What Should Actually Happen During a Monthly Bookkeeping Close?

Many business owners think monthly bookkeeping means categorizing transactions and running a profit and loss statement.

Those are part of the process, but they are not the entire monthly close.

A proper close is a structured review that makes sure the month's activity is complete, balances are supported, and the reports are useful enough to guide business decisions.

Step 1: Confirm the Month's Activity Is Complete

Before reviewing reports, make sure the bookkeeping system includes all relevant activity for the month.

This may include bank transactions, credit card activity, customer invoices, vendor bills, loan activity, payroll entries, payment processor deposits, expense reimbursements, and owner transactions.

If an account or source is missing, the reports may still generate, but they will not present the full picture.

Step 2: Reconcile Bank and Credit Card Accounts

Each bank and credit card account should be compared with its statement. Reconciliation helps identify missing, duplicated, or incorrectly recorded transactions.

It also identifies outstanding checks, deposits in transit, and transactions that cleared for a different amount than expected.

Simply seeing the bank feed connected does not mean the account is reconciled. The final recorded balance must be compared with the financial institution's statement.

Step 3: Review Transaction Categorization

Automated rules and bank feeds can save time, but they can also repeat an incorrect category month after month.

Review uncategorized transactions, large purchases, transfers, loan payments, refunds, owner activity, and expenses posted to vague catch-all accounts. Confirm that transactions are recorded consistently and supported by the available documentation.

Step 4: Review Accounts Receivable

If the business invoices customers, review the accounts receivable aging report.

Look for overdue invoices, duplicate invoices, unapplied payments, credits, and balances that do not match the customer's understanding. Follow up on old balances before they become harder to collect or explain.

Step 5: Review Accounts Payable

Review unpaid vendor bills, credits, duplicate entries, and old balances. Confirm that expenses belong in the correct period and that the business has captured bills that have been received but not yet paid.

For businesses that do not enter vendor bills, review upcoming obligations separately so the owner understands what the current bank balance still needs to cover.

Step 6: Check Payroll and Related Liabilities

Compare payroll reports with the amounts recorded in the bookkeeping system. Review wages, employer taxes, employee deductions, benefit payments, and payroll tax liabilities.

Differences between the payroll system and the general ledger should be investigated rather than carried forward.

Step 7: Review Loans, Credit Lines, and Major Purchases

Loan payments often include both principal and interest. Credit lines may include draws, payments, and fees. Equipment purchases may need to be recorded differently from normal operating expenses.

Review these transactions against statements and supporting agreements so balances remain accurate.

Step 8: Review the Balance Sheet

The balance sheet is one of the best places to find bookkeeping problems.

Review cash, receivables, payables, credit cards, loans, payroll liabilities, sales tax balances, fixed assets, and owner equity. Ask whether the balances make sense and whether they are supported by statements or other documentation.

A strange balance should not be ignored simply because the profit and loss statement looks reasonable.

Step 9: Review the Profit and Loss Statement

Compare revenue, direct costs, gross profit, operating expenses, and net profit with prior periods and with what you know happened in the business.

Look for unusual changes, negative balances, duplicated expenses, missing revenue, and categories that have grown significantly. Unexpected results may be correct, but they should be understood.

A Real Example: When Strong Reports Were Misleading

In one position, I began by pulling several financial reports to understand the condition of the company’s books. At first, the revenue and profit looked exceptionally strong.

Every industry has different expectations for a reasonable profit margin. The results I was seeing did not appear consistent with what I would normally expect for that type of business, so I knew the reports needed a closer review. Even when the numbers seem reasonable, I believe you should thoroughly review and question the books when working with a company for the first time. That initial review helps you understand how transactions have been recorded, identify inconsistencies, and determine whether the reports can be relied upon.

I started with vendor reconciliations and discovered that months of vendor invoices were missing. Because those expenses had not been recorded, the company’s profit appeared higher than it actually was.

After entering the missing invoices, I reran the reports. Revenue and profit were still unusually high, so I turned to accounts receivable. During that reconciliation, I found missing customer invoices along with duplicate and inaccurate entries. Together, those errors made it appear that the company had billed approximately $2 million more than it actually had.

If the errors had not been corrected, the owners could have relied on the overstated results when applying for new loans, making major purchases, expanding spending, or taking on other financial commitments the business could not truly afford.

Once the missing activity was recorded and the inaccurate entries were corrected, the financial statements finally reflected the company’s actual results through the current period.

That experience reinforced an important lesson: positive reports are not necessarily accurate reports. A knowledgeable reviewer should understand what is normal for the business and its industry, verify balances against supporting information, and investigate numbers that do not make sense—even when those numbers initially look favorable.

The Controls That Help Prevent These Problems

The best way to prevent missing or duplicate activity from distorting the reports is to complete reconciliations consistently instead of waiting until year-end or until a problem becomes obvious. At a minimum, the monthly close should include:

• Bank account reconciliations

• Credit card reconciliations

• Vendor statement and accounts payable reconciliations

• Customer account and accounts receivable reconciliations

Reviewing these areas together helps confirm that revenue, expenses, cash, receivables, and payables are supported before management relies on the financial statements.

Step 10: Resolve Questions and Document Adjustments

Keep a list of transactions or balances that require information from the owner, employee, customer, vendor, payroll provider, or lender.

Record the explanation and supporting documentation when the item is resolved. This creates a clearer audit trail and makes future reviews easier.

Step 11: Deliver Reports With Context

Financial reports are more useful when the owner understands what changed and why.

A monthly reporting package may include a profit and loss statement, balance sheet, receivable or payable aging, and selected comparisons or business metrics. The exact reports should match how the owner manages the business.

Closing the Month Creates a Reliable Starting Point

The purpose of a monthly close is not perfection for its own sake. It creates a dependable set of numbers that the business can use to plan cash needs, evaluate performance, make pricing decisions, and prepare for future reporting or tax requirements.

NEXT LVL Business Services offers monthly bookkeeping plans designed to keep records current, reconcile accounts, and provide consistent financial reports. For businesses that are behind or unsure whether their balances are accurate, catch-up, cleanup, and financial health review services are also available.