Closing the books: reconciliations, cutoff, accruals, prepaids, and locking the period

A reconciliation proves what a balance represents. For a bank account, it ties to the statement. For receivables and payables, it ties to the aging reports. For loans, it ties to the lender's statement. For payroll liabilities, it ties to the provider's reports and the returns. For prepaid and fixed assets, it ties to a schedule.

Write who prepared it, who reviewed it, and when, so the work can be checked. An account with no support is a guess waiting to be found.

Suspense, or ask-my-accountant accounts, hold transactions nobody could classify. Each should be resolved by finding the document, asking the person who made the payment, or deciding how to record it with a note. A suspense balance that grows signals a process problem, such as receipts not reaching the bookkeeper.

If you received goods or services in the month but have not been billed, record an accrued expense so the month bears the cost. Typical examples are utilities, professional fees, and contractor work. Reverse the accrual when the bill is entered so it is not counted twice.

When you pay for something that covers future months, such as annual insurance or software, record it as a prepaid asset and expense it evenly over the period. Keep a schedule showing the start, end, and monthly amount, and check it each close.

A materiality threshold is the size of an error that would change a decision. Setting one, such as a dollar amount or a share of revenue, tells you when precision is worth the effort and when to move on. Write it down and apply it consistently, and revisit it as the business grows.

When the month is reviewed and final, lock it in the accounting system so entries cannot change silently. If an adjustment is needed later, make it in an open period with a note, or reopen the period with approval and record why. A lock turns the close into a point in time you can trust.