The financial close process can be a convoluted process for any type of business. There are specific steps that must be followed in sequential order when completing the close process. Everything from ledger recordings of transactions to creating financial statements must be done collaboratively and accurately before accounting teams can close the books. The good news is that it’s possible to fuse efficiency and streamline the close process so that manual tasks are more manageable and take less time to accomplish.
What’s Financial Close?
Financial close refers to the financial and accounting processes that regularly occur leading up to and including closing the books on the previous month, quarter, or year. There are eight key steps in this manual process: identifying transactions, recording transactions in a ledger, posting to the general ledger, preparing an unadjusted trial balance, reconciling debits and credit, creating adjusted ledger entries, running an adjusted trial balance and financial statements, and closing the books to reset income. These financial statements are used to generate historical trend analyses, prior period and budget comparisons, and KPIs.
The best way to streamline close activities, spend less time completing them, and eliminate discrepancies in financial data is to leverage the power of financial close management software. ReconArt’s cloud-based solution automates and streamlines period-end close workflow by providing a single platform for all month-end close activities. The close management software features a centralized repository for balance sheet account reconciliations and documentation, an auditable attestation approval workflow, a close checklist for month-end close activities, automation of period-end certification, and various analytics of period-end balances. Leveraging adaptive financial close software can support the financial close automation process for any type of business, from start-ups and small businesses to large enterprises with remote teams.
Financial Close vs. Closing the Books
It’s important to understand the difference between financial close and closing the books, as finance teams often use these terms interchangeably. Financial close refers to the accounting process for the month, which includes closing the books. The close cycle encompasses the entire accounting cycle and culminates in the generation of financial statements and closing the books.
Closing the books is the final step of the financial close process. This process resets temporary or nominal accounts to zero and locks the prior period’s balance. Nominal accounts appear on the income statement as an accumulation of revenue, expenses, gains, and losses. These results are then added to the balance sheet to update retained earnings and reflect that period’s operational results.
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How To Improve the Process
There are several things you can do to improve inefficient reconciliation processes. Define all steps in the process and assign all complex tasks in order. This will eliminate bottlenecks and improve closing workflows. Account reconciliation is a key element of the accounting process that ensures there are no discrepancies in financial data. Performing reconciliations regularly instead of waiting till the end of the month helps detect and address errors before starting closing activities.
Many accounting departments manually input financial data, which increases the risk of errors. Minimizing data entry by immediately inputting financial information into the accounting system will minimize the risk of errors. Simplifying the chart of accounts and improving access to information also helps improve the process.
Spending less time on closing activities allows businesses to focus on operation analysis, reallocating resources, and evaluating new growth opportunities.