Definition
An accounting close involves the preparation of a company's financial statements for a period, for example, monthly, quarterly, or yearly. Under this process, all of the company's financial transactions for the period are recorded by calculations. The results are then summarized and recorded as financial statements. Accounting close is critical for businesses to ensure the financial statements accurately reflect the business performance for the period.
Example
An accounting close process commonly entails: a) Collecting information like accrued expenses, inventory count, and general ledger; b) Cross-checking records; c) Accounts reconciliation; d) Drafting and finalizing financial statements; e) Final review and sign-off by management
Why it matters
Accounting close is essential for any business since it gives a clear picture of the company's financial state and highlights what areas need improvement. It allows businesses to take better financial decisions and keep the business tax-ready.In a nutshell, accounting close is important as it:a. Ensures accuracy in financial statementsb. Makes tax filing easierc. Helps businesses to be audit-readyd. Allows stakeholders to get a clear snapshot of the company's financial conditione. Prevents businesses from making future accounting errors