The monthly accounting close process for a nonprofit organization involves a series of steps to ensure accurate and up-to-date financial records. This process ensures that financial statements are prepared, reviewed, and approved, allowing the organization’s management and stakeholders to have a clear understanding of its financial health. Here’s a detailed breakdown of the typical monthly accounting close process for a nonprofit:
- Pre-Close Activities:
- Review Transaction Documentation: Review all financial transactions that occurred during the month, including receipts, invoices, expense reports, and bank statements. Ensure that all documentation is complete and accurate.
- Recording Transactions:
- Journal Entries: Record any necessary journal entries to accurately reflect revenue recognition, expense allocation, and other financial activities. This includes recording grants, donations, membership fees, program expenses, and administrative expenses.
- Bank Reconciliation: Reconcile the nonprofit’s bank statements with the organization’s internal records to identify and rectify any discrepancies. This process helps identify any missing transactions or errors in recording.
- Expense Allocations:
- Allocate Expenses: If the nonprofit has shared expenses across multiple programs or departments, allocate these expenses appropriately to ensure accurate reporting of each program’s financial performance.
- Revenue Recognition:
- Grant and Donation Recognition: Review and confirm that all grants, donations, and other sources of revenue have been correctly recognized in accordance with generally accepted accounting principles (GAAP) or relevant accounting standards.
- Accruals and Deferrals:
- Accruals: Record any expenses or revenues that have been incurred but not yet recorded. This may include expenses like salaries, interest, or utilities that relate to the current month but will be paid in the following month.
- Deferrals: If applicable, defer the recognition of revenue or expenses that pertain to future periods.
- Financial Statement Preparation:
- Trial Balance: Generate a trial balance to ensure that all accounts are in balance. This includes comparing total debits to total credits.
- Financial Statements: Prepare key financial statements, including the income statement (statement of activities), balance sheet (statement of financial position), and statement of cash flows. These statements provide a comprehensive view of the nonprofit’s financial performance, position, and liquidity.
- Review and Analysis:
- Financial Statement Review: Review the financial statements to ensure accuracy and completeness. Analyze trends and fluctuations in revenues and expenses.
- Variance Analysis: Compare current month’s financial results to budgeted figures and prior months’ results. Investigate significant variances and document explanations.
- Approval and Sign-Off:
- Management Review: Have the financial statements and related reports reviewed by management to ensure accuracy and completeness.
- Board Approval: If required, present the financial statements to the board of directors for approval.
- Close Checklist: Maintain a checklist detailing all the steps performed during the monthly close process. This helps ensure consistency and accountability in the process.
- Document Retention: Store all financial documents, records, and reports in a secure and organized manner for future reference and potential audits.
- Financial Reporting: Distribute the finalized financial statements and reports to relevant stakeholders, such as management, board members, donors, and other interested parties.
- Post-Close Review:
- Lessons Learned: Conduct a post-close review to identify any challenges or issues faced during the close process. Implement improvements for the next month’s close.
Creating a Monthly Accounting Close Checklist
Remember that the specific steps and details of the monthly accounting close process may vary depending on the nonprofit’s size, complexity, industry, and any regulatory requirements. It’s crucial to follow established accounting standards and internal controls to ensure the accuracy and integrity of the financial information.
This checklist serves as a foundational guide for nonprofit organizations to navigate the essential steps involved in the monthly accounting close process. While this checklist provides a comprehensive overview of the tasks typically undertaken during the close, it’s important to recognize that each nonprofit’s financial operations are unique.
Nonprofit organizations vary in size, structure, and industry focus, which inevitably leads to specific accounting requirements and reporting nuances. Therefore, while this checklist outlines key steps, it’s crucial for each nonprofit to tailor and expand upon it to align with their individual needs, regulatory obligations, and internal procedures.
The monthly accounting close process is a vital aspect of maintaining accurate financial records and ensuring transparent reporting to stakeholders. By utilizing this checklist as a starting point, nonprofit organizations can establish a systematic approach to their financial close, facilitating efficient and accurate reporting while adhering to the principles of accountability and transparency.
Nonprofit Monthly Accounting Close Checklist
- Review transaction documentation for accuracy and completeness.
- Ensure all invoices, receipts, expense reports, and bank statements are collected.
- Record necessary journal entries for revenue recognition, expense allocation, and adjustments.
- Reconcile bank statements with internal records.
- Identify and address any discrepancies.
- Allocate shared expenses to relevant programs or departments.
- Confirm accurate recognition of grants, donations, and other revenue sources.
Accruals and Deferrals:
- Record accruals for expenses or revenue items applicable to this period.
- Record deferrals for expenses or revenue items applicable to future periods.
Financial Statement Preparation:
- Generate trial balance to ensure debits and credits are balanced.
- Prepare income statement, balance sheet, and statement of cash flows.
Review and Analysis:
- Review financial statements for accuracy and completeness.
- Analyze trends, fluctuations, and variances.
- Compare results to budgeted figures and previous months’ performance.
Approval and Sign-Off:
- Management review of financial statements and reports.
- Board approval, if required.
- Maintain close checklist detailing all completed steps.
- Organize and store financial documents and records.
- Distribute finalized financial statements to relevant stakeholders.
- Conduct post-close review to identify process challenges and improvements.
- Implement improvements for the next month’s close.
Please note that this checklist is intended to be a general guide. Depending on the complexity of the nonprofit’s operations and reporting requirements, you may need to customize and expand upon this checklist to include additional steps specific to your organization’s needs.