Week 13 — Month-End Closing

Overview

Week Overview

Week 13 introduces the month-end close process — the recurring cycle where the accounting team finalizes the books for a period. Students learn how all daily bookkeeping activities (AP, AR, cash, payroll, inventory, fixed assets) come together at month-end through reconciliations, accruals, prepaids, and adjusting entries to produce a clean trial balance.

Objectives

Weekly Learning Objectives

By the end of this week, students will be able to:

Describe the overall purpose and major steps of the month-end close.
Explain the difference between cash basis and accrual basis accounting.
Identify when accruals and prepaid expenses are needed at month-end.
Prepare and interpret basic adjusting journal entries (AJEs).
Assist with key reconciliations (bank, AR, AP, payroll, selected GL accounts).
Perform a simple trial balance review to spot obvious errors or omissions.
Prepare simple schedules for prepaids, accruals, and other key balances.
Communicate open items and unresolved issues to supervisors during close.

Concept 1

Purpose of the Month-End Close

The month-end close process helps ensure that:

All revenues and expenses are recorded in the correct period.
Account balances are complete and accurate.
The trial balance is ready for financial statement preparation.
Errors, missing entries, and unusual balances are identified and corrected.

Key idea: Month-end close is about cutoff, completeness, and accuracy.

Concept 2

Cash Basis vs. Accrual Basis Accounting

Cash basis: Records revenue when cash is received and expenses when cash is paid.

Accrual basis: Records revenue when earned and expenses when incurred, regardless of cash timing.

At month-end, bookkeepers help ensure that the organization’s books reflect accrual-basis accounting by identifying and recording accruals and prepaids through adjusting entries.

Concept 3

Accruals — Expenses & Revenues

Expense accruals occur when the company has used goods or services but has not yet received or recorded the bill.

Example: Utilities used in June, bill received in July.

Utilities Expense ........................ Dr XXX
    Accrued Liabilities (or Utilities Payable) ... Cr XXX

Revenue accruals occur when goods or services have been delivered but no invoice has been issued by month-end.

Students practice identifying transactions that require accruals and drafting corresponding adjusting entries.

Concept 4

Prepaid Expenses

Prepaid expenses are payments made in advance for benefits that span future periods, such as insurance, rent, or software subscriptions.

Example: Pay a 12-month insurance premium of 12,000 on January 1.

At payment:

Prepaid Insurance ....................... Dr 12,000
    Cash ...................................... Cr 12,000

Monthly adjusting entry:

Insurance Expense ........................ Dr 1,000
    Prepaid Insurance ........................... Cr 1,000

Students build a prepaid schedule showing beginning balance, additions, expense recognized, and ending balance.

Concept 5

Adjusting Journal Entries (AJEs)

Common types of AJEs include:

Accruals (wages, utilities, interest, taxes).
Prepaid expense amortization.
Depreciation (linking back to fixed assets in Week 10).
Inventory or cost adjustments, if applicable.
Reclassifications (moving amounts to correct accounts).

Each adjusting entry should be supported by a calculation, schedule, or other documentation and reviewed/approved before posting.

Concept 6

Key Month-End Reconciliations

Bookkeepers help prepare and/or support reconciliations that compare account balances in the general ledger to independent records or subledgers:

Bank reconciliations (cash per books vs. bank statement).
Accounts Receivable aging vs. AR control account.
Accounts Payable aging vs. AP control account.
Payroll liabilities (taxes and withholdings) vs. amounts due/paid.
Credit card and petty cash reconciliations.
Selected balance sheet accounts such as prepaids, accruals, loans, and fixed assets.

Students learn that reconciling items (like outstanding checks or deposits in transit) must be identified, documented, and monitored.

Concept 7

Trial Balance Review

After adjustments, the trial balance is reviewed for unusual balances and obvious errors. Students learn to scan for:

Negative balances in accounts that are normally positive (e.g., negative expense).
Debit balances in liability accounts or credit balances in asset accounts.
Suspense or “ask my accountant” accounts with large amounts.
Key revenue or expense accounts with zero activity that should have transactions.

Bookkeepers flag unusual balances for further investigation and ensure that necessary schedules and reconciliations tie to the trial balance.

Concept 8

Month-End Close Checklist & Timeline

Students review a sample month-end checklist that outlines responsibilities and deadlines. Examples of checklist items include:

Enter all vendor bills and customer invoices for the period.
Cut off and post cash receipts and disbursements for the month.
Perform bank and credit card reconciliations.
Update prepaid and accrual schedules and post AJEs.
Review and update fixed asset and depreciation schedules, if applicable.
Re-run and review the trial balance after adjustments.
Prepare and deliver summary schedules and an open items list to the supervisor.

Emphasis is placed on consistency, deadlines, and documentation to keep the close efficient and reliable.

Activities

In-Class Activities

1. Cash vs. Accrual Sorting

Students analyze a list of cash receipts/payments and related service dates to determine which items require accruals to reflect accrual-basis accounting for the month.

2. Prepaid Schedule Exercise

Using example payments for insurance and rent, students build a prepaid schedule and calculate the current month’s expense and ending prepaid balances.

3. Adjusting Entry Lab

Students work through short scenarios (late utility bill, unpaid wages, prepaid software) and prepare the related adjusting journal entries with correct debits and credits.

4. Trial Balance Error Hunt

Students are given a “messy” trial balance and asked to identify unusual balances, missing activity, and accounts that may need adjusting or reclassification.

Homework

Homework Assignments

Assignment 1: Accruals worksheet — identify which events require accruals and draft the adjusting entries.
Assignment 2: Prepaids & depreciation schedules — build simple schedules and determine monthly expense and ending balances.
Assignment 3: Bank reconciliation practice — complete a simplified bank reconciliation using a bank statement and GL cash balance.
Assignment 4: Trial balance cleanup — review a sample trial balance, mark issues, and propose possible corrections.

Discussion

Discussion Board Prompt

Why do organizations invest so much time and effort into month-end close? What are the risks of skipping accruals, prepaids, or reconciliations and simply relying on cash-basis information?

Quiz

Quiz Topics for Week 13

Purpose and main steps of the month-end close process.
Differences between cash basis and accrual basis accounting.
Examples of expense and revenue accruals.
Prepaid expense handling and monthly amortization.
Reasons for and types of adjusting journal entries.
Basic reconciliation concepts (bank, AR, AP, payroll).
How to review a trial balance for obvious errors.
The bookkeeper’s role in supporting a timely, accurate close.

Summary

Week 13 Summary

Week 13 shows how daily bookkeeping activities feed into the month-end close. By understanding accruals, prepaids, adjusting entries, reconciliations, and trial balance review, students are prepared to support a clean, efficient close process and contribute to accurate financial reporting.

These skills align directly with real-world accounting roles, where the ability to assist with month-end close is a core responsibility for bookkeepers and staff accountants.