Why close every month
If you only tidy the books at year-end, you make decisions for eleven months on numbers that are not right. A monthly close means each month’s P&L and balance sheet are complete and reconciled, so you can see margins, cash and problems while there is still time to act. It also makes year-end and sales tax filings much faster, because most of the work is already done.
Set a target, such as closing within five or ten business days of month-end, and a calendar of who does what on which day. Consistency matters more than speed at first.
A monthly close also gives lenders, investors and partners numbers they can rely on. If you ever apply for a loan, renew a line of credit or sell the business, twelve months of closed, reconciled financial statements make the process faster and support a better outcome. And if the CRA asks questions about a return, reconciled books are the strongest answer you can give.
1. Capture everything
Make sure every transaction for the month is in the books. Enter all supplier bills received, including ones that arrived late but relate to the month. Post all sales: invoices, POS daily sales, online and marketplace sales. Collect receipts for card purchases and expense claims. Scanning receipts as they come in, rather than at month-end, saves the most time.
Check cut-off. Goods received on the 31st should be in this month’s inventory and payables, even if the invoice arrives on the 3rd. Sales shipped on the 31st belong to this month.
- All supplier bills entered, including late arrivals
- POS, online and marketplace sales posted
- Expense claims and card receipts captured
- Goods received but not invoiced accrued
2. Reconcile bank, card and clearing accounts
Reconcile every bank account, credit card and loan against its statement. Then reconcile clearing accounts, such as card processor, Amazon or Shopify clearing and undeposited funds, so each one returns to the expected balance. A clearing account that grows month after month is a sign that deposits are not being matched to sales.
Our step-by-step bank reconciliation guide covers the process in detail, including how to handle processor deposits that arrive net of fees.
3. Review receivables and payables
Run the A/R aging report. Follow up on overdue invoices, apply unapplied customer payments and credits, and decide whether any balances are doubtful and need an allowance or write-off. Check that the aging total matches the accounts receivable balance on the balance sheet.
Run the A/P aging report. Confirm that every bill is entered once, payments are applied to the right bills, supplier credits are used, and the aging total matches accounts payable. Compare key supplier balances against their statements.
Use this step to look forward as well as back. A quick review of what is due to come in and go out over the next 30 days, alongside the bank balance, is a simple cash-flow forecast. Many cash crunches are visible weeks in advance in the aging reports for anyone who looks.
4. Inventory, payroll and accruals
If you carry inventory, count it (or count your highest-value items and rely on perpetual records for the rest), post adjustments with reasons, and confirm that the inventory valuation report matches the inventory asset account. Review the cost of goods sold for the month against sales to spot anything unusual.
Post payroll for every pay run in the month, and accrue wages earned but not yet paid at month-end if the amount is material. Check the payroll liability accounts against what was remitted to the CRA. Then record other accruals and prepaids: expenses incurred but not invoiced (utilities, professional fees), insurance or software paid annually and expensed monthly, and depreciation on fixed assets for book purposes.
5. Sales tax
Run the sales tax report and reconcile it to the sales tax liability accounts on the balance sheet. Tax collected should match taxable sales at the right rates, and input tax credits should match purchases with GST/HST. If this month ends a reporting period, prepare and file the return; if not, the reconciliation means next quarter’s or year’s return will be straightforward.
SeroBooks includes a Sales Tax Centre for GST, HST, PST and QST across every province, plus US sales tax and economic nexus tracking for businesses that sell into the US.
A sample close calendar
A written calendar turns the close from a vague task into a routine. Assign each step to a person and a business day after month-end. For a small business with an owner and a part-time bookkeeper, a five-day close might look like the list below. Adjust the days to your volume, but keep the order: you cannot review a P&L before the transactions behind it are complete.
After a few months, look at where the close gets stuck. It is usually waiting on something: a supplier invoice, a card statement, a payroll report, a count. Fix the bottleneck at its source, for example by asking key suppliers to email invoices on the last day of the month, or by moving the inventory count to the last day of the month rather than the first.
- Day 1: post final sales, bills and expense claims; accrue goods received
- Day 2: reconcile bank, credit card and clearing accounts
- Day 3: review A/R and A/P aging; count and adjust inventory
- Day 4: payroll accruals, prepaids, depreciation, sales tax reconciliation
- Day 5: review P&L and balance sheet, send report pack, lock the period
6. Review, report and lock
Review the P&L against the prior month, the same month last year and budget. Investigate any line that moved more than you expected. Review the balance sheet account by account: every balance should be explainable, and suspense or miscellaneous accounts should be cleared.
Produce the month’s report pack, then lock the period so no one can change transactions in a closed month without an authorized unlock. Period locks and an audit trail, both standard in SeroBooks, are what make a closed month stay closed.
- P&L vs prior month, last year and budget
- Balance sheet reviewed account by account
- Suspense and uncategorized accounts cleared
- Report pack sent to owners or partners
- Period locked