Month end close

Month-End Close

A fast, clean close is the result of consistent preparation, not heroics at deadline. The failure this skill prevents is the restatement: a late invoice posted after reconciliation, an unreconciled variance carried forward "to fix next month," a flux swing nobody explained that turns out to be a misposted entry. The sequence below has hard checkpoints so nothing slips and the books reflect economic reality.

Target: sign-off and lock by business day 5 for a well-run close; day 10 is the outer acceptable bound. A close consistently past day 10 means the pre-close phase is being skipped - fix the calendar, not the deadline.

Operating procedure

The order is dependency order, and it is not negotiable: journals before sub-ledger lock, lock before reconciliation, reconciliation before flux, flux before sign-off. Reconciling before the lock guarantees rework; running flux before reconciliation means explaining errors instead of catching them.

Step 1: Gather inputs (once, when adopting this process)

1. Chart of accounts and entity structure (any intercompany?).
2. Sub-ledger systems for AP, AR, payroll, inventory, and who owns each cutoff.
3. Materiality threshold for reconciliation variances and flux explanations - a common working floor is the greater of 10% line variance or a fixed dollar amount scaled to the business (for example 0.5% of monthly revenue). If none exists, set one now and label it a first guess to be calibrated after two closes.
4. Recurring journal list: depreciation, prepaid amortization, deferred revenue release, payroll accruals.
5. The reporting deadline the close feeds (board package, lender covenant, audit).

Step 2: Pre-close, days -3 to -1

• Confirm sub-ledger cutoffs with AP, AR, payroll, and inventory owners.
• Distribute the close calendar with a hard deadline per team per task.
• Pre-build recurring journal entry templates so Day 1 is execution, not drafting.
• Flag unusual transactions from the period for senior review now, not at flux time.

Step 3: Day 1 - journals, then sub-ledger lock

Post recurring and standard journals first, in this order: payroll accruals, then depreciation, then prepaid releases, then deferred revenue, then one-time items. Every entry carries a preparer, a reviewer, and a source-document reference - no exceptions, this is the audit trail. Then lock the sub-ledgers (AP, AR, inventory) before any G/L reconciliation begins. Accruals are estimated from actuals - vendor invoices in transit, payroll days actually worked - never rounded guesses.

Step 4: Days 2-3 - reconcile every balance-sheet account

Every account, not just cash. Priority order: bank accounts (tie to statement), intercompany balances (must zero-sum across entities), AR aging to G/L control, AP aging to G/L control, fixed-asset roll-forward, prepaid schedule, accrued-liabilities schedule. Any variance over the materiality threshold gets explained and corrected same-day before the close proceeds. Carrying a variance forward with a note is prohibited - that note becomes next month's mystery.

Step 5: Days 3-4 - flux analysis

Run a P&L flux: each line vs. prior month and vs. prior year same month. Any variance above 10% or the materiality floor gets a one-line explanation. This is error detection, not a memo exercise - unexplained swings almost always indicate a misposted entry or a missed accrual. If an explanation cannot be written, the number is wrong; go find the entry.

Step 6: Day 5 - sign-off and lock

Controller or CFO reviews the flux pack and the reconciliation sign-off sheet. Lock the period. After lock, no adjustment without a documented correcting entry in the next open period. Post the trial balance to the reporting tool and distribute the close package with a summary of significant items.

Worked artifact: close checklist ordered by dependency

MONTH-END CLOSE CHECKLIST - [FILL: entity] - [FILL: period]
Materiality floor: greater of 10% / $[FILL]

PRE-CLOSE (days -3 to -1)
[ ] AP cutoff confirmed          owner: [FILL]   due: day -2
[ ] AR / billing cutoff confirmed owner: [FILL]  due: day -2
[ ] Payroll cutoff confirmed     owner: [FILL]   due: day -2
[ ] Inventory count/cutoff       owner: [FILL]   due: day -1
[ ] Recurring JE templates ready owner: [FILL]   due: day -1
[ ] Unusual transactions flagged owner: [FILL]   due: day -1

DAY 1 - JOURNALS THEN LOCK (order is mandatory)
[ ] 1. Payroll accruals    prep: [FILL]  review: [FILL]  src doc: [FILL]
[ ] 2. Depreciation        prep: [FILL]  review: [FILL]  src doc: [FILL]
[ ] 3. Prepaid releases    prep: [FILL]  review: [FILL]  src doc: [FILL]
[ ] 4. Deferred rev release prep: [FILL] review: [FILL]  src doc: [FILL]
[ ] 5. One-time items      prep: [FILL]  review: [FILL]  src doc: [FILL]
[ ] SUB-LEDGERS LOCKED (AP/AR/inventory) - gate for Day 2

DAYS 2-3 - RECONCILIATIONS (all balance-sheet accounts)
[ ] Bank accounts tie to statements
[ ] Intercompany zero-sums across entities
[ ] AR aging = G/L control
[ ] AP aging = G/L control
[ ] Fixed-asset roll-forward
[ ] Prepaid schedule
[ ] Accrued-liabilities schedule
    Variances > floor: explained AND corrected same-day. None carried.

DAYS 3-4 - FLUX
[ ] P&L flux vs prior month and prior-year month
[ ] One-line explanation for every line > 10% or floor

DAY 5 - SIGN-OFF
[ ] Controller/CFO review of flux pack + recon sign-off sheet
[ ] Period locked; trial balance posted; close package distributed

Deliverable

Produce the filled close checklist above with named owners and dates, the journal-entry log (entry, preparer, reviewer, source reference), the reconciliation sign-off sheet, and the flux pack with explanations for every material variance - the set a controller signs and an auditor can walk without asking where anything came from.

Do NOT

• Do not skip the sub-ledger lock - late invoices posted after reconciliation are the leading cause of restatements.
• Do not carry unreconciled variances forward with a note to fix next month; require same-day correction.
• Do not book accruals as rounded guesses when actuals (invoices in transit, days worked) are obtainable.
• Do not post journals out of order; deferred revenue and prepaid releases depend on balances the earlier entries establish.
• Do not treat flux as a formality to be worded nicely - an inexplicable variance is an error you have not found yet.
• Do not adjust a locked period silently; every post-lock change is a documented correcting entry.

Quality bar

• Every journal entry has preparer, reviewer, and source document - spot-check five at random and all five pass.
• Every balance-sheet account is reconciled, with zero variances above the floor carried forward.
• Every flux line above threshold has a specific explanation naming the driver, not "timing."
• Close locked by day 5, or by day 10 with a written reason and a fix for next month.
• The package is reproducible: a new hire could rerun the close from the checklist alone.

The close produces the trial balance; assembling and interpreting the statement package from it is financial-statement-builder, and the variance narrative for management is budget-vs-actual.