Month-End Close Checklist: A Close Process for Small Companies and What Auditors Wish Clients Did

The month-end close is the routine that turns a month of transactions into financial statements someone can rely on. In a small company it is often one or two people working from memory, and a year-end audit has more support to work from when the routine happened twelve times than when it happened once, in a rush, in January.

This guide sets out a month-end close process for small and mid-size US companies, a checklist by area, and the habits auditors wish every client had. It is written for controllers and outsourced accounting teams, and for CPA firms advising clients on getting audit-ready. A ready-to-use version with owners and business-day timing is in the month-end close checklist template.

Principles of a good close

• Repeatable. The same tasks, in the same order, with the same owners every month.
• Scheduled by business day. Tasks are assigned to days relative to month end (for example BD-2 to BD+10), so everyone knows when each input is due.
• Reconciled, not just reviewed. Every balance sheet account is supported by a reconciliation or schedule that ties to the general ledger.
• Reviewed by someone else. Preparers and reviewers are different people where staffing allows, with sign-offs and dates.
• Locked when done. The period is closed in the accounting system so later entries require an override and leave a trail.

Before month end (BD-5 to BD-1)

• Send reminders to department heads for expense reports, purchase orders and contract changes.
• Confirm cutoff procedures with shipping, receiving and billing: what was shipped, received and invoiced by the last day.
• Review open purchase orders and recurring entries scheduled for the month.
• Identify known unusual items, such as new contracts, financing, asset purchases or disposals, and plan their accounting.

Close checklist by area

Cash

• Download bank, credit card and loan statements for all accounts.
• Prepare bank reconciliations for every account, including dormant ones; see bank reconciliation and the bank reconciliation template.
• Record bank fees, interest and other book-side reconciling items.
• Investigate deposits in transit and outstanding checks carried from prior months.
• Reconcile credit card accounts and record unprocessed card charges.

Revenue and accounts receivable

• Complete billing for goods shipped and services performed in the month.
• Review the shipping log against invoices for cutoff.
• Record deferred revenue releases and new contract liabilities in line with ASC 606.
• Apply cash receipts and clear unapplied cash.
• Reconcile the AR subledger aging to the general ledger.
• Review the aging and update the allowance; see AR aging and the allowance for doubtful accounts.

Accounts payable and accruals

• Enter all vendor invoices received for the month.
• Accrue for goods and services received but not yet invoiced, using receiving reports, open purchase orders and known recurring costs (utilities, professional fees, rent).
• Reconcile the AP subledger to the general ledger and review for debit balances and duplicates.
• Review the first days of next month's disbursements for items that belong in the current month.

Payroll

• Record payroll for all pay periods ending in the month.
• Accrue wages earned but not paid at month end, with related payroll taxes.
• Accrue bonuses, commissions and paid time off according to policy.
• Reconcile payroll tax and benefit liability accounts to filings and provider statements.
• For benefit plan sponsors, check that employee deferrals were remitted on time.

Prepaid expenses and other assets

• Amortize prepaid insurance, software subscriptions and other prepaids from a schedule that ties to the general ledger.
• Review deposits and other assets for items that should be expensed or reclassified.

Fixed assets and leases

• Capitalize additions above the capitalization threshold and record disposals.
• Record depreciation and amortization from the fixed asset register; see the fixed asset rollforward template.
• Record lease entries under ASC 842: lease cost and lease liability accretion for operating leases, amortization and interest for finance leases, and new or modified leases.

Inventory

• Reconcile the perpetual inventory subledger to the general ledger.
• Record cycle count adjustments and review reserves for slow-moving or obsolete items.
• Review capitalization of freight and overhead where applicable.

Debt and equity

• Reconcile loan balances to lender statements and accrue interest.
• Check covenant calculations if required monthly or quarterly.
• Record equity transactions, such as distributions, contributions and option exercises, and reconcile to the cap table.

Taxes

• Accrue sales and use tax and reconcile to returns filed.
• Record estimated income tax payments and update the income tax accrual where appropriate.

Intercompany

• Reconcile intercompany balances between related entities and resolve differences before consolidation.

Review and reporting (BD+5 to BD+10)

• Trial balance review. Review the trial balance for unusual balances, accounts with the wrong sign and suspense accounts that should be zero.
• Flux analysis. Compare each income statement line with the prior month, the same month last year and budget. Investigate variances above a set threshold and write the explanation down.
• Balance sheet reconciliation sign-off. Confirm every balance sheet account has a reconciliation with preparer and reviewer sign-off.
• Journal entry review. Review manual journal entries for support and approval; see adjusting journal entries.
• Financial statements. Prepare the monthly package for management and, if required, lenders.
• Lock the period in the accounting system.

What auditors wish clients did

The year-end audit is faster and cheaper when the monthly close has already done most of the work. These are the habits that make the most difference.

Reconcile every balance sheet account every month

Not just cash. Receivables, payables, accruals, prepaids, fixed assets, debt, payroll liabilities and equity. A reconciliation that ties to the general ledger at year end is the starting point for nearly every audit procedure. A reconciliation that does not exist has to be built during fieldwork.

Keep the support with the entry

Attach invoices, contracts and calculations to the journal entry in the system, or keep them in a folder structure that mirrors the chart of accounts. When an auditor selects a sample, the client should be able to produce support quickly without searching email.

Lock closed periods

Entries posted to a closed period after the financial statements were issued change numbers people already relied on. A period lock with a password or approval step, plus a report of entries posted after close, gives the auditor and management confidence in the comparative figures.

Document the estimates

Allowance for credit losses, inventory reserves, accrued liabilities and bonus accruals should each have a short memo or schedule explaining the method and the inputs. Auditors test estimates under AU-C 540, and a documented method that was applied consistently through the year is much easier to evaluate than a single year-end number.

Watch cutoff every month, not just in December

Cutoff discipline built into the monthly close carries over to year end. A client that habitually records next month's invoices in the current month, or the reverse, will have year-end cutoff errors. See cutoff testing and the search for unrecorded liabilities.

Prepare the PBC items as part of the year-end close

Many items on a typical PBC list, such as the aging, fixed asset rollforward, debt schedule, accrual support and bank reconciliations, are close outputs. If the December close produces them in a consistent format, the client is mostly ready. See the PBC list template.

Track and post adjustments

When the auditor proposes adjustments, record them promptly in the general ledger and roll them into the opening balances. A recurring adjustment year after year can point to a close process that needs a new step.

Measuring the close

Useful internal measures for a small company include days to close, the number of post-close adjusting entries, the number of unreconciled accounts at month end and the number of audit adjustments at year end. Set targets that fit the company's staffing. A reliable close on a modest timeline is better than a fast close that needs fixing later.

Frequently asked questions

What is a month-end close checklist?

It is a list of the tasks needed to close the books each month, such as reconciliations, accruals, depreciation and review, with an owner, a reviewer and a due day for each task, so the close happens the same way every month.

How long should a month-end close take for a small company?

It depends on transaction volume, staffing and systems. The more useful goal is a consistent, documented close with every balance sheet account reconciled and reviewed, then shortening the timeline once the process is stable.

Which accounts should be reconciled every month?

Every balance sheet account: cash, receivables, inventory, prepaids, fixed assets, payables, accruals, payroll liabilities, debt, deferred revenue and equity. Each reconciliation should tie to the general ledger and be reviewed.

What is flux analysis in the month-end close?

Flux analysis compares current balances or activity with a prior period or budget and investigates variances above a set threshold. It helps catch missing accruals, misclassifications and cutoff errors before the statements go out.

How does the monthly close affect the year-end audit?

A disciplined monthly close produces reconciliations, schedules and documented estimates that auditors use as the starting point for their procedures, which reduces the time spent rebuilding support during fieldwork.

CORAA prepares ready-to-review audit files for US CPA firms; see /us.

Sources

• FASB ASC 842 (leases), ASC 606 (revenue and contract liabilities), ASC 326 (credit losses), ASC 330 (inventory)
• AICPA, AU-C Section 540, Auditing Accounting Estimates and Related Disclosures
• COSO, Internal Control Integrated Framework (2013), control activities including reconciliations and segregation of duties

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error