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Accounting Period-end Closing Procedure And Task List – Day By Day

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The users of a company’s financial statements—investors, lenders, and management—wish to see accurate results from the latest reporting period as soon as possible. In past years, these have been conflicting goals, under the premise that a rapid financial closing required the use of so many estimates that the results would be less accurate than those achieved after a prolonged wait. However, by using a carefully designed period-end closing procedure, the accounting department can create accurate financial statements in short order

The keys to the success of this procedure include its constant review and updating to achieve continual improvements in the closing process; careful delineation of the tasks required of each person; and shifting of closing tasks forward into the accounting period to be closed.

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By paying constant attention to these mechanics, it is possible to close the accounting records and achieve a high degree of accuracy within just a few days of the end of an accounting period. You may want to adopt and document procedure example I am going to present later on. It could be the master copy that is maintained by a controller, showing the work tasks of every person who is involved in the closing process. For easier marking, I am going to start it by days either prior or after the date of the month-end; for example, the first task listed is 4 days before the month-end, which is four days prior to that date. Then followed by lists job title of the person responsible for each task, and the third and final lines describes the task that must be completed on that date.

 

4 Days Before The Period-end 

Controller: Review closing schedule and distribute to staff.

 

General Ledger Accountant:

  1. Verify that recurring journal entries are still correct for the current reporting period.
  2. Review financial statements with the most recent information and investigate unusual variances.
  3. Set up journal entry forms for the coming close.

 

Cost Accountant: Audit bills of material and adjust for any inaccuracies found.

 

2 Days Before The Period-end

Payables and Receivables Clerk: Review the contract schedule and verify that all contractual agreements have been either paid to suppliers or billed to customers.

 

Cost Accountant: Complete all allocation bases.

 

1 Day Before The Period-end

Cost Accountant: Conduct an inventory audit to determine the inventory accuracy level.

 

Controller: Complete footnotes.

 

General Ledger Clerk:

  1. Go online and complete a preliminary bank reconciliation.
  2. Accrue estimated bank charges and the interest income and interest expense.

 

General Ledger Accountant: Review financial statements with the most recent information and investigate unusual variances.

 

Accounts Receivable Clerk: Conduct a preliminary review of the shipping log to ensure that all deliveries have been billed.

 

The Day of The Period-end 

General Ledger Accountant:

  1. Process the period-end closing program in the computer.
  2. Print and distribute all period-end reports.

 

Cost Accountant:

  1. Verify the quantities and descriptions of all offsite inventories that are on consignment.
  2. Complete a physical inventory count if the inventory record accuracy is below 95%.
  3. Collect Acknowledgment of bill and hold transaction forms from customers.

 

First Day After The Period-end

 

General Ledger Accountant:

  1. Compare all period-end reports to general ledger balances and reconcile differences.
  2. Complete the preliminary bank reconciliation.
  3. Cancel all outstanding checks more than 90 days old.
  4. Complete a petty cash reconciliation.

 

Payroll Clerk:

  1. Accrue for unpaid wages.
  2. Accrue for unused vacation and sick time.
  3. Prepare a detailed list of withheld taxes and pension deductions, tying back to individual payrolls, identified by date.
  4. Prepare accrual for the amount of any company-paid matching funds to be deposited in pension account.
  5. Prepare commission statement following completion of customer billings.

 

Accounts Receivables Clerk:

  1. Complete billings to all customers.
  2. Close the accounts receivable module.
  3. Review accounts receivable aging with the controller and determine the amount of a bad debt accrual.
  4. Review old accounts receivable and write off selected balances with controller approval.
  5. Prepare a detailed schedule of other accounts receivable.

 

Financial Analyst: Prepare a detailed list of short-term investments, showing the name of the investment, the date purchased, the face amount, interest rate, and total accrued interest.

 

 

Second Day After The Period-end

 

Controller: Review the bank reconciliation.

 

Accounts Payable Clerk:

  1. Review cut-off information and accrue for any missing supplier invoices based on purchase order costs.
  2. Accrue for any unpaid medical or dental insurance, or other employee benefits.
  3. Review the repairs and maintenance account to see if any items charged here should be shifted to a fixed asset account.
  4. Close the accounts payable module.

 

Cost Accountant:

  1. Review inventory balances and conduct a reasonableness test of quantities on hand and costs in comparison to previous periods.
  2. Conduct sample test counts for all inventory classes exceeding 10% of total inventory value.
  3. Print inventory reports and issue to distribution list.
  4. Close the inventory module.

 

Fixed Assets Clerk:

  1. Review asset sales and disposals, and update fixed asset records accordingly.
  2. Record gains and losses on the sale of assets.
  3. Update the fixed assets schedule and calculate depreciation.
  4. Verify that depreciation totals do not exceed the totals of asset valuations less salvage values.
  5. Reconcile the general ledger fixed asset and accumulated depreciation balances to the detail ledger balances, and correct any variances.
  6. Close the fixed asset module.

 

General Ledger Clerk:

  1. Complete all remaining accruals.
  2. Summarize prepaid assets and compare to balances from the previous period. Review balances with the controller and determine the extent of prepaid write-downs for the period.
  3. Review the construction in progress account to see if any projects can be finalized; if so, shift to a fixed assets account and initiate depreciation.
  4. Prepare royalty statements.

 

Third Day After The Period-end

General Ledger Clerk:

  1. Update detailed schedules for all balance sheet accounts.
  2. Trace all journal entries to the summary-level general ledger, and investigate all variances.
  3. Financial Analyst: Complete all operating data for inclusion in the financial statements.

 

Controller:

  1. Consolidate incoming entries from subsidiaries.
  2. Complete a preliminary set of financial statements.
  3. Tax Manager: Accrue for income taxes expense.

 

Forth Day After The Period-end

Controller: Finalize the financial statements and issue to the distribution list. The following reports should be included in the statements:

  1. Balance sheet
  2. Income statement
  3. Statement of cash flows
  4. Income statements by department
  5. Key operating statistics

 

Financial Analyst: Calculate the borrowing base certificate and send it to the lender, along with a set of financial statements.

 

Fifth Day After The Period-end

General Ledger Clerk: Review variances too small to be checked during the closing process.

 

Sixth Day After The Period-end

Controller:

  1. Review the size of the cutoff level used to eliminate variance investigations.
  2. Review the closing schedule for the next month.
  3. Review job assignments for the next month’s closing schedule.
  4. Review the closing schedules for subsidiaries for the next month.
  5. Review the contents and layout of the financial statements, and plan for changes in advance of the next close.

 

Sixth Day After The Period-end

All Staff: Review problems with the last close and agree on necessary changes to be made for the next close.

 

The above procedure set is based on several underlying assumptions, which may call for a change in the contents of the procedure if the assumptions are incorrect. They are:

  1. That bill of material is used to cost the inventory: The procedure requires the cost accountant to verify the accuracy of a selection of bills of material in advance of the period-end. By doing so, one can gain some confidence that the costs assigned to work-in-process and finished goods inventories are reasonably accurate, and will require minimal further review or adjustment subsequent to the period-end. If there are no bills of material, or if they are not used to assign costs to inventory, or if they contain significant inaccuracies, then the procedure must include additional (and time-consuming) steps to review costed inventory valuations subsequent to the end of the period.
  2. That there are standardized overhead allocations: The procedure requires the cost accountant to complete the calculation of overhead allocation bases two days before the period-end date. This is possible if one uses a one-month delay in the allocation period so that allocations can be completed in advance. If such a system is not used, the allocation calculation must be delayed until after the accounts payable module is closed subsequent to period-end.
  3. That there is an accurate perpetual inventory system: The procedure requires the cost accountant to review the accuracy of the inventory with an audit prior to the period-end. If the accuracy level is high, then the controller does not need to conduct a physical inventory count (which can seriously delay the completion of the financial statements). There may not even be a need for a formal accuracy review by the cost accountant as long as cycle counts are regularly performed and yield high accuracy levels. If there is no perpetual inventory system or cycle counting procedure in place, then this procedure step must be replaced by a physical inventory count after the period-end.
  4. That the bank reconciliation can be completed online: Many larger banks now make daily account balance and detailed transaction information available online. This allows one to complete a running bank reconciliation so that there are no surprises at the end of the accounting period. The author completes bank reconciliations on all accounts by 8 a.m. every morning, so the period-end bank reconciliation is a nonevent. If a company does not have such account access, it must wait up to a week after period-end to obtain a mailed statement from the bank; this places the controller in the uncomfortable position of either delaying the close until the statement is received, or of issuing financial results before that date and hoping that there will be no significant changes contained within the statement.
  5. That a receiving log is used: The procedure requires the accounts payable clerk to accrue for any supplier invoices not yet received by reviewing the receiving log to see what deliveries have been received for which there is no accompanying invoice. This is a particularly easy step in an integrated computerized accounting system that links purchase order numbers to specific receipts, allowing the computer to present an accrual list to the clerk. If this capability is not present, then the controller must authorize a lengthy manual analysis of receipts, or wait a number of days for supplier invoices to be received, or accrue based on a guess of the amount received (which can be incorrect to a significant degree).

 

The procedure also assumes that the accounting staff will issue financial statements on the fourth day after the period-end. However, this is merely a sample target, which will not be reached at once, and which can be surpassed after a number of months of attention to the underlying processes. Of particular note in this procedure are the steps listed on days six and seven. They require the controller and his or her staff to review the just-completed closing process to see what steps can be made more efficient, thereby contributing to the ongoing reduction of time required to complete the closing process.

As noted under the day 0 task in the preceding period-end closing procedure for the cost accountant, it is necessary to collect acknowledgment forms for all bill and hold transactions from any customers who have agreed to such inventory holding situations. The form requires a customer to sign off on each aspect of the accounting transaction required by generally accepted accounting principles. The form is then kept on file and is used as proof of customer agreement with each transaction.

The payroll clerk’s wage accrual noted on day +1 in the preceding period-end closing procedure typically requires the use of a wage accrual spreadsheet. The spreadsheet itemizes the names of all hourly staff persons for whom unpaid wages must be accrued, as well as each one’s pay rate per hour and the number of unpaid hours. This is automatically translated by the spreadsheet into a journal entry that is listed at the bottom of the spreadsheet.

The payroll clerk also accrues vacation time on day +1 in the period-end closing procedure. This requires the use of a vacation accrual spreadsheet. The spreadsheet clusters employees by operating division, noting the maximum number of vacation hours allowed under the current company policy, comparing this to the current accrual level, and automatically creating a journal entry to fully recognize any shortfall in vacation hours accrued.

The payroll clerk is also required to calculate commissions for the sales staff once all billings have been completed by the accounts receivable clerk. This can be done with a spreadsheet. The spreadsheet allows one to itemize all invoices created during the reporting period, as well as the type of commission to be paid (e.g., repeat, split, or new), and the commission percentage and dollar amount paid. The report also itemizes any override commissions paid to managers based on the sales volume of their trainees.

The general ledger clerk is required to calculate royalties due as of day+2 in the period end closing procedure. To accomplish this, one can use the royalty statement. It notes the royalty rate paid on each incremental block of sales, as well as royalties already paid and the amount still due for payment.

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