What should a small business's month-end close checklist include, and is there a template to run it?

What is the close for, and when is the month closed?

The close turns a month of records into figures you can act on, then stops them changing unnoticed. Treat the categories, order and conditions below as a working design to adapt, not a prescribed standard.

Decide before you start which close you are running, and record it in the template header:

• Final close. It is finished when every checklist line has met its exit condition and been signed by a reviewer other than the preparer (the one-person case is below), the figures come from those final balances, the period is locked with the reviewer holding a saved copy of the locked figures, and any recipient of provisional figures for the month has the final figures and what changed, recorded in the close file.
• Provisional close. It is finished when every task has met its exit condition or is listed as an open item with its estimate, a reviewer has signed the figures as provisional, and every copy is labeled provisional; the period stays unlocked and a final close follows.

If any condition is false, the month is open, whatever reports have gone out. A month that ends your financial year also needs the year-end close, which has its own checklist.

Which tasks does every close contain, and what does each establish?

Seven categories belong on every checklist.

For the bank account, IRS Publication 583 says you should reconcile your checking account each month. It names unentered bank charges, later deposits and uncleared checks as reasons the statement can differ, has you update your checkbook and journals for items not recorded or recorded incorrectly, and says the adjusted balances should then agree. So a reconciliation line is met only when the charges and errors it finds are recorded or corrected and every remaining difference is a listed timing item, such as a deposit in transit or an uncleared check. Which accounts to reconcile, and how often, has its own guide.

Your basis decides what cut-off and adjustments mean. IRS Publication 583 says that under the cash method you report income in the tax year you receive it and usually deduct or capitalize expenses in the tax year you pay them; under an accrual method you generally report income in the tax year you earn it and deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. For the close, the two bases work like this:

• Cash basis. An unpaid bill goes on your open-bills list; once paid, it is usually that month's expense, unless it buys an asset you capitalize. The close normally has no accrual lines.
• Accrual basis. The bill is recorded as an expense and a liability in the month incurred, and paying it later clears the liability instead of adding a second expense.

Which tasks apply only because of what your business does?

Add a block only when its trigger is true.

Payroll and sales tax also have outside filing and payment dates the close does not set; their procedures and due dates, including what happens when a late item changes a liability already reported, have guides of their own.

In what order must the tasks run?

Run the close in this order, so that no check is made on a balance a later step changes:

1. The reviewer checks closed months for changes since their lock.
2. Cut off the month.
3. Match documents to entries and chase what is missing.
4. Reconcile accounts that have an outside statement, such as bank, card and payment-processor accounts.
5. Run the payroll, inventory, loan, sales tax and foreign-currency blocks.
6. Post the period-end adjustments, such as accruals, prepayments, the wage accrual and depreciation.
7. Reconcile the accounts kept on listings or schedules, such as receivables, payables, accruals, prepayments and fixed assets.
8. Review balances and unusual items, and correct what the review finds.
9. Produce the month's figures and review them.
10. For a final close, lock the period and save the reviewer's copy of the locked figures.
11. Release figures outside the business after step 10, or after step 9 if the recipient has agreed to accept figures labeled provisional.
12. If provisional figures for this month went outside the business, compare the final figures with them and send the final figures, with what changed, to every recipient; record this in the close file.

When a step forces an entry, rerun every step after the first one that entry affects.

What evidence should each task leave, and where is it kept?

Each line's evidence is whatever lets someone else confirm its exit condition without redoing the work. Keep it in one close folder per month, indexed by the completed checklist.

Who prepares and who reviews, especially when one person does everything?

The Journal of Accountancy's refresher on internal controls states the core principle of segregating duties: no one person should be able to abuse the system on their own. Its example is that the person receiving cash should not also record it, deposit it or reconcile the bank account, and it recommends least privilege, giving users only the access their tasks require. Assign the close this way:

• Preparation. A bookkeeper or staff member who does not receive or deposit cash does the cut-off, documents, reconciliations, blocks and draft adjustments.
• Review. The owner, a controller or an outside accountant checks each line against its exit condition, approves adjustments and signs the figures. The reviewer gets bank and card statements straight from the bank or its portal and ties each reconciliation to them; if the only possible preparer handles cash, the reviewer re-performs the bank reconciliation.
• Lock and release. Someone other than the preparer holds the right to lock and unlock the period and releases figures.

If one person does everything, nothing restrains that person, and a self-review is not an independent check. Review your own work on a later day, from the evidence alone, and mark the close self-reviewed; that meets the reviewer line for internal use only. Have an outside accountant review on a cycle that covers every month whose figures you owe outside the business, comparing your closed months with copies the accountant keeps, and release figures only for months the accountant has reviewed or the recipient has agreed to accept as self-reviewed. You hold the lock yourself; the copies the outside accountant keeps are what show a locked month's balances have not changed.

Where an outside firm runs the close, the checklist marks your lines, such as sending documents and approving figures, and dates each handoff.

How do you keep a locked month from changing?

Lock a final close and keep the reviewer's saved copy of its trial balance outside the books; at the start of each close the reviewer compares closed months with those copies and, where the software has one, runs its change report. The comparison catches only changes to balances; an edit that leaves every balance unchanged, such as a payee name, passes it, so without a change report the saved copy cannot reveal it. Intuit's help page "Edit your closed books in QuickBooks" says that in QuickBooks Online the Exceptions to Closing Date report shows changes made after you close your books, and that only admins can change the closing date or its password; so where your plan offers a user role without admin rights, give the preparer that role. How to lock a period has its own guide.

How do you set the close date?

Treat it as a decision, not a copied interval. The FASB's conceptual framework (Concepts Statement No. 8) defines timeliness as having information available to decision makers in time to be capable of influencing their decisions. Set the date in this order:

1. Start from when the figures are needed, such as a management meeting or an outside party's delivery date.
2. Work back by the time any release step, the review and the close tasks themselves take.
3. Check that your inputs, such as statements, supplier bills, payroll reports and stock counts, arrive before the close tasks must start.
4. If they do not, run a provisional close by the close date and the final close later, or, on the accrual basis, estimate late items and true them up when the actuals arrive.

What changes when figures are owed to a lender, franchisor or investor on a fixed date?

That date fixes your close date and adds a release step. Before figures leave the business, confirm all of these:

• The figures come from a locked final close, or the recipient has agreed to accept provisional figures and every copy is labeled provisional.
• They agree with the books as reviewed.
• A reviewer other than the preparer approved them, or, where one person does everything, the outside accountant reviewed that month or the recipient has agreed to accept them as self-reviewed.
• The package contains what the agreement asks for, and the close file records what was sent, to whom and when.

Agree with the recipient in advance what you will send if the close or its review is not finished by the date, such as figures labeled provisional or self-reviewed. If a confirmation cannot be met, tell the recipient before the date rather than send nothing.

What happens to information that arrives after the close has started?

First decide which month the item belongs to:

• Cash basis. It belongs to the month the money moved, even if found late.
• Accrual basis. FASB Statement No. 165 (May 2009) had entities recognize subsequent events that provide additional evidence about conditions that existed at the balance-sheet date, and not recognize those about conditions that arose after it, unless other accounting standards addressed the event. It covered only events before financial statements are issued or available to be issued; a monthly close can borrow its line, even after the lock. A late bill for work done in the month belongs to the month; storm damage after month-end does not. Statement No. 165 had some such events disclosed to keep the statements from being misleading, so if omitting it would mislead a recipient of your figures, note it with them.

Then route it:

If the month belongs to a financial year that has already had its year-end close, do not reopen it under this checklist; take the item to the year-end close guide and your outside accountant.

For example, the closed month accrued 1,000 for a repair, and the bill arrives after the lock at 1,050. Posted in the open month against the accrued liability, only 50 lands there:

Enter this as the vendor's bill, coded Accrued liabilities 1,000 and Repairs expense 50, not as a separate journal. If the accrual reversed automatically on the first day of the open month, it is already cleared: enter the bill in full to Repairs expense (1,050), leaving 50 in the month. Each item reaches the books once; how to post and reverse accruals has its own guide.

Decide in advance who makes the significance call and which figures each recipient relies on, such as a lender's covenant figures. The FASB's conceptual framework says an omission or misstatement is material if, in light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by its inclusion or correction. It adds that magnitude by itself, without regard to the item's nature and the circumstances, generally is not a sufficient basis for a materiality judgment. So judge each late item by its size and nature against the figures it touches, and log the decision and who made it.

What does a runnable close template contain, and where can you get one?

A runnable template has four parts:

• Header. It records the period, provisional or final, whether self-reviewed, the basis, target close date, any outside delivery date, recipients of provisional figures, preparer, reviewer, lock holder and lock date.
• Task lines. Each carries the task, trigger, dependency, owner, reviewer, evidence and its location, exit condition, status, and dated initials of preparer and reviewer.
• Late-items log. It lists each late item, when it arrived, its month, its route, the significance decision and who approved it.
• Close record. It tracks days from month-end to lock and exceptions found, including repeats, so each close shows which upstream habit to fix.

What does a filled-in checklist look like?

This example is a service business with two employees, accrual books, sales tax, fixed assets and one equipment loan, and no stock or foreign-currency account. B is the bookkeeper, who does not handle cash; O is the owner, who gets bank statements directly and holds admin rights and the lock; A is the outside accountant. Each exit condition includes the reviewer's dated initials.

How do you tailor a generic template to your business?

Work through it in this order:

1. Delete every block whose trigger you never meet, rather than marking it not applicable.
2. Add a reconciliation line for each account you reconcile at month-end.
3. Add the blocks your activities trigger.
4. Record the basis your books use.
5. On the cash basis, remove accrual lines and keep a prepayment or asset line only for payments you capitalize; if you hold stock, check with your tax adviser first. IRS Publication 583 says that if an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales, and that certain small business taxpayers can use the cash method and account for inventoriable items as materials and supplies that are not incidental.
6. Add outside delivery dates and the release line if you owe figures to anyone.
7. Name an owner and a reviewer on every line, and a lock holder who is not the preparer or, where one person does everything, that person, with the accountant keeping copies.
8. After each close, add a line or fix the upstream habit for every repeated exception, and revise the template when the business starts or stops an activity.

Lines that never apply teach people to skip lines, including the ones that matter.

Where can you get a maintained template?

Maintained templates come from three kinds of source, and none fits until tailored:

• Close tools used by accounting firms. Intuit's help page "Set up Books Close templates in Intuit Accountant Suite" presents its Standard template as a starting point a firm customizes to its own close process; the page is written for firms, so you reach such a tool through a firm that uses one.
• Your outside accountant or bookkeeping firm. A firm that runs closes keeps its own checklist; ask for it.
• Your own spreadsheet or task list. Build it from the structure above and keep it with the close files.