What is month-end close?

During the month, transactions pile up from bank feeds, invoices, bills and payroll. None of that is trustworthy yet: a bank feed can miss a transaction, a payment can be recorded twice, and an invoice can sit in the wrong month. Closing is the work that turns the pile into a statement someone can act on.

The result is a set of numbers nobody edits afterwards. That matters because a lender, an investor or a tax return depends on last month's figures still saying what they said last month.

• Reconcile every bank, credit card, loan and payment processor account to its statement.
• Put income and expenses in the month they were earned or incurred, not the month cash moved, if you are on accrual.
• Post adjusting entries: depreciation, prepaid expenses, accruals and payroll cut-off.
• Review the profit and loss statement and balance sheet for anything that looks wrong.
• Lock the period so the closed month cannot be changed by accident.

An open period is an invitation. Someone categorises a transaction into a closed month, and the profit you reported in March quietly changes in June. If you have already filed a return or sent statements to a bank on those numbers, you now have two versions of the truth.

Locking the period, called setting a closing date in QuickBooks Online, is the step most small businesses skip. It costs nothing and prevents the most common bookkeeping argument there is.

On the cash basis, income counts when money arrives and expenses count when money leaves, so a close is mostly reconciliation. On the accrual basis, income counts when it is earned and expenses when they are incurred, so the close also needs cut-off work: unbilled revenue, unpaid bills, prepaid insurance, deferred revenue.

The IRS sets the rules on which method a business may use and when it can change, in Publication 538. Investors and most lenders expect accrual, so a growing business usually ends up there.

In a small business the close is done by a bookkeeper or an outside firm, and reviewed by the owner. In a larger company it is a controller with a calendar and a checklist. The work is the same; only the number of people changes.

A simple business with two accounts and clean records can close in two or three days. A business with inventory, payroll in several states and a dozen accounts takes one to two weeks. What lengthens it is almost never the bookkeeping: it is waiting on statements, receipts and answers.

Best for a small business that wants the close done on a fixed calendar and the tax return prepared from the same books: SF Business Solutions, from $250 a month. We close between the 5th and 15th of the following month, depending on when your documents arrive.