The availability of financial information is critical to enable managers to respond to changing business conditions. It is impossible to make informed decisions without Information. The timeliness of the information is also critical. If you don’t have information, you can’t use it. Likewise the sooner you get information the more valuable it is. In this issue, we discuss how to speed up the month end closing process. A sample closing schedule is included at the end of the article.

There are typically only a few items that hold up the month end  process and prevent completion of financials by the 7th or 8th working day after month end. Let’s take a look at them:

Following a Closing Schedule

Using a detail schedule at month end is an essential factor in speeding up the completion of financial statements. 

Bank Statements

Historically it was not unusual for bank statements to be received a week or more into the new month. Reconciling cash to the bank statement is an important control and one that shouldn’t be shortcut. However, today most banks have an online product that provides the detail account information in real time. Some banks charge for this but the cost is nominal when compared to the cost of operating with stale information.

Inventory Pricing

For many companies, especially manufacturers the monthly task of valuing inventory can be a time consuming process, especially if the company does not have an integrated system. While there is no simple solution to this dilemma, a review of the unique facts in a company can normally turn up acceptable alternatives that will speed up this process. Things to consider:

• Invest in improving the accuracy of whatever system you use so you can let the system do the work.
• Focus on implementing “data collection” on the shop floor to facilitate valuation of work in process.
• Often the 80 / 20 rule will apply. 80% of the value can be determined by costing 20% of the items. Develop a reasonable methodology to estimate or otherwise efficiently determine the value of the remaining 20%.

Vendor Invoices

It is not unusual to receive some vendor invoices a week or two into the new month. If this is a consistent problem the concept of Estimated or Accrued Accounts Payable might be appropriate.

At the end of the month, enter all vendor invoices that have been received. Then, perform a review of all open purchase orders and receiving reports. Make an estimate of the cost of any open items and record in a separate liability account. This entry is reversed in the next month and offset by recording the actual invoices when received.

Payroll Accrual

The final item that typically slows down the closing process is calculating the payroll through the end of the month. The normal process would be to take the first payroll after the end of the month and if 4 of 10 days fell in the prior month, 40% of that payroll report would be recorded in the prior month.

In most companies with stable employment this accrual (estimate) could be calculated in the same manner but using the last payroll prior to month end instead.
 

Below is a sample Month End Closing Schedule. Use this as a template and modify it to fit your individual circumstances.