The Importance of Month-End Close for Churches

The month-end close process is an important and critical accounting function for churches, but many bookkeepers may be confused about why it is important and what tasks are involved. In general terms, the month-end close process ensures the financial records are accurate, complete, and up-to-date. 

The closing process involves performing a series of tasks to finalize the financial activities of the month, which helps ensure accurate financial reports so that church leadership can use the reports to review financial activity, analyze trends, and make sound financial decisions.

 

Purpose of the Month-End Close
Also called “closing the books” the month-end close process allows churches to produce timely financial statements that reflect their financial position and performance. A regular and complete closing process provide the following benefits:

• Financial Accuracy: The closing process ensures that all transactions for the month have been recorded correctly and that the financial statements are free from errors. This also helps comply with state regulatory requirements and provides confidence to donors and other stakeholders. 
• Performance Analysis: The closing process allows leadership to analyze the financial health of the church, identify trends, and make informed decisions.
• Budgeting and Forecasting: The closing process helps provide a solid foundation for future budgeting and forecasting activities.

Key Tasks Involved in the Month-End Close
The month-end close process for churches involves several critical tasks that must be performed to ensure the integrity of financial data. These tasks can be broadly categorized into the following steps:

1. Data Collection
• Collecting all financial data, including donations, receipts, bank statements, investment statements, mortgage and loan statements, and other relevant documents.

 

2. Transaction Recording
• Ensuring that all financial transactions (income and expenses) for the month have been accurately recorded in the accounting system and properly categorized.

Key Point: Missing or incomplete data can hinder the ability to reconcile accounts and prepare accurate financial statements.

 

3. Reconciliations
• Reconciling donations received with bank deposits and accounting records to ensure all donations are accurately recorded and accounted for.
• Reconciling payroll records with bank statements and accounting records to ensure all payroll expenses are accurately recorded and any discrepancies are addressed.
• Reconciling bank statements with the church’s accounting records to identify and resolve any discrepancies between the bank statements and the church’s books.

Key Point: Reconciliations that are not completed promptly can cause significant delays in the month-end close.

 

4. Review of Restricted Funds
• Reviewing temporarily restricted net assets to ensure that funds designated for specific purposes are used appropriately and recorded accurately. 

 

5. Fixed Asset Management
• Updating and reconciling the fixed asset register to ensure all fixed assets are accurately recorded and depreciated as necessary.

 

6. Journal Entries
• Making journal entries to record and adjust specific financial activity like allocating expenses, recording prepaid expenses or recording investment and dividend income. 

 

7. Documentation and Record-Keeping
• Ensuring that all financial records and supporting documents are properly maintained and stored for future reference or audit purposes.

 

8. Preparing Financial Statements
• Preparing the income statement to summarize the church’s revenues and expenses for the month.
• Preparing the balance sheet to provide a snapshot of the church’s financial position at the end of the month.
• Preparing the cash flow statement to show the church’s cash inflows and outflows during the month.

Key Point: Keep it simple. The need for overly detailed financial reports can slow down the closing process.

 

9. Analyzing Financial Performance
• Reviewing actual financial activity with budgeted expectations to identify and investigate variances. 
• Calculating key performance metrics like attendance, net profit, and fund balances to evaluate the church’s financial health.

10. Reporting and Communication
• Providing financial reports to internal stakeholders (i.e. church leadership and finance committees) and external stakeholders (i.e. church members and donors).
• Obtaining approval from church leadership for the finalized financial statements.

 

Best Practices for an Efficient Month-End Close
To help create an efficient and effective month-end close process, church bookkeepers can create standardized procedures and checklists to ensure consistency and accuracy. Without clearly defined procedures, accounting teams may struggle to know what tasks need to be completed and in what order. 

 

Additionally, consider leveraging accounting software and automation tools to streamline repetitive tasks and reduce the risk of errors. Relying heavily on manual processes can increase the risk of errors and inefficiencies. 

Lastly, maintaining open communication with church leadership, accounting staff, and other team leads can help ensure a smooth and efficient close process. Poor communication within the accounting team or with other departments can lead to misunderstandings and delays.

Conclusion
The month-end close process is a vital element in the accounting cycle for churches, ensuring that financial records are accurate, complete, and up-to-date. These critical tasks, to include data collection and entry, reconciliations, journal entries and analysis, helps bookkeepers provide accurate financial information for church leadership. These reliable financial reports help key stakeholders like board members and leaders make informed decisions and help contribute to the overall financial health and success of the church.