Mastering the Importance of Closing an Accounting Period
Closing an accounting period is the systematic process of finalizing all financial transactions, adjusting balances, and preparing accurate financial statements for a specific reporting interval—whether monthly, quarterly, or annually.
I’ve spent over 20 years as CEO of Complete Controller working with businesses across every sector imaginable. From tech startups to manufacturing firms, I’ve seen firsthand how the companies that master their accounting closes gain a massive competitive edge. According to APQC’s benchmarking data, top performers close their books in just 4.8 days while others struggle past 10 days. That speed difference translates directly into faster decisions, cleaner audits, and teams that actually enjoy month-end instead of dreading it.
What is closing an accounting period?
- Closing an accounting period means verifying, adjusting, and freezing financial records to create accurate statements for decision-making and compliance
- The process involves reconciling all accounts and recording necessary adjustments before the cutoff date
- Temporary accounts (revenue, expenses, dividends) get zeroed out and transferred to permanent accounts
- This creates a clean slate for the next period while preserving historical accuracy
- Without proper closes, financial statements become unreliable and business decisions suffer
Why Closing an Accounting Period Matters More Than You Think
Most business owners treat closing as a compliance checkbox. That mindset costs them money, time, and opportunities.
When you close properly, you create a financial foundation that drives growth. Your P&L tells the truth about profitability. Your balance sheet reflects actual assets and liabilities. Your cash flow statement shows exactly where money went. This clarity enables confident decisions about hiring, inventory, expansion, and investment.
Beyond compliance, closing impacts your team’s morale and retention. FloQast’s 2024 research reveals that 60% of finance professionals cite manual close processes as their primary source of stress and overwork. Even worse, 53% say this burnout drives them to leave their roles entirely. A chaotic close doesn’t just delay reporting—it burns out your best people.
The stakes get higher when things go wrong. Take Molson Coors: their 2019 restatement due to improper acquisition accounting wiped out $400 million in reported profits and sent shares tumbling 6.4%. The lesson? Poor close discipline creates material risks, even for billion-dollar companies with experienced teams.
The Four-Step Process of Closing Your Books
Understanding these mechanics helps you spot problems and delegate effectively.
Step 1: Transfer revenue to income summary
All revenue accounts move to a temporary account called Income Summary, resetting them to zero for the next period. This prevents revenue bleeding between periods and keeps trend analysis accurate.
Step 2: Transfer expenses to income summary
Similarly, expense accounts (salaries, rent, utilities) transfer to Income Summary. The resulting balance represents your net income or loss for the period.
Step 3: Move income summary to retained earnings
Since Income Summary is temporary, its balance transfers to Retained Earnings—a permanent account tracking cumulative profits. This preserves your earnings history.
Step 4: Record dividends against retained earnings
Any owner distributions reduce Retained Earnings, showing stakeholders exactly what stayed in the business versus what got paid out.
Building Your Close Timeline That Actually Works
One of the biggest mistakes I see is companies drifting into month-end without a plan, then scrambling for days.
Pre-close (Days 1-2)
Gather all documentation: bank statements, invoices, receipts, payroll records. Assign ownership for each reconciliation task. Hold a brief kick-off meeting to align on deadlines and priorities.
Active close (Days 3-5)
Execute reconciliations, record adjustments, and close temporary accounts. Set specific deadlines like “AP reconciliation complete by end of Day 3.” Use task management software to track progress and surface blockers early.
Post-close (Days 6-7)
Prepare financial statements, conduct your review meeting, and document lessons learned. Update your general ledger and freeze the period to prevent changes.
According to APQC data from 2,300 organizations, the median close takes 6.4 days. Set your target between 3-7 days. Too aggressive leads to errors and burnout. Too relaxed signals poor internal controls and delays decision-making.
Your Complete Month-End Closing Checklist
A repeatable checklist prevents reinventing the wheel each month.
Transaction recording
- Record all outstanding bank and credit card transactions
- Finalize accounts receivable collections and customer payments
- Complete accounts payable and ensure vendor invoices are recorded
- Process payroll entries and tax withholdings
Reconciliation tasks
- Match bank statements to internal records
- Verify credit card statements against receipts
- Confirm inventory counts and valuations (if applicable)
- Review fixed asset schedules for additions or disposals
Period-end adjustments
- Book accrued expenses (utilities, interest, wages)
- Record prepaid expense amortization
- Calculate and book depreciation
- Adjust deferred revenue recognition
Financial close steps
- Close revenue accounts to Income Summary
- Close expense accounts to Income Summary
- Transfer Income Summary to Retained Earnings
- Close dividend accounts to Retained Earnings
Final review
- Generate financial statements (income statement, balance sheet, cash flow)
- Review statements for obvious errors or unusual variances
- Lock the accounting period to prevent changes
- Distribute reports to stakeholders
Clean Data: The Foundation of Fast Closes
You can’t achieve a smooth close with messy records.
Good record-keeping means bank transactions stay reconciled throughout the month, not just at close. It means processing invoices as they arrive instead of creating month-end backlogs. It means catching duplicate entries before they hit your close process.
Organizations using standardized charts of accounts close approximately two days faster than those without, according to APQC research. Why? Consistent naming and numbering eliminate confusion, reduce mapping errors, and speed up consolidation. This single change—which costs nothing—can save 24 days annually.
Some companies adopt continuous accounting practices, spreading close tasks throughout the month. AI-powered software can monitor transactions daily, flag anomalies immediately, and categorize expenses automatically. Even without fancy technology, simple habits like mid-month reconciliations cut close time by 30-40%.
Automation’s Real Impact on Your Close
Here’s where many companies leave serious money on the table.
Modern accounting software handles bank reconciliation automatically, matching hundreds of transactions in minutes instead of hours. AI categorizes expenses with 95%+ accuracy after learning your patterns. Journal entry templates eliminate repetitive manual work for depreciation and accruals.
The accuracy difference alone justifies automation. Docyt’s analysis shows automated data entry achieves 99.959% to 99.99% accuracy, while manual entry ranges from 96% to 99%. With 1,000 entries, automation produces one error while manual processes at 98% accuracy generate 20 errors.
CoreIntegrator documented how implementing AP automation dropped processing costs from $30 to $5 per invoice—an 83% reduction. For a company processing thousands of invoices annually, this delivered $250,000 in savings and paid for itself in three months.
Human judgment still matters for unusual items, policy decisions, and strategic analysis. Automation handles volume and repetition. Humans handle thinking and decision-making. Companies combining both close in 3-5 days while those relying purely on manual processes need 10-15 days.
Succeeding With Limited Resources
Running lean doesn’t mean accepting chaotic closes.
Create a clear sequence: reconcile bank first, then payroll, then AP/AR, then adjustments. This flow prevents bottlenecks and allows methodical progress without rework. When you’re the only person closing, automation becomes your virtual assistant. Bank feeds, expense categorization, and scheduled reconciliations handle heavy lifting automatically.
Cross-training provides essential backup. Teaching basic close procedures to another team member takes two hours but provides insurance when your bookkeeper gets sick. Build buffer time into your timeline—lean teams can’t absorb surprises. Target a 7-day close with 2-day buffer rather than an unrealistic 5-day target that creates panic.
How Clean Closes Transform Business Performance
This advantage separates growing companies from struggling ones.
Fast closes mean accurate financials by day 6, enabling strategic conversations while the month is still fresh. Compare that to 15-day closes where you’re making decisions on stale data. You spot revenue dips by week 2 of the following month, not week 3, allowing immediate course correction.
Clean closes reveal exactly where cash went—growth investments versus operational waste. This visibility proves critical for bootstrapped and venture-backed companies alike. Your historical data becomes reliable input for forecasting models, making projections trustworthy for both internal planning and investor discussions.
Companies closing by the 5th signal sophistication and control to stakeholders. Companies closing on the 20th signal chaos, regardless of eventual accuracy. This perception impacts funding rounds, credit applications, and strategic partnerships.
Final Thoughts
After two decades helping businesses transform their financial operations, I can say this with certainty: mastering your close process is one of the highest-return investments you’ll make. The companies thriving today aren’t just tracking numbers—they’re using clean, fast closes to outmaneuver competitors and make confident decisions.
Start with one improvement this month. Standardize your chart of accounts. Document your process. Set realistic deadlines. Small changes compound into massive efficiency gains over time. Your future self will thank you when you’re making strategic decisions on day 6 instead of still reconciling on day 15.
Ready to revolutionize your accounting close? The experts at Complete Controller have helped hundreds of businesses cut their close time in half while improving accuracy. Visit Complete Controller to discover how cloud-based financial services can transform your month-end from chaos to clarity.
Frequently Asked Questions About Closing an Accounting Period
How long should closing an accounting period take for a small business?
Small businesses should target 3-7 days for monthly closes. According to APQC benchmarking, top performers close in under 5 days while maintaining accuracy. The key is having standardized processes and avoiding month-end bottlenecks.
What happens if I don’t close my accounting periods properly?
Poor closing leads to unreliable financial statements, making business decisions risky. You’ll face audit complications, potential tax penalties, and investor confidence issues. Revenue and expenses can bleed between periods, destroying trend analysis and forecasting accuracy.
Can I close my books without an accountant?
Yes, with proper training and modern accounting software. However, complex transactions, year-end procedures, and tax implications often require professional expertise. Many businesses use bookkeepers for monthly closes and CPAs for quarterly reviews and year-end.
What’s the difference between a soft close and hard close?
A soft close involves most closing procedures but allows subsequent adjustments. A hard close locks the period completely, preventing any changes. Most businesses use soft closes monthly and hard closes quarterly or annually.
How do I know if my closing process needs improvement?
Warning signs include: taking over 10 days to close, finding frequent errors in prior periods, staff working excessive overtime during close, missing financial reporting deadlines, or stakeholders complaining about stale data. If any apply, your process needs optimization.
Sources
- Baker Tilly. (2019). Restatements: The Costly Result of an Error. https://www.bakertilly.com/insights/restatements-costly-result-of-error
- CFO.com. Metric of the Month: Cycle Time for Monthly Close. Wiggins, Perry D., CPA. https://www.cfo.com/news/metric-of-the-month-cycle-time-for-monthly-close/659297/
- Complete Controller. Accounting Cycle Closure. https://www.completecontroller.com/accounting-cycle-closure/
- Complete Controller. Accounting Innovations Trends. https://www.completecontroller.com/accounting-innovations-trends/
- Complete Controller. Importance of Reconciling Your Accounting Statements Regularly. https://www.completecontroller.com/importance-of-reconciling-your-accounting-statements-regularly/
- CoreIntegrator. The ROI of AP Automation – A Case Study. https://coreintegrator.com/the-roi-of-ap-automation-a-case-study/
- Docyt. Manual vs. Automated Month-End Close Process Comparison. https://docyt.com/article/comparing-manual-vs-automated-month-end-close-processes/
- FloQast. (2024). Market Study: The Role of Finance Automation in Reducing Stress and Retaining Talent in the DACH Region. Press Release, August 28, 2024. https://www.floqast.com/press-releases/dach-finance-accounting-trends-survey
- Investopedia. Closing Entries Process. https://www.investopedia.com/terms/c/closing-entry.asp
- IRS. Form 1099-MISC and Form 1099-NEC. https://www.irs.gov/forms-pubs/about-form-1099-misc
- SBA. Keep Records. Business Guide. https://www.sba.gov/business-guide/launch-your-business/pick-your-business-location
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
Brittany McMillen
Brittany McMillen