The monthly closing checklist for a small business

Why close every month

A monthly close is a short routine that confirms the month's books are complete and correct, then locks them. Done monthly, it takes about an hour. Skipped, it becomes a year-end scramble where nobody remembers what a $1,240 payment in March was for.

The checklist

1. Enter everything. All sales, receipts, bills, card charges and payroll for the month are in.
2. Reconcile every bank account to its statement. See how to reconcile.
3. Reconcile every credit card to its statement.
4. Empty undeposited funds. Every payment received should be in a bank deposit; anything left over is either not banked or entered twice.
5. Review accounts receivable. Run the ageing report; chase anything over 30 days; write off what you will not collect.
6. Review accounts payable. Run the ageing; make sure every bill is real and nothing is entered twice.
7. Check payroll liabilities. The amount owed should match what you will deposit or remit for the period.
8. Check sales tax or GST/HST payable against the liability report for the period.
9. Record non-cash entries: depreciation, prepaid expenses used up, accrued expenses, deferred revenue earned.
10. Count or review inventory if you hold stock, at least for the fast-moving items, and adjust differences.
11. Read the profit and loss and balance sheet. Compare with last month and the same month last year. Any figure that surprises you deserves a click to see what is behind it.
12. Save the reports (P&L, balance sheet, reconciliations, ageings) in a folder for the month.

Lock the month

Set a closing date at the end of the month. Transactions on or before it cannot be added, changed or deleted without a password, so the reports you saved stay true. If something must change later, it goes through the password and shows in the audit trail.

Extra steps each quarter and year

• Quarterly (US): Form 941 for payroll, state payroll returns, and estimated taxes if they apply.
• Quarterly or annually (Canada): GST/HST return for your reporting period. See the GST/HST guide.
• Year-end: W-2s and 1099s, or T4 and T4A slips; a full inventory count; fixed asset review; and the year's reports for your accountant. See this year's deadlines.