Definition of Monthly Close
In accounting, monthly close is a series of steps and procedures that are followed so that a company’s monthly financial statements are in compliance with the accrual method of accounting.
Since a company’s business activities are ongoing, accountants might state “we need to get a proper “cut-off” between the end-of-the-month transactions and those that belong in the following month.
If a company sells goods and has inventories, its monthly close will be more challenging. The company must be certain that the costs of the goods purchased are recorded in the same month as the goods are added to the inventories.
Reviewing the financial statements before they are distributed is also an important step in the monthly close. This could mean comparing the amounts and percentages on the current financial statements to those of earlier months. For example, if the current income statement shows the cost of goods sold as 86% instead of the normal 81%, the current month’s amounts should be investigated before releasing the financial statements.
