What are the painful or time-consuming aspects of closing the books?

The answer to you question "hard-wired" to two key points: 1/ what is your accounting policy? 2/ what books are you closing (i.e. tax, IFRS/GAAP, operational reporting)?

Some difficulties could be avoided by carefully assessing (legally) available options. For example, in some jurisdictions for tax purposes you MUST have original documents signed by you counterparts. On the other hand, IFRS/GAAP allows you to use accruals. In addition IFRS/GAAP has quite loose requirement to monthly reporting (opposite to year-end reporting).

Generally, the most frustrating part would be the one with many external parties and transactions. Some time it would be revenue (many small customers). Another time it would be some expense lines (with mane vendors). If you have very complicated compensation system (even it was automated) you can straggle with salary computation.

Chiers!
- A.

When you prepare for M/E close, you want to be sure that all expenses and revenue for the month have been recorded or accrued. So start with your revenues - will you have people in the field who made a sale but haven't communicated all the information to the home office? You want to be sure all sales that took place during the month are recorded so if you are providing a service (non-tangible), have all clients been billed? If you are selling something, look at the process of how those sales are recorded, and what is needed to capture any information on returns.

Expenses are the same way: think about what expenses need to be recorded and if the process you have for capturing those expenses is efficient. The pain point is gathering all the data and having the time to reconcile the bank account and review the income statement accounts. IFor a streamlined operation where almost everything is automated you can reasonably close in a few days. The pressure to close quickly is driven by your internal needs. If your financers want to see financials every month you will want to have this done quickly to keep them happy. But if it's just for yourself, you can set a closing date according to what suits you.
Hope this helps.

I've found that the pain point for monthly close is partly self induced (i.e. waiting until the month end to reconcile accounts and book adjustments). This issue can be addressed by reconciling more frequently (i.e. weekly cash recons) and performing a preliminary close before month end. That said, accruals (estimated liabilities where there are no vendor invoices or open purchase orders) can remain a pain point not to mention revenue recognition for companies with complicated sales (i.e. percentage of completion, software rev rec, etc.).

The main issues that I have found in closing the books are the following:

1) There is not a detail report available that ties out to the Balance Sheet, so you have to manually review the G/L accounts and/or do some sort of variance analysis (this is the case with smaller businesses and older/less advanced ERP systems)

2) There is a detail report available, but it does not tie out to the Balance Sheet because transactions posted incorrectly (again, the only remedy is to investigate the G/L account, and this takes time - even advanced ERPs can have errors in these reports due to system or human error)

3) It is difficult to get the whole company on board with the need to properly close the books each month (and I agree with the previous commentators - it HAS to be done monthly). Things like revenue and expense recognition are significantly harder when people in your company who aren't accountants are making decisions around month end. I don't know that any ERP can truly address this issue, but training should be ongoing and SOPs are a HUGE help!

4) I agree with Bob - self-induced pain is a big problem. Some accounts can and should be reconciled daily or weekly to save time at month end. Most companies have a deadline to close the books within a few days or less, and that seems reasonable from my experience.

In summary, bulletproof reporting is necessary, but human behavior is just as important. Theoretically, if the reports tie out and everything is posting correctly, the process should be easy. In practice, those months are beautiful but rare. Good luck!

In my experience theses are the primary pain points:

First, is not having an integrated Purchase Order, Accounts Payable, Inventory, Invoicing, A/R and G/L system. If your A/P Invoicing, and A/R systems aren't integrated with your Inventory system, you are stuck with the time consuming task of reconciling what was received into, and shipped out of, the perpetual Inventory system, and what was received into A/P and billed by A/R and recorded in the G/L. My experience is that non-integrated systems create the biggest time consuming and reconciliation issues at close.

Second, is the initial G/L account coding assigned A/P invoices. Unfortunately, while not a glamorous aspect of our jobs, a lot of time is consumed reviewing G/L account details and needing to reclassify expenses to prepaids; prepaids to expenses; fixed assets to expenses; expenses to fixed assets, etc. The Accounting Manager, Assistant Controller, or even Controller should sign-off on all Account Number assignments PRIOR to the invoice being recorded. Now of course there are certain routine invoices that will not require this, e.g. rent, payroll, utilities, etc.

Third, invoices which are sent to other Departments for approval. The amount of time spent chasing down invoices in other departments is a waste. You need to have a system where every invoice is FIRST sent to Accounting. Accounting can make a copy of the invoice and send it along to the appropriate person for approval before recording. If the invoice isn't returned prior to month end, then the Accounting department can make an accrual by simply summarizing the received and unapproved invoices in its "Pending Approval" file.

Lastly, is "Financial Engineering" being dictated by the Founder, Chairman, CEO, et al to "produce results" that they want to see. All of us hate this! All of us fight this! But unfortunately, it is a fact of life. Unfortunately, when results don't reflect what is expected by these folks, often the first reaction is that somehow, someway Accounting must have recorded something incorrectly. As the Founder you need to control this reaction inside your Company. While Accounting certainly makes mistakes at times, and a critical review of the financial statements is welcomed, fight the urge to blame Accounting when results aren't what you expect.

1. Recons: if you have a good, integrated system (we have SAP) your subledgers will always agree with the GL, and recons become a non-issue. Tie out cash frequently, and the bank rec is not a problem at closing.
2. Accruals and manual entries: do the footwork ahead of time.
3. Planning and system automation: take the time to plan the close (involving all the Accountants), and spend the money/effort to automate recurring tasks and data loads. You're helping the future version of yourself.

That being said, every company seems to have its own problem schedule or report (e.g., royalties, bonus calcs, inventory writedowns, warranty...), so ask the department directly. Then work on automating it :)

We did June in 2 1/2 days, and now we're spending another 3-4 days reporting.

Jeff,

The specific pain points may depend on your business, but in general terms, I think the two biggest pain points are:
1. getting the information to make sure that all the appropriate transactions are properly recorded in the period being closed. For example, we are a manufacturer of custom-made equipment shipped all over the world and chasing down the freight invoices from international forwarders can be a real problem.
2. reconciling the balance sheet accounts, as Kent mentioned, can take time. I would add a caveat to Kent's comments regarding hiring staff who are properly trained and supervised; the reconciliation process will be significantly easier if you also hire staff with good attention to detail whose focus is on accuracy rather than speed.

Good luck in your new adventure!

Closing the books, (preferably monthly) can be painful for the following reasons:
1) Key account reconciliations are time consuming and errors and exceptions have to be researched and resolved. Those who don’t reconcile certain accounts daily (e.g., cash, inventory receipts liability, etc.) find it more difficult to do it at month end.
2) Vendor billing for goods and services must be properly processed, following review and approval for data input. Exceptions must be researched and resolved.
3) Accruals of certain expenses can be difficult in some businesses, especially with a small accounting staff.
4) Customer billing must be completed and in certain situation, revenue recognition issues must be properly handled.
5) Financial statements (usually internal at month-end) may take additional time to prepare, especially when complex consolidations are performed.

What can somewhat ease this pain is performing some of these “monthly” activities more frequently. An example would be reconciling the cash accounts daily. It only takes a relatively short period of time to do this, and exceptions are much easier to detect and correct. At month end you are only left with one day worth of activities. This is also true for inventory receipts, and several other key accounts.

Additional automation in the accounting or ERP software can greatly contribute to shortening the period-end process. Account reconciliations can be done within the software database; consolidations can automatically be performed (with all the elimination logic built into the software). If formal and structured internal control exists, it can also be performed within the software with all required evidence of performance automatically recorded. Analysis of actual performance against planned (budget) performance can take place immediately after period-end close, especially if a dedicated planning and business intelligence solution is in place.

It takes a certain amount of vision and determination to make the period-end close process painless, but the existence of tools to help in completing the process can certainly make it easier.

Tracking the tasks and their status of the Close Process is probably the most consistent headache - what tasks need completed, due date, how long, who doing it, who reviewing/approving it, upstream and downstream dependencies (if late, who impacted). Currently, our task list in managed in Excel but only has tasks, person assigned and due dates. No dependencies or time allocated to complete.

Knowing this allows for better workload balancing. You can better allocate staff time to be productive, shift work from overworked staff to underworked staff, and let them go home when can't be productive because information not available.

It isn't the individual tasks that are a pain since we assign (what we think) is the most appropriate, knowledgeable, experienced person to complete the task. It is knowing where in the Close Process we are and the bottlenecks to be proactive to correct situations before impact reporting deadlines.

Closing the books takes lots of time because:
- the accountants have to reconcile the GL accounts, have to research and investigate the discrepancies, have to make adjusting entries to clear the books. For example, the accountant find that the GL account called 'accounts receivable' shows a credit balance instead of debit or zero balance. This means that something is not right in the books. Either the customer overpaid or an invoice was not recorded in the books. To analyze the 'AR' account will take hours or even days, depends on the number of transactions for that account. And so on.
A difference in the books means not just simple increasing/decreasing a transaction with few Dollars or few cents, to balance the books. A discrepancy must be investigated in order to clear and close the books.
Why they are stressed with the quarterly books closing? The answer is: the tax reporting deadlines.

It differs all the time. Inventories and related adjustments always seems to be a biggie.