A close brings every account to a supported balance and then locks the period. The usual order: cut-off checked, bank and card accounts reconciled, receivable and payable subledgers tied to the ledger, accruals and prepaids posted, fixed assets and depreciation updated, deferred revenue rolled, payroll tied to the provider's reports, intercompany balanced, a flux review of every material movement, and the period locked once management has reviewed the completed checklist. Closing on a date every month is what makes the books usable for anyone outside the company.
Source: PracticeLast revised September 2026General information, not advice
2Bank reconciliation, reconciling items and unexplained differences
A bank reconciliation proves the ledger's cash balance agrees with the bank statement once two kinds of item are dealt with: deposits in transit and outstanding checks, which are timing differences on the bank's side and need no entry, and fees, interest and returned items the bank recorded first, which are entered in the ledger; an error by the bank is taken up with the bank rather than booked. An unexplained difference is never plugged to an expense or a suspense account; it is found, because it is either an error or a missing transaction, and either one repeats. Reconcile every cash, card and loan account monthly, and keep the reconciliation as a document rather than as a checkmark in whatever system keeps the books.
Source: PracticeLast revised September 2026General information, not advice
3Accruals, accrued expenses and prepaid expenses
An accrued expense is a cost incurred in the period that has not been billed yet, recorded as an expense and a liability so the period carries it. A prepaid expense is the reverse: paid now for a benefit spread over future periods, held as an asset and released to expense on a schedule. Both exist to keep each month's expenses matched to that month, and both need schedules that roll forward rather than a balance somebody remembers.
Source: FASB ASC 340-10 (prepaid expenses); ASC 405 (liabilities); practiceLast revised September 2026General information, not advice
4Balance sheet substantiation and account reconciliations
A balance is substantiated when a document outside the ledger supports it: a statement, a contract, a subledger, an aging or a roll-forward that starts at last month's supported balance. Every balance sheet account should have one, and an account that is merely explained is not the same as one that is supported. This is the single largest piece of preparation for an audit or a sale, and doing it every month costs a fraction of doing it once under a deadline.
Source: Practice; AICPA AU-C 500 (audit evidence)Last revised September 2026General information, not advice
5Cut-off: recording transactions in the right period, shipping terms, FOB shipping point or destination
Cut-off is the rule that a transaction belongs to the period in which it occurred, not the period in which the paperwork arrived. For revenue, the transfer of control to the customer decides (ASC 606-10-25-30): shipping terms are evidence of it rather than the answer, and a seller that in practice replaces goods lost in transit has to judge whether control passed at shipment or at delivery. For inventory in transit, the same terms usually show whose count the goods belong in; for expenses, the date the goods or service were received decides. A search for unrecorded liabilities after period end, reviewing payments made in the following weeks, is the standard check.
Source: FASB ASC 606-10-25-30; ASC 330; practiceLast revised September 2026General information, not advice
6Flux analysis and variance explanations
A flux analysis compares each account's balance and each line's activity to the prior period and to budget, and explains every movement above a threshold in a sentence. It is a control as well as a report: a misposted entry usually shows up as a movement nobody can explain. Auditors and buyers ask for the explanations, so writing them at the close means the answer exists before the question.
Source: PracticeLast revised September 2026General information, not advice
A payroll journal records gross wages as expense, the employer's share of payroll taxes and benefits as expense, and the employee withholdings and employer amounts not yet remitted as liabilities; net pay is what leaves the bank. The journal ties to the payroll provider's register every period, and a difference is found rather than adjusted away. Paid time off that employees have earned for work already done, and that vests or carries forward, is accrued as a liability when payment is probable and the amount can be reasonably estimated (ASC 710-10-25-1); sick pay that carries forward but is not paid out when employment ends need not be accrued, unless employees may take it as time off whether or not they are ill (ASC 710-10-25-7).
Source: FASB ASC 710-10-25; practiceLast revised September 2026General information, not advice
8Locking a period and reopening it
Once a period is closed and reported it should be locked, so that later changes go into the current period or are made deliberately, with a documented reason and a re-issue of anything already sent. A number a lender or a board already holds that quietly changes is worse than a number that was slightly wrong and corrected in the open. Small companies that never lock periods find that last year's statements no longer agree with the ledger by the time anybody checks.
Source: PracticeLast revised September 2026General information, not advice
9Commingled funds, owner draws through the business, petty cash
Personal spending run through a business account is recorded as an owner draw or a loan to the owner, never as a business expense, and the cleaner practice is a separate account and a separate card so the question does not arise. Petty cash is a fund with a custodian, receipts for every disbursement and a periodic count. Commingling is the single most common finding in a small company's books, and it is also the one a buyer, a lender and a tax examiner all look for first.
Source: PracticeLast revised September 2026General information, not advice
10Catch-up bookkeeping and cleaning up books that are behind
Books that are months behind are brought current one period at a time: every bank and card statement coded and matched, the subledgers rebuilt, the opening balances agreed to the last reliable point, and then the whole catch-up period closed once as the first live month. The risk in a cleanup is a plug: a difference forced to zero so the periods tie, which hides an error that will surface later under an auditor or a buyer. A cleanup is priced on the months behind and the volume, and it is finished when every balance is supported rather than when the bookkeeping system shows nothing outstanding.
Source: PracticeLast revised September 2026General information, not advice
11Payment processor payouts from Stripe, Square, PayPal or Shopify: merchant fees, clearing account, gross sales versus net deposits, 1099-K
A payment processor deposits sales net of its fees, refunds, chargebacks and any reserve it holds back, so booking the deposit as revenue understates sales and hides the fees. The clean method records gross sales from the sales report into a processor clearing account, records the fees as an expense and the refunds and chargebacks against sales, and clears the account with each payout, so its balance is only what the processor still owes and it reconciles every close like a bank account. Money a processor holds in reserve is still the company's asset until it is released. Processors report gross payment volume on Form 1099-K above the reporting threshold, and that total reconciles to the books' gross sales, not to the deposits.
Source: FASB ASC 606 (gross sales; 606-10-55-36 where a marketplace is involved); IRC 6050W (Form 1099-K); practiceLast revised September 2026General information, not advice
Study
Test Yourself
A few questions on The Month-End Close, drawn from the notes on this page, to check what stuck.
The assistant writes these questions from the reference notes on this page each time you ask. A generated question or answer can be wrong: check it against the standard the explanation names. General information, not advice.
Read this once
How to Read These Notes
General information, not advice.
A note is about accounting in general. It is not advice about your situation and it is not an engagement. When a number matters — a filing, a covenant, a sale — put it to a person.
Each note names its source.
Read the standard it cites before you act on it. “Last revised” is the month the note was last written or corrected against that source.
A note answers a general question. Your books answer the specific one — the first conversation is a look at them and an honest answer about whether we are the right firm.
