Chapter 12
Closing the Books
What Is “Closing the Books”?
Closing the books refers to the process of summarizing subsidiary journals, transferring their totals into the general ledger, adding adjusting entries as needed, and producing financial statements. You close the books at the end of every accounting period. There are many steps in the closing process, so it makes sense to begin some closing activities prior to the end of a reporting period, and complete the process a few days after the accounting period.
What Is Included in a Closing Checklist?
The following table includes the essential activities normally used to close the books:
| PRIOR TO MONTH-END: | DURING CORE CLOSING PERIOD: |
| Review subledger transactions | Ensure inventory cutoff |
| Reconcile bank accounts | Count and value inventory |
| Update obsolete inventory reserve | Complete employee time records |
| Update bad debt reserve | Enter late supplier invoices |
| Update sales returns reserve | Complete customer invoicing |
| Determine lower of cost or market | Accrue revenue for unbilled jobs |
| Bill recurring invoices | Accrue commissions |
| Review rebillable expenses | Accrue royalties |
| Review billable hours | Review preliminary financial statements |
| Accrue interest expense | Adjust errors |
| Accrue unpaid wages | Finalize and issue financial statements |
| Reconcile asset and liability accounts | |
| Calculate depreciation | DEFERRED ACTIVITIES: |
| Review financial statements for errors | Defer mailing of invoices |
| Complete supporting reports in advance ... |
