In many cases, month-end closing could become the most consumptive tasks for an accountant (or accounting staff), and it could lead to another delay on the next tasks. Can we avoid this? Yes, definitely, and you have to. How? Complete closing tasks prior to the month-end. This (at least for me) is the best way to get better chance to complete the month-end procedure on schedule.
Who Responsible For Closing Tasks Prior To Month-End?
These tasks usually conducted by a “General Ledger Accountant (GL ACCT)“. However, for Small Medium Enterprise (SME) it is most likely fallen into a “bookkeeper” task list, where a general ledger account is not available.
This procedure is used by the closing staff (either a general ledger accountant or a bookkeeper or the other accounting staff who assigned for) to complete a variety of closing activities prior to month-end.
Please note: this is not necessarily a must for you to conduct all the tasks listed below, it is much depend on the natural operation of the company you are working for, size of the company, what report required by the related party (stakeholder). It is intended to provide a more tasks-range, so that you have more choices to pick and apply them according to your need.
Here is the procedure set:
Step-1: Conduct Error Review (three days before close)
- Print the financial statements, including statements for subsidiaries, and review them for possible errors, such as negative balances or amounts that vary significantly from the budget.
- For a possible error, access the detailed information in the general ledger and determine its cause. If necessary, post a correcting journal entry.
- If investigation reveals that the information is accurate but represents a significant variance, then create a footnote explaining the situation, for later inclusion in the financial statements.
Step-2: Determine Inventory Accuracy (three days before close)
- Print the Inventory Location Report (inventory sorted by location) and randomly select 20 items on the report for review.
- Trace all 20 items from the report to their actual locations, and trace an additional 20 items from storage bins back to the report. Record them as correct if they are in the correct location, have quantities within 5% of the recorded value, and have the correct part numbers.
- Divide the number of correct items by the total number of counts made. If the inventory accuracy percentage is less than 95%, authorize a physical count immediately following month-end.
Step-3: Adjust Obsolescence Reserve (three days before close)
- Meet with the Materials Review Board (MRB) to discuss the status of inventory designated as obsolete.
- Print the Obsolete Inventory Report and determine the estimated disposition values of all items on it.
- Calculate the obsolescence reserve by subtracting the total disposition value from the book value of the items on the report.
- Adjust the booked obsolescence reserve to match the calculated obsolescence reserve.
Step-4: Update Vacation Expense Accrual (three days before close)
- Access the Vacation Accrual spreadsheet, which lists the accrued vacation that will be available for all employees as of year-end.
- For any employee whose accrued vacation is lower than the carry forward cap of hours, transfer the lower accrual amount to the Vacation Accrual spreadsheet.
- Verify that the salary and annualized wage levels shown on the Vacation Accrual spreadsheet are correct, and adjust as necessary.
- Change the accrued vacation listed in the general ledger liability account to the total shown on the spreadsheet.
Step-5: Complete Allocation Bases (two days before close)
- Access the allocation base spreadsheet and load in the most recent activity information for the allocation base, using activity information from the immediately preceding month.
- Access the expense allocation spreadsheet and enter the revised allocation bases.
Step-6: Issue Notifications (two days before close)
- Notify the receiving staff that all receipts through month-end must be input into the computer system no later than the end of business on the last day of the month.
- Notify the shipping staff that all shipments through month-end must be input into the computer system no later than the end of business on the last day of the month.
- Notify all employees that expense reports must be submitted no later than the morning of the first day of the following month.
Step-7: Calculate Preliminary Commissions (two days before close)
- Print the sales journal.
- Transfer from the sales journal the commissionable billed invoice amounts (net of sales taxes and billed reimbursable expenses) to the commission calculation spreadsheets for each sales person.
- Verify the accuracy of the commission percentages listed on the commission calculation spreadsheets.
Step-8: Accrue Interest Expense (two days before close)
- Access the electronic spreadsheet containing current debt levels.
- Update the spreadsheet for any debt additions or repayments during the month, as well as for any changes in the interest rate paid. Also update the spreadsheet for any late changes in debt levels during the previous month, after the spreadsheet was previously updated.
- Calculate the interest expense for the current month, and record it with a journal entry.
- Adjust Bad Debt Reserve (two days before close)
- Print the Accounts Receivable Aging Report.
- Review the report with the credit manager to determine which receivables are most likely to not be collected.
- Calculate the likely amount of bad debts on the Account Receivable Aging Report by multiply the total receivables in the 0 to 30, 31 to 60, 61 to 90, and 90+ day time buckets by historical bad debt rates for each category.
- Use the greater of the figures derived in steps two and three as the bad debt reserve to be used. Adjust the existing bad debt reserve in the general ledger to match this figure.
Step-9: Complete Online Bank Reconciliation (one day before close)
- Access the bank’s online records of the company’s bank transactions, and print the complete set of transactions for the month. Also record the bank’s ending account balance as of the current date.
- Call up in another window the bank reconciliation module of the accounting software, and use the printout of bank records to reconcile the book and bank records.
- Use journal entries to adjust the book records to match the bank records, as necessary.
Step-10: Accrue Unpaid Wages (one day before close)
- Access the timekeeping records for all hourly employees since the last pay date. Compile the total hours recorded in the time system during that period, and extrapolate this amount through month-end.
- Access the Wage Accrual electronic spreadsheet and enter the extrapolated unpaid wages of all hourly employees in the spreadsheet.
- Verify that the wage rates listed in the spreadsheet for each employee are current, and adjust as necessary.
- Transfer the total wage accrual on the spreadsheet to the wage accrual journal entry.
Step-11: Review Billable Hours (one day before close)
Print the Summary Timesheet report for the current month.
Review the report for the following items:
• All employees have charged at least 40 hours during every week of the month.
• All employees have charged billable hours to jobs on which they actually worked.
• All employees have charged time off to a vacation or holiday charge code and not to a billable code.
• All employees have charged billable time to billable charge codes, not administrative charge codes.
• All employee time charged to overtime was approved in advance of the overtime hours being worked.
Have employees adjust their timesheets for any problems found during this review.
Step-12: Review Re-bill-able Expenses (one day before close)
Review all re-billable expense reports for the following items:
• They are being charged to the correct customer jobs.
• They have been assigned the correct job codes in the accounting software.
• All expenses are pre-approved by customers.
• If for federal government work, that they meet the Federal Acquisition Regulation guidelines.
• All expenses are listed in the correct categories on expense reports.
• All expense report totals correctly summarize detailed expenditures.
• There are supporting receipts that match all expenses listed on the lead page of the expense reports.
Step-13: Update Fixed Asset Changes (one day before close)
- Print the fixed asset general ledger account for the current month, as well as for the last day of the preceding month (if fixed assets were closed one day early in the preceding month).
- Verify that all items listed exceed the corporate capitalization limit. If not, create a journal entry to charge them to expense.
- Load all remaining items into the fixed assets module.
- Photocopy all supporting documentation for items entered in the fixed assets module, and store it in a fixed assets binder, sorted by fixed asset type.
- Print the depreciation report in the fixed assets module for the current month, and update the recurring depreciation entry with this information.
Step-14: Accrue Unbilled Expenses (one day before close)
At the close of business on the last day of the month, print the Unbilled Receipts Report, showing all items for which a purchase order has been issued, but for which no supplier invoice has been received.
Create an expense accrual for all items on the report. Be sure to set up the accrual to automatically reverse in the following period.
Also accrue for any recurring expenses for which an invoice has not yet been received, and for which no purchase order exists. This typically includes the following items:
• Waste pickup and disposal
Step-15: Complete Some Financial Reports (one day before close)
- Update all footnotes to and commentary on the financial statements.
- Update any operational and statistical information in the financial reporting package that is available prior to month-end.
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