The ultimate month-end close checklist: 7 steps to ensure accurate financial statements

The month-end close process is when finance and accounting teams finalize and close out all financial transactions for the previous month. This process is the key to maintaining accurate financial records, evaluating company performance, preparing for tax filings, and staying audit-ready.

A well-executed monthly close process provides a clear snapshot of your company's financial health, enabling leadership to make informed decisions based on up-to-date data. It also helps catch and correct errors before they compound, ensuring the integrity of your financial reporting.

The month-end closing process is a cornerstone for smart decision-making and budgeting. For example, accurate financial statements can help your marketing team determine whether their latest LinkedIn campaign delivered a positive ROI. Or help your product team assess the profitability of a new feature launch. Further, a thorough month-end close process can highlight opportunities to improve working capital, enabling better cash flow management and more efficient use of company resources.

Creditors and investors rely on your statements to gauge your company's financial health and make informed decisions about lending or investment opportunities. Accurate statements are a must for accessing new lines of credit and landing new investors, and a tight monthly close process will ensure you don’t miss such opportunities.

A thorough month-end close process also ensures compliance with regulatory requirements, like Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Tight compliance helps avoid costly legal issues and maintain trust with stakeholders.

The accounting department is responsible for overseeing the month-end close process, from data collection to final reporting.

Accounting is in charge of preparing balance sheets and financial statements, including income statements and statements related to cash flow management. They’re also tasked with performing financial analysis and interpreting the results for their executive teams.

The role of the accounting department goes beyond number-crunching. Accountants resolve discrepancies, ensure data integrity, comply with tax laws and regulations, and provide insights that drive strategic decision-making.

Now, let's dive into the seven steps that will help you achieve a smoother, more accurate monthly close process.

1. Review financial transactions and documents

The first step in your month-end close checklist is to ensure all transactions are properly recorded and supported by appropriate documentation. Think sales invoices, expense receipts, payroll records, and bank statements.

This comprehensive review process facilitates accurate expense reconciliation, ensuring that all recorded expenses match actual expenditures and are properly categorized.

Let’s say a sales representative submits an expense report for a pricey client dinner, but the receipt is missing. Without proper documentation, the transaction could be misclassified, resulting in overstated expenses and understated profits.

However, with a thorough expense and accounting review process in place, this discrepancy would be avoided. The finance team could promptly request the missing receipt and correctly categorize the expense. This not only maintains the integrity of financial statements, but also sets up a smooth, efficient, and stress-free month-end close.

In the past, this step often involved sifting through stacks of paper documents. Today, the process can be streamlined with modern accounting automation software. For instance, an AI-powered solution can automatically capture and categorize receipts, reducing manual data entry and the risk of human error.

2. Reconcile bank accounts and statements

Bank reconciliation is a critical part of the month-end closing process. To ensure they match, compare your internal financial records with your bank statements.

This will enable you to detect any discrepancies — unauthorized transactions, bank errors, or internal mistakes — so you can close your books cleanly. Bank reconciliation also helps in tracking outstanding checks and deposits in transit.

Accounting automation software makes this process much more efficient by automatically matching transactions and flagging discrepancies for review.

3. Verify revenue and expenses for accuracy

Double-check that revenue has been recognized in the correct period and that all your expenses are properly categorized.

For starters, you need to ensure that prepaid expenses are properly amortized and that accrued expenses are recorded in the right period. Similarly, revenue should be recognized when it's earned — not necessarily when cash is received.

This is where having a robust accounts payable process becomes very important. Efficient AP software can help ensure that all expenses are captured and classified correctly, reducing the risk of misstatements in your financial reports.Modern AI-powered solutions can help tremendously by automatically detecting policy violations in expense reports, even when they're not immediately apparent.

For instance, these intelligent tools can identify terms related to non-compliant expenses (like "Chardonnay" for alcohol) and flag them for review. This additional layer of scrutiny not only saves time but also improves the accuracy and consistency of your expense classification, for more reliable financial statements.

As an added benefit, these AI-driven platforms can be programmed to automatically enforce your company's expense policy, ensuring that all submitted expenses adhere to predetermined guidelines.

4. Review and correct any errors or discrepancies

We’re only human. No matter how careful we are, accounting errors can still occur.

According to one study, accounting errors are up 30% since 2019, due in part to a growing accountant shortage. That's why a thorough review process is essential in the month-end close. This step is where you’ll scour all financial data for any errors or inconsistencies.

Watch out for duplicate entries, misclassified transactions, or missing data. If you uncover any discrepancies, figure out the root cause and resolve it. Then, implement corrective measures to prevent similar issues in the future.

For example, you might find that the sales team’s meal expenses are consistently over budget. Upon investigation, you find that the root cause is a misunderstanding of the per diem policy.

To prevent this issue going forward, your team could create a clear, easy-to-understand guide on per diem rates for different locations and integrate it into the expense submission process. Or, better yet, move to a spend management software that offers robust expense management automation along with an easy-to-follow view of company expense policies.

5. Prepare financial statements and reports

Once all transactions have been reviewed and reconciled, it's time to generate the financial statements. These typically include the balance sheet, income statement, and cash flow statement. Additionally, many companies prepare a cash flow forecast to project future financial positions. These statements and forecasts provide a comprehensive view of your company's position and performance for the month, as well as its projected financial trajectory. They serve as the foundation for financial analysis and decision-making, both internally and for external stakeholders.

Modern accounting automation solutions can generate these reports automatically, pulling data directly from your financial software. This not only saves time but also reduces the risk of manual errors in report preparation.

6. Analyze financial performance and identify trends

With the financial statements in hand, you’ll next wan to analyze the data to gain insights into your company's financial health and performance.

This involves comparing current results to previous periods and budgets, calculating key financial ratios, and identifying significant patterns.

This analysis is important not only for assessing current performance but also for effective liquidity management, which helps the company maintain optimal cash levels to meet its short-term obligations while maximizing returns on excess cash.

For example, you might notice that your accounts receivable days are increasing, which could signal a need to improve your collections process. Or, you might see that a particular product line is becoming more profitable, suggesting an opportunity for increased investment.

It’s important to not skip this step, as analysis is essential for guiding future planning. It's where you can dig in to add real bottom-line value, beyond just reporting the numbers.

7. Close out the accounting period and update ledger balances

The final step in the month-end close process is to formally close the books. This involves closing temporary accounts, like revenue and expense accounts. You’ll also update the balances of permanent accounts, like assets and liabilities.

The closing process ensures that your ledgers accurately reflect the company's financial position at the end of the month and prepares your systems for the start of the new accounting period.

Accounting automation software solutions can vastly simplify this process, reducing the risk of errors and ensuring consistency from month to month.

Even with a solid checklist in place, there are pitfalls that can trip up your month-end close. some common mistakes:

Failure to reconcile accounts and statements accurately

Unreconciled accounts can lead to major discrepancies in your financial statements. Always ensure that your internal records match external statements.

Misclassification of expenses or revenue

Incorrectly categorizing transactions can distort your financial picture. For example, classifying a capital expenditure as an operating expense can inflate your expenses and understate your assets.

Late or inaccurate recognition of revenue

Recognizing revenue too early or too late can skew your financial statements. Adhere to strict revenue recognition standards and you’ll avoid this. Under GAAP, companies should generally recognize revenue when the product or service is delivered to the customer.

Errors in financial calculations or entries

Simple math errors or the wrong keystroke in a single spreadsheet cell can have big consequences. Always double-check your calculations and entries. Another great way to ward off errors and even fraud is to implement separation of duties in accounting.

Inadequate review and approval processes

Without proper review procedures, errors can slip through. Implement a robust review process to catch mistakes before they make it into your final reports.

With a comprehensive month-end close checklist and powerful accounting automation to drive accuracy, you’re well on your way to a smoother monthly close.

As you implement your new procedures and processes, consider these best practices.

1. Clear communication and coordination between finance departments

Ensure all teams understand their roles and deadlines in the close process. Regular check-ins can help identify and resolve issues early.

2. Leverage accounting automation software

AI-powered platforms like Brex do the heavy lifting on for the close process, reducing manual work and improving accuracy.

3. Regular training and cross-training of accounting team members

Keep your team up-to-date on accounting standards and best practices. Cross-training ensures that your process isn't dependent on any single individual.

4. Continuous improvement and refinement of closing procedures

Regularly review and refine your close process. What worked last year might not be the most efficient method today.

Accounting automation can simplify your month-end close process by:

Automating repetitive tasks and improving accuracy

Automation can handle routine tasks like data entry and reconciliation, helping to automate accounting procedures, freeing up your team's time, and mitigating the risk of human error.

AI-powered solutions can spot irregularities with custom filters to resolve accounting rules, create custom mapping rules to automate your general ledger coding, and automate GL coding and merchant mapping with AI-generated suggestions.

For instance, an AI-powered solution can catch an unusually large travel expense, automatically check it against your company's travel policy, and map it to the correct GL code. If it falls outside of policy parameters, it gets routed to the right approvers for manual review.

This process, which would take hours manually, is completed in seconds with AI. Plus, there’s no wasted time on reviews, since approvers only have to review by exception.

Enhancing efficiency and accelerating the close process

Accounting automation drives efficiency by slashing tedious manual entry. Just ask Katherine Spillane, Assistant Controller of Enterprise Finance for prop-tech scale-up ​​Avenue One.

“Previously, we had to download the card detail, review every purchase, manually tag our NetSuite GL accounts, and import that file to NetSuite every month,” said Katherine. “That wasn’t sustainable — especially with our FX workload.”

But, with Brex’s direct NetSuite integration, Avenue One mapped their GL account tree directly into Brex. “Now we're saving 10-15 hours every month on reconciliation alone,” Katherine said. “And there’s no risk of having something in NetSuite that’s not in Brex, or vice versa.”

Similarly, global companies like Signifyd have automated receipt collection with Brex, saving 15 hours a month on receipt tracking and month-end reconciliation.

Improving the reliability of financial reports

By minimizing manual data entry and automatically applying accounting rules, automation is one of the top ways to reduce errors in your financial statements. Advanced solutions use machine learning algorithms to continuously improve their accuracy.

For example, they can learn from past corrections to automatically categorize transactions more accurately over time. This not only reduces errors but also provides more consistent and reliable financial reporting across periods.

Facilitating collaborative work and reducing dependency on individuals

Accounting automation provides a centralized platform for data access and collaboration, making it easier for teams to work together — which is especially key for remote or distributed companies.

For example, with Brex, the accounting team can quickly run a spend report for the CFO, generating a snapshot of the company's spend by entity or department for any time period. From there, the CFO can use this clear, centralized report to analyze spending trends, spot opportunities for cost savings, and make data-driven decisions about budget allocations.

Ensuring compliance with internal policies and statutory regulations

Accounting automations can reduce out-of-policy and non-compliant spend before it’s too late. Brex AI doesn’t just catch discrepancies and anomalies — it prevents them from happening in the first place. With Brex, you can create unique policies for each spend limit and have them auto-enforced across all spend types and entities.

Accounting automation also helps meet your regulatory compliance obligations. A global company dealing with multiple tax regulations can use Brex to apply the correct VAT rates for transactions in different countries, ensuring compliance with local tax laws — a huge stress reliever when it comes to the month-end close.

A well-executed month-end close process is the foundation of accurate financial reporting and informed decision-making. By following a comprehensive close checklist, you can transform a stressful process into a smooth, efficient operation that adds real value to your business.

Brex can help you further simplify the monthly close process with its accounting automation. For starters, Brex automates receipt capture and categorization, so your teams don’t have to. And, with real-time expense tracking and automated expense reconciliation, you’ll catch any errors before they balloon into bigger problems. Plus, with auto-enforced expense policies across all entities, you’ll drive compliance automatically.

You can also leverage Brex’s direct integrations with top ERPs like NetSuite to enable two-day data syncing, eliminating the need for manual imports and exports. Those accounting automations from Brex save finance teams 250 hours a year on average — not to mention the thousands of hours that Brex saves employees and managers by automating documentation and reviews.

Ready to close the books quickly and accurately? Get a demo to see how Brex can turn your month-end close from a dreaded chore into a strategic advantage.