (This Month vs. Last Month).
  • Look at the "% Change" column.
  • Investigate any variance that is larger than 10% or a specific dollar amount.
  • Drill down into the transactions to understand why.
  • Add notes explaining major variances.

Context & Elaboration:

  • Why it matters: This is where you catch the big mistakes—like a decimal point error that turned $100 into $10,000. It also helps you understand the business story.
  • Consequence of Skipping: You might send reports to investors or banks that contain embarrassing, obvious errors.
  • Pro Tip: Write brief notes on the P&L explaining major variances (e.g., "Advertising up due to new Q3 campaign launch").

11. Review Financial Statements

The final product.

The Checklist:

  • Balance Sheet: Verify Cash matches Bank Recs.
  • Balance Sheet: Verify Credit Cards match statements.
  • Balance Sheet: ensure "Undeposited Funds" is zero.
  • Profit & Loss: specific review of Net Income.
  • Statement of Cash Flows: Review operating, investing, and financing sections.

Context & Elaboration:

  • Why it matters: These are the official scorecards of your business. They need to be accurate representations of financial health.
  • Consequence of Skipping: You miss the opportunity to understand your business's financial health before sharing that information with the world.

12. Lock the Period

Case closed.

The Checklist:

  • Go to "Account and Settings" or "Advanced" settings.
  • Find the "Close the Books" or "Lock Date" feature.
  • Set the closing date to the last day of the month you just finished.
  • Set a password to prevent accidental changes.

Context & Elaboration:

  • Why it matters: It prevents "history from changing." If you file taxes based on these numbers, you cannot change them later without filing an amendment.
  • Consequence of Skipping: Someone might accidentally edit a transaction from three months ago, changing your tax liability and breaking your reconciliation, forcing you to redo the work.
  • Pro Tip: Change the password every year after tax season.

Common Monthly Close Mistakes (and How to Fix Them)

It is easy to get caught in the weeds. Here are the most common traps businesses fall into during the close process.

1. Skipping Reconciliations

  • The Mistake: Assuming the bank balance in the software is correct because the bank feed is "on."
  • The Fix: Always perform the formal reconciliation. Bank feeds break, duplicate, and miss transactions regularly.

2. Rushing Accruals

  • The Mistake: Posting generic accrual numbers without backup.
  • The Fix: Create a simple workbook to calculate accruals based on actual contracts or estimates.

3. Forcing Balances to Match

  • The Mistake: Using a "Plug" or "Reconciliation Discrepancies" expense account to make the bank balance match.
  • The Fix: Find the difference. If it's truly unresolvable and immaterial (e.g., under $5), write it off to "Office Expense," but never plug large amounts.

4. Ignoring Old A/R or A/P

  • The Mistake: Letting old invoices sit on the books forever.
  • The Fix: Review the aging reports monthly. If you aren't going to pay a bill or collect an invoice, clear it out.

5. Making Changes After Reports are Issued

  • The Mistake: Updating a transaction in a "closed" month without telling anyone.
  • The Fix: Lock the period. If a change is required, make it in the current month as an adjustment, or reissue the reports with a clear version number.

Scaling Your Close Process

As your business grows, your close process must evolve.

  • For Small Businesses (Under $1M Revenue):

    • Focus: Cash accuracy and basic categorization.
    • Team: Founder or Bookkeeper.
    • Timing: 15 days after month-end.

  • For Growing Businesses ($1M - $10M Revenue):

    • Focus: Accruals, departmental tracking, and variance analysis.
    • Team: Bookkeeper + Controller (Internal or Outsourced).
    • Timing: 10 days after month-end.

  • For Mature Businesses ($10M+ Revenue):

    • Focus: Compliance, audit readiness, and complex consolidations.
    • Team: Full accounting department.
    • Timing: 5-7 days after month-end.

Final Thoughts

A monthly close isn’t just an accounting task—it’s a control process. It is the discipline that separates a hobby from a business.

When done well, it:

  • Builds trust in your numbers.
  • Reduces stress at tax time.
  • Improves decision-making.
  • Prevents small issues from becoming big ones.

A good close checklist turns chaos into routine. It transforms the anxiety of "what if we are losing money?" into the confidence of "we know exactly where we stand."

Next Steps

Now that you have your checklist, explore these related resources to master each step: