Top 4 Financial Close Best Practices in 2024

The closing period is arguably the period with the heaviest and most stressful workload in accounting procedures. That is because, in a brief time, the CFOs have to zero out the balance of the provisional accounts to be ready for the next accounting period.

The process; however, is usually bogged down by several different handicaps, including, but not limited to:

• Late ledger adjustments,
• Newly discovered discrepancies in reconciliation,
• And, ultimately, ensuing revisions to reports and disclosures. 

Automating the process will help CFOs to overcome these challenges. In this research, we are explaining four best practices for CFOs to implement and work with an automated framework for financial closing.

1. Understand the dependencies

Without a clear understanding of how the steps in the financial close checklist are dependent one another, it is difficult to improve and automate the process. Therefore, it is of the utmost importance to know about, and understand, the main 8 steps involved in financial closure.

1.1, Identifying transactions

Accountants should sort through the transactions to see which ones will make their way onto the journal and the general ledger. Intercompany transactions of parent companies, for instance, should be overlooked because they neither count as loss nor revenue for them. 

1.2. Journal entries

The raw data of the transactions – date, description, serial number, etc. – have to be included in the journal. 

1.3. Posting to the general ledger

The amounts pertaining to each transaction that has been entered into the journal have to be included in the general ledger. We say “general” because for each account – receivable, payable, etc. – there exists a dedicated account ledger. All these have to be consolidated.

1.4. Running an unadjusted trial balance 

All the debit and credit amounts have to be written in a double-entry format to make sure the money leaving each account matches with the money being spent. For instance, if there was a cash infusion on one side, the expenses that were paid with that cash should match each other. 

1.5. Posting the adjusted entries 

Sometimes, movements in accounts will happen after the close. For instance, if the books have to be closed on the 28th, but utility bills are due 29th, adjustments have to be made. That means the accountants’ expenditure accounts should reflect the assumption that the bills on the 29th have been paid by the 28th. 

1.6. Running an adjusted trial balance 

The discrepancies found with the unadjusted trial balances should now have been eliminated following the adjusting entries and an adjusted trial balance have to be posted. 

1.7. Create financial statements 

Transport all the finalized financial data onto the balance sheet, income statements, and other financial documents, all known as financial statements. 

1.8. Posting closing entries 

The preceding month’s transactions have to be zeroed and the temporary accounts cleaned off. Only the retained earnings have to be posted on the company’s permanent account. 

As we’ve illustrated, each step depends on an accurate and thorough undertaking of the preceding task. In financial close, all the steps are dependent on one another. That’s why it’s important for businesses to understand the inter-dependencies between tasks. 

2. Determine which tasks benefit the most from automation 

It’s important to know which tasks can benefit the most from automation. Journal entries, for example, are one of the main, and most time-consuming steps, in the close process. They involve entering all the transactions of the company in the preceding month, which sounds simple, but often takes the majority of time allocated to the close process.

Automating journal entries would allow for the solution to identify and record all transactions in real-time. So when the close period arrives, the accountants already have that task done for them. And they just have to double-check them. 

Another candidate would be intercompany reconciliation. If accountants are reconciling balances manually, they would have to know the tax code of the area in which the parent company or subsidiary in question is operating, so they can deduct the taxes accordingly. An automated solution leverages RPA and orchestration in order to identify intercompany transactions as such and to then implement the appropriate tax.

The bottom line is, CFOs must narrow down on the specific tasks that can be automated, and stand to gain the most from.

3. Monitor the progress with dashboards

Because the financial close is an interdependent and step-by-step procedure, it’s important for all involved personnel to monitor the progress.

For example, in journal entries, some transactions, like deferred payments to vendors, have to be reversed from credit to debit once they have been cleared off. However, for that to happen, such transactions have to be referred to the correct person who was responsible for them in the first place.

Deploying an automated solution software will allow for dashboards dedicated to each process to see their progress in real-time. Thanks to orchestration and predictive modeling, the solution will give an estimate of task duration, helping everyone have a realistic timeline of when the close will be realized for the creation of financial statements to take place.

Lastly, because the reports created from financial close (i.e. balance sheet, cash flow, income statement, etc.) ultimately get analyzed by high-level executives to make decisions regarding the present and the future of the company, the process must be as accurate, transparent, and accessible as possible. 

4. Transform the workforce

To make the most of the software applications, you have to hire personnel who are not only competent in finance and accounting but also in using modern automated solutions.

For more on financial close

If you are interested in learning more about how automated solutions can help your close process, read:

• Automated Solutions Will Expedite Balance Sheet Reconciliation
• 5 Benefits & 3 Challenges of Financial Close Software
• Increase the Accuracy of R2R With Automated Close Solution

And if you believe your business can benefit from adopting a financial close software solution, we have a data-driven list of vendors prepared.

And we can help you find the right tool for your business: