Closing a period means confirming that the records for a month, quarter or year are complete and correct, and then locking them so they cannot change by accident. A disciplined close gives you statements you can trust, and it makes the year-end far less painful.
1. Make sure every transaction is in
Statements can only be as complete as the records behind them. Before anything else, confirm that you have entered:
- all sales invoices and credit notes issued in the period;
- all supplier bills and expense claims that relate to the period;
- payroll for the period;
- receipts and payments, including those on bank statements you have not yet processed.
2. Reconcile what can be reconciled
- Bank and cash. Every bank account is reconciled to its statement at the period end.
- Receivables and payables. The customer and supplier sub-ledgers must agree to their control accounts in the general ledger.
- Inventory. Stock records agree to the stock valuation, and any count differences are adjusted.
- Loans and other third-party balances. Agree them to statements or confirmations.
3. Post the period-end adjustments
Some entries are never triggered by a document and must be raised deliberately:
- Accruals for costs incurred but not yet billed.
- Prepayments for costs paid in advance that belong to future periods.
- Depreciation on fixed assets for the period.
- Foreign-currency revaluation of monetary balances, where you hold them.
- Recurring entries, such as rent or amortisation, if they have not run automatically.
4. Review the trial balance
The trial balance lists every account balance, and its debits must equal its credits. Equality is necessary but not enough. Look for:
- balances on the wrong side, such as a negative expense or a credit balance in receivables;
- suspense or clearing accounts that are not zero;
- large movements with no obvious reason.
5. Compare against expectations
Read the profit and loss statement against the previous period and against your budget. Large variances are not necessarily wrong, but each one should have an explanation you can state in a sentence. Missing costs and double-counted revenue tend to show up here before anywhere else.
6. Lock the period
Once the checks are done and a reviewer has signed off, close the period so that no one can post into it. Locking protects reported figures after they have gone to management, lenders or tax advisers.
Handling adjustments after the lock
Late corrections will happen. Decide in advance how to deal with them. For a small correction, the usual choice is to post it in the next open period with a clear description. For a material error, reopen the period with an approval, make the correction, record the reason and close it again. In either case, keep the audit trail.
Make it repeatable
- Keep the checklist in writing and tick it each month.
- Give each step an owner and a target day.
- Note recurring problems and fix their cause, so that the close gets shorter over time.