qa-aman Overview
Based on "Intermediate Accounting" by Kieso, Weygandt, and Warfield - the definitive reference for GAAP-compliant period-end accounting. Month-end close is not a checklist of tasks; it is a controlled process that ensures the financial statements for the period are complete, accurate, and consistent with prior periods.
The principle: close in the right order. Work from operational accounts inward to the general ledger. Reconcile before you close. Review before you certify.
Workflow
Step 1: Pre-close - collect and cut off
Before posting any entries, establish a clean cutoff.
Revenue cutoff date: [date] - no revenue after this date posts to the current period
AP cutoff: [date] - all invoices received by this date must be accrued if not yet posted
Payroll cutoff: [date] - confirm last pay date and any accrued but unpaid wages
Inventory cutoff: [date] - confirm no receiving or shipping activity after cutoff
Actions:
- Communicate cutoff dates to operations, AP, and payroll before period end
- Pull a list of open POs and confirm which have been received (goods received, not yet invoiced = accrual needed)
- Confirm bank activity through the last business day of the period
Step 2: Post adjusting journal entries
Work through the standard recurring entries in this order:
Accruals (expenses incurred, not yet invoiced)
DR: [Expense account] $[amount]
CR: Accrued Liabilities $[amount]
Basis: [contract / estimate / PO / schedule]
Prepaids (expenses paid in advance, to be amortized)
DR: [Expense account] $[amount]
CR: Prepaid [Asset] $[amount]
Basis: Monthly amortization of [insurance / rent / software / etc.]
Depreciation
DR: Depreciation Expense $[amount]
CR: Accumulated Depreciation $[amount]
Basis: Fixed asset schedule, [straight-line / declining balance]
Deferred revenue (cash received, revenue not yet earned)
DR: Deferred Revenue $[amount]
CR: Revenue $[amount]
Basis: Performance obligation satisfied per ASC 606
Intercompany eliminations (consolidated entities only)
DR: Intercompany Revenue / Payable $[amount]
CR: Intercompany Expense / Receivable $[amount]
Confirm: Intercompany balances agree between entities before eliminating
Step 3: Reconcile key balance sheet accounts
Every material balance sheet account needs a reconciliation. Complete these before closing:
| Account | Reconcile To | Tolerance |
|---|---|---|
| Cash | Bank statement + outstanding items | $0 |
| Accounts Receivable | Aging report | $0 |
| Prepaid expenses | Prepaid schedule | $0 |
| Fixed assets | Fixed asset register | $0 |
| Accounts payable | AP subledger / aging | $0 |
| Accrued liabilities | Accrual schedule | $0 |
| Deferred revenue | Deferred revenue schedule | $0 |
| Intercompany | Agreed balances with counterparty | $0 |
For each reconciliation, document:
Account: [name and GL code]
Book balance per GL: $[amount]
Balance per supporting schedule / subledger: $[amount]
Difference: $[amount]
Explanation of difference (if any): [explanation]
Preparer: [name] Date: [date]
Reviewer: [name] Date: [date]
Step 4: Review the trial balance
Pull the unadjusted and adjusted trial balance. Review for:
- Any account with an unexpected balance direction (e.g., a credit balance in an asset account)
- Any account with a zero balance that normally has activity (may indicate a posting error)
- Any account with a balance much larger or smaller than prior periods (investigate outliers >10% variance without a known explanation)
- Revenue and COGS alignment - gross margin should be within expected range
Flag any unexplained variance over $[threshold] for investigation before certifying close.
Step 5: Produce the close package and certify
Compile the close package for review and sign-off:
PERIOD-END CLOSE PACKAGE - [Month / Year]
1. Income Statement - current month and YTD, with prior year comparison
2. Balance Sheet - end of period, with prior month comparison
3. Cash Flow Statement - current month
4. Reconciliation sign-off matrix (all accounts, preparer + reviewer initials)
5. Journal entry log - all entries posted in the period with supporting docs
6. Open items / exceptions - anything posted with an estimate or pending resolution
7. Key metric summary - gross margin %, headcount costs, top 5 variances vs. budget
Sign-off:
Preparer: _________________ Date: _______
Controller / Reviewer: _____ Date: _______
CFO (if required): _________ Date: _______
Do not certify close if any balance sheet reconciliation is open, any unexplained variance over threshold is unresolved, or any required journal entry is missing.
Anti-Patterns
1. Closing before reconciling Bad: Running the income statement and signing off before completing balance sheet reconciliations. Good: Reconcile first, close second. If a reconciliation reveals an error, the income statement changes. Sequence matters.
2. Accruals without documentation Bad: Posting an accrual for "estimated legal fees - $50K" with no supporting basis. Good: Every accrual needs a basis: a contract, a PO, an invoice, an email, or a calculation. "Management estimate" without support will not survive an audit.
3. Ignoring intercompany Bad: Allowing intercompany receivables and payables to differ between entities before elimination. Good: Agree intercompany balances before month-end. Unreconciled intercompany creates a fictitious asset or liability that distorts the consolidated balance sheet.
4. Posting adjustments after close Bad: Allowing operations to post invoices or receipts after the cutoff date into the closed period. Good: Hard-lock the period in the ERP after close. All late items go to the next period with a documented reason.
5. Close package without prior period comparison Bad: Presenting a single-period income statement with no prior period context. Good: Every close package should include at minimum a prior month and prior year column. A number without context cannot be reviewed.
Quality Checklist
- Cutoff dates communicated and documented before period end
- All recurring journal entries posted with supporting documentation
- All material balance sheet accounts reconciled (no open reconciliations)
- Trial balance reviewed for unexpected balances and outliers
- Intercompany balances agreed between entities (if applicable)
- Close package includes income statement, balance sheet, and cash flow
- Prior period comparison included in the package
- Open items and exceptions documented with owner and resolution date
- Formal sign-off from preparer and reviewer before certifying close
- Period locked in ERP after sign-off