Accounting & Bookkeeping

How to close the books in accounting: a step-by-step guide

Bethany Mullinix
Content & SEO Lead

Closing the books in accounting isn't just about balancing numbers — it’s about ensuring your records are accurate, consistent, and complete. 

Closing your books requires close attention to detail and a careful process to maintain accuracy. It can feel like an overwhelming task, but it's essential for accurate financial reporting, especially for growing small businesses

In this guide, we’ll walk you through the essential steps of closing your books, why it’s important, and how to make the process smoother with accounting automation.

Why closing the books in accounting matters

Closing the books means finalizing your financial records for a specific period of time for your business – confirming balances, identifying and resolving inconsistencies, and producing a financial statement.

Whether you're preparing for month-end or year-end, following a clear process can help you maintain financial clarity.

Here’s why it’s essential:

  • Ensure accurate records – Identify and correct any discrepancies
  • Measure financial performance – Track revenue, expenses, and profitability.
  • Maintain regulatory compliance – Meet tax and reporting requirements
  • Give stakeholders clear data – Give investors, grantors, and lenders transparent insights
  • Start fresh for the next period Clear out temporary accounts for a clean slate.

When should I close my books?

Most businesses close their books within 20 to 30 days after the end of the reporting period. The frequency of closing can vary depending on your business size and needs:

  • Monthly: Ideal for small businesses that need frequent financial insights.
  • Quarterly: Common for companies preparing regular financial reports.
  • Annually: Useful for businesses with stable financial patterns, but we don’t recommend this for startups with fluctuating cash flow.

While monthly closing is common, real-time financial data can offer greater insights, especially for small businesses or nonprofits that can’t afford to wait a month to spot issues. Automated accounting tools can give you up-to-date insights without waiting for month-end.

You should be able to see real-time financial data that is up to 90% accurate with an AI-powered finance dashboard whenever you want.

How to close your accounting books

You have to carefully follow the right process to close your books in accounting. Not doing so can result in incorrect or incomplete data and a lot of wasted time trying to figure out why things aren’t balancing.

1. Review preliminary financial data

Gather your invoices, expenses, receipts, and sales data from the reporting period. Note any unusual occurrences, such as a big spike in expenses or dips in income, and record them in your general ledger.

Tip on using accounting software

Tip: Use accounting software to automatically pull transaction data from multiple sources, reducing the risk of missing entries.

2. Reconcile your accounts

Match the cash balances on your bank statements with your financial records. Any discrepancies between the two should be investigated and resolved. This step helps ensure that your reported cash on hand accurately reflects your actual balance.

For example: If your bank statement shows $5,000, but your ledger shows $4,950, review recent transactions to determine where the error happened..

3. Prepare a trial balance

After you’ve reconciled your bank accounts and accounted for all credits and debits, generate a trial balance to ensure that your total debits equal your total credits. If they don’t balance, trace back through recent transactions to identify the error.

4. Adjust your accounting journal entries

This is when you’ll record financial happenings that aren’t included in your everyday transactions, like accruals, deferred income, or outstanding invoices. These adjustments help account for transactions that didn’t automatically update during the reporting period. 

For example, you might record an accrual for services performed but not yet billed, or adjust for late-arriving invoices.

Once you make these adjustments,  you’ll make another trial balance. As long as everything equals out, you can move on to your next step. If not, it’s rinse and repeat until those numbers are equal.

5. Pull your financial statements

Once the trial balance is accurate, compile your key financial statements:

  • Balance Sheet: Shows your assets, liabilities, and equity.

  • Income Statement: Details your revenue and expenses.

  • Cash Flow Statement: Tracks cash movements in and out of your business.

This is another place where you can use software to automate statement generation, saving time and reducing manual errors.

6. Input closing entries

To officially close your books, you’ll need to input closing entries. Doing so lets you zero out your accounting balances and transition your temporary records to permanent ones that are formally considered in your business’ finances. Closing entries ensure that your income and expenses don’t carry over into the next period, giving you a clean slate.

7. Use the reports to inform decisions 

One of the main objectives in closing your books in accounting is to get definitive insight into your financial operations and use that data to make strategic decisions.

Based on what you see at the end of the reporting period, identify areas that are doing well, where you need to make improvements, and what you’ll need to do to make adjustments to get to a place you’re happy with.

As you get ready to close your books, there are a few things you’ll want to keep in mind to streamline the process and get the most accurate data possible.

Our best practices for closing the books

As an outsourced accounting firm, we’ve helped tons of clients get the financial data they need to run their small businesses efficiently and effectively. These are some bits of sage wisdom we can offer after going through the process countless times.

1. Automate your processes 

Manually tracking every transaction increases the risk of errors and delays. Automate as much as possible with accounting software that integrates with your bank accounts and payment platforms. This will help ensure accuracy and save time during the closing process.

Accounting software and automation tools connect your various financial platforms to record various transactions, reconcile accounts, and provide insights into your expenses and overall finances. 

2. Give yourself plenty of time

Don’t wait until the end of the month to start reconciliation. Perform weekly or biweekly reconciliations to catch discrepancies early.

Especially if you’re managing multiple accounts, give yourself plenty of time to find and reconcile errors when closing your books. The last thing you’ll want is to be against the clock as you rush to resolve errors.

3. Use real-time finance dashboards

As a small business, you need to be able to know the state of your finances at any given moment—something closing your books each month doesn’t really allow for.

You’re much better off using real-time accounting software to drastically increase your financial visibility and get deep, actionable analysis into your money. Only with that level of insight can you truly use your financial data to scale your operations and grow your business.

Recommended Tool: Try Hiline + Digits to get 90% accurate financial insights updated every five minutes.

4. Keep detailed documentation

Maintain well-organized records of all transactions, including receipts, invoices, and bank statements. This makes reconciliation much easier when closing the books.

Hot tip on creating an accounting checklist

Tip: Create a standardized accounting close checklist for each closing period to ensure no steps are missed.

How automation makes closing the books easier

Traditional methods of closing the books can be labor-intensive and prone to errors. Automating your accounting processes reduces manual work, minimizes errors, and gives you faster, more accurate insights.

Benefits of Automation:

  • Eliminates manual data entry
  • Reduces human errors in reconciliation
  • Provides instant access to updated financial data
  • Generates reports at the click of a button

By integrating tools like Hiline and Digits, your business can streamline the closing process and access actionable insights whenever needed.

Monthly insights are good. Real-time finance data is better.

Closing the books in accounting doesn’t have to be daunting. By following a structured process, automating key tasks, and maintaining accurate records, you can simplify the entire process and ensure your financial data is reliable.

Whether you’re closing the books monthly, quarterly, or annually, remember that the goal is to gain insights that help you make smarter business decisions. But as a small business, you need access to accurate financial data now, not a month after the fact.. Hiline and Digits give you that visibility with 90% accurate daily insights.

Ready to simplify your monthly closing process? See how Hiline and Digits can help you achieve real-time financial insights. Learn more today!

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