At the end of an accounting cycle, the books will need to be closed to start a new cycle.
Closing the Books is the process of advancing from one month, year, or other accounting period to the next. It is a required accounting process that is performed to prepare accounts for the Financial Statement preparation and the start of the next accounting period. The closing entries serve to transfer the balances out of certain temporary accounts and into permanent ones. This resets the balance of the temporary accounts to zero, ready to begin the next accounting period.
Typically, financial accounts are closed, after a review, at the company’s year-end. Year-end processes are used to create a company’s financial statements.
Month-end closing is also accomplished to close the accounting records of the current accounting month. It is important to perform “Month End Closing” in every organization as this enables the generation of accurate and consistent financial statements. It helps in early identification of any accounting bank related issues or errors rather than at year-end.
There are multiple designed schedules that have to be completed as a part of the month end closing process. These schedules include prepaid amortization schedules, accrual schedules, other accounts receivable schedules, inter-company reconciliation schedules, and any other relevant reconciliation schedules.
