本文发表在 rolia.net 枫下论坛After posting The Functions of Corporate Accountants, I got a lot of feedbacks from XDJM. Some ask me to elaborate the functions I mentioned. Here I would like to share with you my understanding and experience on the process of month end closing and hope it would be of major interests.

To facilitate an accurate and efficient closing, you need to do a number of items before the core closing period. First step in achieving a fast close is the complete documentation of every step in the closing process. This documentation should address all functional areas of the close, including payroll, invoicing, payables, inventory, cash and the general ledger. The primary focus of this documentation should be a complete itemization of the nature of each task, who completes it and the time required to complete it. I believe most of you in a medium to large corporation would have such document handy before you start. But since the business runs in a dynamic environment, you always need to modify and enhance the process based on your findings and improvement.

Once the documentation or guide is ready, you can easily identify the most closing activities that need to be fulfilled within one week of month-end. However, some activities cannot be started until other closing tasks are finished, which greatly increases the duration of the close. The easiest and least costly way to enhance the speed of the close is to shift work outside of the period traditionally reserved for closing activities.

Here is the list of general month end closing activities. I break it down into some major categories and further indicate their optimized processing period.

1. Payroll
Nowadays, most of the entities outsource their payroll responsibility to some specialized company, such as ADP, Ceridian. Even with the outsourcing, accountants still retain a lot of work in that area, especially for manufacturing companies which are not using calendar month end as their closing period end. The pre-core closing activities of payroll include: review billable hours; accrue wages, vacation time, calculate sales commissions and complete payroll journal entry. In the core closing of payroll, you need to verify month end time records, reconcile salaries & wages expenses along with payroll register, source deduction remittance and HR’s vacation records.

2. Invoicing
Revenue is the most sensitive number on a financial statement. It usually draws the first attention of the auditors and creditors. The creation of period-end invoices can occupy the largest part of the closing process in many companies. With the help of EDI billings, accountants are greatly released of their month end billing duty. But you will find more reconciliation required for this part as well as you are not involved in the billing activity. The pre-core closing requires compare shipments to invoices, accrue bad debts, bill recurring invoices, calculate deductions and accrue returns. The core closing is to complete all billings and accrue revenue according to GAAP.

3. Payable
Many accountants get into the habit of waiting up to a week after the period-end for supplier billings to arrive in the mail before they will even consider closing the books. If this is acceptable by the senior management, you probably can keep the way. But a lot of public companies have a tight closing and reporting schedule that does not generously grant you such privilege, then you need to find some up-front effort to eliminate the extensive waiting period. With the help of pre-authorized purchase orders or manually tracking supplier invoices, you can reduce your closing time window and improve accrual accuracy. The pre-core closing activities here are: send email to all supplier related personnel asking for estimate of the expenditure that are not billed yet, calculate overhead bases, review re-billable expenses, accrue unbilled supplier invoices and complete A/P journal entries. Core closing will then be to allocate overhead costs, briefly compare current period expenditure to those of prior comparable periods, update incoming supplier invoices (amounts are material).

4. Inventory
Without a doubt, the finest closing-related inventory best practice is to create an extremely accurate inventory tracking system, like proper labelling, rack locating, database updating, etc. The pre-core closing jobs are to determine LCM of each category and to determine obsolete reserve. The core closing, of course, is to count and value inventory using proper management policy and reconcile with shipments.

5. Cash
Many banks now offer online access to transaction information that is accurate through the preceding business day. If so, get into the habit of updating the bank reconciliation every day. Some might find this task is done within the daily corporate cash management. There is minimum to be left into the core closing period. Besides the daily bank reconciliation, the pre-core closing also includes reviewing uncashed cheques.

6. Fixed Assets
For those with big portion of fixed assets in terms of total assets, you might find its efficient to keep a fixed asset sub-ledger or a tracking spreadsheet continuity. Similar as the payables, prior to core closing, all you have to do is to accrue unbilled purchases, update the fixed assets register and calculate depreciation. Core closing will contain maintaining continuity schedule and reverse any major disposed assets.

7. Final Closing – General Ledger
Unfortunately, there is nothing can be done in this step prior to core closing. After finish all activities above and close all sub-ledgers, you will be required to do manual adjustments to the general ledger through journal entries. These adjustments include, but not limit to:
Amortize prepaid expenses
Amortize deferred expense (revenue)
Adjust goodwill as per impairment testing
Accrue interest expenses
Reclassify loans according to their terms
Accrue annual expenses and fees
Revalue foreign currency assets/liabilities
Tax provision

After the first tier adjustments are done, you then produce a draft financial statement and review for any errors, correct the errors and missed adjustments for the second tier adjustments. Your last step of the month end closing is to produce a set of clean and well formatted internal financial statements that can be presented to your supervisor.

I’m sure there are a lot of Rolians in this forum that are in charge of month end closing and can contribute more detailed and up-to-date knowledge to the topic. Above is just my knowledge and experience from a couple of years ago. Its not complete and accurate. Any comments are welcome and discussion is highly expected.更多精彩文章及讨论，请光临枫下论坛 rolia.net