What is month-end close? Definition for Australian small businesses

What is month-end close?

Month-end close is the set of checks and adjustments that make a month’s figures complete and correct before they are used: posting all income and costs, reconciling the bank, recording payroll, depreciation, prepayments and accruals, and explaining unusual movements.

Also called: Closing the books, Period close

Once a month is closed it is usually locked in the accounting software so later entries cannot change it unnoticed. Management accounts, tax returns and lender reports are then built on figures that will not move.

Worked example

Example · illustrative figures

On the 5th of the month, an owner asks whether October is ready. Nella’s Financial Controller runs more than 30 checks and finds two blockers: 14 bank lines from the last week are unreconciled, and payroll has not been posted. One unexplained item: a A$465 balance in a clearing account. Two checks could not run because the business has no fixed asset register.

How to read it

A month is ready when everything that belongs to it is posted, the bank agrees with the books, and the balance sheet holds no unexplained balances. Once the checks are clear, the month is locked in the accounting software so nothing else can change it.

Common mistakes

Reporting from a month that has not been closed, so the figures move later.
Treating a partly reconciled bank as reconciled.
Closing the month without reviewing entries added after the period end.

How it shows in Nella

Nella’s Financial Controller runs the close check for any month you name, with the blockers, the unexplained items and everything it could not check. See month-end close readiness and are my books ready to close?

Nella provides financial information and education, not accounting or tax advice.