Did you ever wonder why the accounting department seems to go into a funk at the end of the year? Well, I can tell you from experience – the holidays are over, and they are jealous of the co-workers jetting off on tropical beach vacations while they are stuck back at the office working to close the books on the year.
More often than not, the process is tedious and time-consuming but over the years, I have learned some strategies to help reduce the stress associated with closing the books. Here are some of the most important tips that I share with customers on a daily basis:
- Start now! You should never wait until the end of the fiscal year to start preparing to close the books and in an ideal world, you should already be working towards it on the first day of the fiscal year.
- Ensure you have a monthly reconciliation for your ledgers to sub-ledgers.
- Ensure you have reconciled all your bank accounts.
- Review accounts monthly and question any and all large entries. You should pay attention to your variance accounts, such as PPV and material expense accounts.
- Review your file (hopefully you have one) that has the back up needed for the auditor’s questions.
- Review the auditor’s comments from last year. You know, the one that has been on your desk all year and keeps getting moved from pile to pile.
- Plan your year-end cutoff timelines. Be sure to include production, shipping, invoicing, and AP cutoffs.
I am sure many of you are thinking, “this is all common sense.” And you are correct. However, I can’t tell you how often these things don’t get accomplished. Many times, when we are implementing a customer, we find out they don’t reconcile their accounts because of various different reasons. Sometimes their software system makes it too difficult to get the information. Perhaps the person they need to talk to about a transaction is out of the office. Or maybe they get pulled into another fire and never get back to the original issue. No matter the reason, we cannot stress the importance of these strategies enough in simplifying the closing of the books.
The dreaded physical inventory.
A poorly executed inventory is the bane of every accounting department’s year-end. A lot of people think, “What’s the big deal with a physical inventory – all you do is count the product.” I have conducted many inventories over the course of my career and it always surprised me how many times two people would count the same location and come up with different answers. I am sure some of you are nodding your head in agreement. You should have a detailed plan that includes the following:
- Cut-off dates for shipping, receiving, and production.
- A freeze of shipping, receiving, or production activity during physical inventory.
- A plan for how to handle an emergency order that needs to be received, shipped or produced during the physical inventory count. No matter how much we plan, these emergencies always seem to come up.
- A standard unit of measure will be used. This is often the culprit of varying counts for the same item.
- Elimination or reduction of the amount of inventory in WIP.
How can DEACOM Help?
Although each industry or company is different, it typically takes companies six weeks to close the books on a fiscal year. Deacom customers often see a significant reduction down to only two to three weeks as a result of the software’s reporting capabilities.
To explain how this is possible, let’s review some of the strategies we talked about earlier:
- Reconcile sub-ledgers to ledgers on a monthly – DEACOM has system-generated reports that reconcile AR, AP, and Inventory on a daily basis. So, reconciling sub-ledgers and ledgers is as easy as the click of a button and can be done as often as needed. These reports are in balance 99.9% of the time, but if they are not in agreement, we are able to narrow it down to the day it went out of balance.
- Reconcile your bank accounts. If you receive a flat-file (CSV or Excel) that recorded a list of all cleared checks from the bank, DEACOM is able to take it and automatically clear these checks through the bank reconciliation process. I recommend doing this on a monthly basis at a minimum.
- Review accounts monthly and question any and all large entries. Previews can be created in the ERP system to show large variances for receiving, shipping, and production. These can be reviewed daily, so you are able to question and make corrections instantly before they become a bigger problem.
- Create a file that has the backup needed for the auditor’s questions. You can attach documents to transactions in DEACOM allowing you to have the backup needed for the auditors.
- Institute cycle count process to eliminate physical inventories. DEACOM has a cycle counting functionality which creates a more up-to-date and accurate view of inventory throughout the year.
Although no strategy can remove all the extra work and stress of closing the books, hopefully, some of these suggestions will help you make it an easier process and get to enjoy your own tropical, beach vacation faster. I highly recommend The Cayman Islands!