Financial Close

At the end of each month, quarter and year, accountants must make sure all transactions have been recorded correctly before reporting results. This process is called the financial close, or simply "the close".

Typical steps include recording all invoices and receipts; reconciling bank accounts and key balance sheet accounts; recording accruals, prepayments and depreciation; reviewing estimates such as bad debt allowances; eliminating transactions between group companies; and producing the trial balance and financial statements for review.

For example, a company might aim to close its books within five working days after each month-end, so managers have up-to-date results quickly.

A fast and accurate close is valuable. It gives managers timely information for decisions and reduces the risk of errors in published accounts. Slow or chaotic closes can signal weak processes or controls.

The year-end close is usually the most demanding, because it involves additional adjustments, detailed reviews and support for the external auditors. Many companies use checklists, close calendars and accounting software to make the process consistent and efficient.