“Closing” is an activity that occurs when an entity wants to produce accurate financial statements. The “Closing Date” is the date of the financial statements, and is usually the last day of the month or the last day of the year.
There are many bookkeepers who do not know what closing is, much less how to do it. Proper closing involves the following activities:
- Verifying that all sales and purchase transactions up to the closing date are included, and that sales and purchase transactions after the closing date are not included.
- Verifying that all expenses incurred up to the closing date have been properly accrued.
- Verifying that the detailed subsidiary ledgers agree to the general ledger. Examples include the Detail Listing of Fixed Assets and the Detail Listing of Deferred Revenue.
- Verifying that all accounting adjustments have been made. Examples including recording depreciation expense, accrued payroll, adjusting loans, and adjusting deferred income.
- Verifying that all accounts are being maintained in accordance with Generally Accepted Accounting Principles (GAAP).
As mentioned in a previous blog, most bookkeepers are transactionalists only, meaning that they are generally good at recording transactions. However, most bookkeeper problems involve improper account coding, or being “hit or miss” with closing activities. These problems stem from a lack of formal education in Accounting.
As companies grow, they develop a greater reliance on timely and accurate financial statements. They can get this help for a while from their CPAs. But at a certain point in the growth curve, CPA reliance becomes too intermittent and too expensive. This is the point where the company needs to engage a qualified part-time CFO.