The month-end close checklist

The checklist

Seven steps. Run them in this order, because several of them undo each other if you do not. The same list as a spreadsheet, with a column to sign off each step: download the checklist (Excel). No email needed.

1. Get the month complete. Every bank and card feed downloaded through the last calendar day, every transaction categorized, nothing left in the review queue.
2. Reconcile every account with a statement. Checking, savings, every credit card, every line of credit, every loan. Against the actual statement, not against the feed.
3. Clear the holding accounts. Payments to deposit (formerly Undeposited Funds), uncategorized income, uncategorized expense, ask-my-accountant, opening balance equity. All should be zero or explainable.
4. Post the adjusting entries. Accruals, prepaid releases, depreciation, deferred revenue, the bad debt allowance, an inventory count adjustment if you carry stock, payroll from an outside provider, loan interest and principal split.
5. Review the sub-ledgers. Accounts receivable and accounts payable aging, tied to the balance sheet, with anything over 90 days looked at rather than scrolled past.
6. Read the statements. Balance sheet first, then profit and loss against last month and against the same month last year.
7. Lock the period. Set the closing date in QuickBooks Online so the month you just proved cannot quietly change.

Everything below is why each step sits where it does.

The order is the whole argument

Most published close checklists are a list of tasks with no claim about sequence. The sequence is where the time goes.

Reconciliation comes before adjusting entries because an accrual posted onto an unreconciled ledger has to be reconsidered once the reconciliation turns up the three transactions that were missing. Do it the other way and you post the entries twice.

Holding accounts get cleared before you read the statements, not after, because a balance in undeposited funds is revenue that may or may not be real, and a profit and loss read before that is settled is a profit and loss you will read again.

Locking comes last and it is not optional. An unlocked prior period is an invitation for a transaction to be dated backwards by somebody categorizing a feed in a hurry, and the first anyone knows about it is when last quarter’s numbers have changed since the last time they were printed.

Step 2, in more detail, because it is where closes actually stall

Reconcile against the statement (the QuickBooks Online reconcile steps walk through the screen). Not against the bank feed, which is the same data the file already has and therefore proves nothing.

The accounts people skip are the ones that cause the trouble. Credit cards get reconciled far less often than checking accounts, and a card is where personal spending, duplicate charges and missed refunds accumulate. Loans get skipped almost entirely, and a loan that has never been reconciled to a lender statement is how a balance sheet ends up showing a balance the bank has not agreed with for three years.

If an account will not tie, resist the plug. Posting the difference to a miscellaneous account closes the reconciliation and moves the problem into next month’s opening balance, where it is harder to find. What a reconciliation actually proves covers the five differences that are legitimate and the ones that are errors, and a bank balance that will not reconcile covers finding the period the break started in.

Step 3, and the five accounts that hide everything

These accounts exist to be temporary. A balance in any of them at month end is an unanswered question.

Undeposited funds. Payments received and not yet grouped into a deposit that matches the bank. A growing balance here usually means invoices are being marked paid and the deposit is being categorized separately, which records the same money twice. The pileup version of this is one of the most common things in an inherited file.

Uncategorized income and uncategorized expense. Whatever the feed could not place. These should be empty at close, not carrying a balance that has been there since the file was created.

Ask my accountant. Legitimate during the month, as the parking space for anything needing a decision. At close it is a list of questions that need answers, and the answer is not to leave it there.

Opening balance equity. Should be zero after the first close and stay zero forever. A balance means the file was set up with a number nobody verified. It has its own page because it never goes away on its own.

Step 4, the entries no software writes

Everything else in the close is checking. This step is the only part where you are actually recording something the file could not know.

Accruals for costs incurred and not yet billed. Prepaid releases for costs paid in advance and now partly used. Depreciation. The principal and interest split on every loan payment, which the bank feed cannot do because the split changes every month. Payroll, if it runs through a provider whose figures arrive as a report rather than as entries.

The accrual entry has a reversal attached to it that matters more than the accrual does, the prepaid entry depends on a schedule kept outside the file, depreciation records fixed asset wear against a contra-asset account, and deferred revenue must be recognized as performance milestones are met. The journal entry reference has the rest of them worked out.

Step 6 is a read, not a tick

The statements are the output. Most checklists treat producing them as the last task, which turns the close into a process that completes without anybody having looked at the result.

Read the balance sheet first. It is where errors persist, because a wrong balance stays wrong every month until someone notices, whereas a wrong expense washes out of the profit and loss next month. Check that cash matches what you reconciled, that receivables and payables match the aging reports, that equity matches authorized dividends and draws, that no negative balances exist where they should not, and that nothing has a balance you cannot explain in one sentence.

Then the profit and loss, against the prior month and the same month last year, looking for movement you cannot account for. A category that doubled. A line that was there all year and is suddenly zero, which usually means a vendor started being categorized somewhere else. A gross margin that moved several points in a business that did not change.

The questions that come out of this read are the value. Everything before it was making the numbers trustworthy enough to be worth asking questions about.

Why closes actually get late

In my experience it is almost never the bookkeeping. Two things stall a close, and both of them are waiting.

The first is an unreconciled account where the statement is not available, usually because nobody has the login. That is fixed once, permanently, by getting statement access set up at onboarding rather than chasing it monthly.

The second is an unanswered question. Four transactions need the owner to say what they were, the email went out on the 3rd, and it is the 14th. The close is not late because the work is slow. It is late because it is blocked.

Two things help more than any process change. Ask the questions during the month, as they come up, rather than saving them for a list at close. And set a rule for what happens when there is no answer by a given date: the item goes to a holding account, the close proceeds, the statements go out with a note. A close that waits indefinitely for one answer produces statements too late to act on, which is a worse outcome than statements with one known open item.

A realistic timetable for a small file

A business with a few hundred transactions a month, feeds connected and questions answered, closes in a few hours spread across two or three days of waiting for statements.

By the fifth business day is a reasonable commitment and it is the one Ledgerbrook makes. Before the third is possible only when the client answers same day. Past the tenth and the statements have stopped being a management tool and become a historical record.

Closed by	How realistic it is
Before the 3rd business day	Possible only when the client answers the same day
The 5th business day	A reasonable commitment, and the one Ledgerbrook makes
Past the 10th	Too late: the statements are a historical record, not a management tool

The number that matters is not how fast the close runs. It is how long after month end the owner has numbers they can make a decision on.

Use the list, and the part that is not on it

Every step above is checkable. None of them requires judgement until step 6, which is why steps 1 through 5 can be handed to somebody else and step 6 largely cannot.

That split is what a monthly close is, done on a client file every month against real statements, with the questions asked during the month rather than at the end of it:

$99per client file, per month

If the last few months were never closed, or were closed with a plug, the first job is getting the file to a state where this checklist means anything, which is cleanup and is priced separately on the pricing page.

Firms that run this list for every client often skip it on their own file, which is why firm books fall behind. At year end, December gets the year-end bookkeeping checklist on top of this one, and twelve closed months become what the CPA needs to file.