A month end close is a fixed checklist, worked through in the same order each month, that makes sure every transaction for the month is recorded, every balance sheet account is reconciled and the profit figure is reviewed before anyone relies on it. For a small business it can usually be done in three to five working days. The aim is not perfection but figures reliable enough to make decisions on, with the same routine making the year end far easier.

Why bother closing the books every month?

Company law already expects records to be current. Section 386 of the Companies Act 2006 requires adequate accounting records, meaning records sufficient to show and explain the company’s transactions and to disclose with reasonable accuracy, at any time, the financial position of the company at that time. Records that are only brought up to date once a year struggle to meet that test.

The practical reasons are stronger. Errors are easier to find when they are a few weeks old. Cash problems show up in the debtors and creditors figures before they show up in the bank. And the VAT return and payroll deadlines fall every month or quarter whether the books are ready or not. HMRC’s VAT record keeping notice (Notice 700/21) asks that VAT records are complete and up to date and allow you to calculate the VAT you owe or can claim.

What should be in place before the month ends?

  • Cut off rules. Decide what belongs in the month: sales invoiced when goods are dispatched or work is complete, costs recorded when goods or services are received rather than when the invoice arrives.
  • A close calendar. A one page timetable showing each task, who does it and on which working day.
  • Standard journals. Templates for recurring entries such as depreciation, prepayment releases and payroll so they are posted the same way each month.
  • A reconciliation list. Every balance sheet account, with the document that supports it.

What is a practical close timetable?

Illustration only. A small company with a bookkeeper, a part time finance manager and a director might work to this pattern:

Working day Task Output
1 Raise final sales invoices for the month; post all purchase invoices received; post the payroll journal Complete sales and purchase ledgers
1 to 2 Reconcile every bank, card and loan account to statements Signed bank reconciliations
2 Review the aged debtors and aged creditors reports; reconcile key supplier statements List of disputes and items to chase
3 Post accruals, prepayments, depreciation and stock adjustment Month end journals with workings
3 Reconcile VAT, PAYE and pension control accounts Control account reconciliations
4 Review the trial balance and profit and loss against budget and last month Variance notes
5 Issue management accounts; lock the period in the software Management pack

The order follows the flow of information: you cannot review margins until sales and costs are complete, and you cannot reconcile debtors until cash receipts have been posted from the bank.

Which reconciliations are essential every month?

Each reconciliation compares a ledger balance with independent evidence:

  • Bank and cards. Ledger to statement, with uncleared items listed and dated. See bank reconciliation explained.
  • Sales ledger. Aged debtors report total to the debtors control account, with overdue items reviewed. See credit control and the aged debtors report.
  • Purchase ledger. Aged creditors total to the creditors control account, plus statements for major suppliers. See reconciling supplier statements.
  • VAT. The VAT control account should equal the amount due for periods not yet paid. Differences usually mean a payment posted to the wrong account or a journal posted with the wrong tax code.
  • Payroll liabilities. PAYE, National Insurance and pension balances should equal the latest month’s liability awaiting payment. See payroll journals.
  • Accruals and prepayments. Each balance supported by a schedule showing what it is and when it will reverse. See accruals and prepayments.
  • Loans, fixed assets and directors’ accounts. Lender statements, the fixed asset register and an analysis of the director’s loan account.

A balance with no reconciliation behind it is a balance nobody has checked.

How do the close and the tax deadlines fit together?

The close should be timed so that the tax filings use reconciled figures:

  • Payroll. GOV.UK guidance says the Full Payment Submission must be sent on or before the employees’ payday, so payroll runs before the month end close, not as part of it. The PAYE bill must reach HMRC by the 22nd of the next tax month if paying monthly by an electronic method, or the 19th if paying by cheque through the post.
  • VAT. The deadline for submitting a VAT return online, and for payment, is usually one calendar month and 7 days after the end of the VAT period. Closing the last month of the quarter within five working days leaves time to review the return before it is filed.
  • Digital records. Under Making Tax Digital for VAT, Notice 700/21 requires the electronic account to be kept in functional compatible software, and any transfer of data between software products must be by a digital link; copy and paste is not a digital link. Month end adjustments made in a spreadsheet therefore have to reach the VAT return by an acceptable route. See Making Tax Digital for VAT.

How should the figures be reviewed before they are used?

Once the reconciliations are done, review the trial balance and the profit and loss account as a whole:

  1. Compare each line with last month, the same month last year and the budget. Any movement you cannot explain in a sentence needs investigating.
  2. Check the gross margin percentage. A sudden change is usually a cut off error: sales recorded without the related costs, or the reverse.
  3. Look for accounts that should be zero, such as suspense, wages control and bank transfers between accounts, and clear them.
  4. Look for balances on the wrong side, such as a credit balance on a debtor or a debit balance on an accrual.
  5. Lock the period in the software once the figures are issued, so later postings go into the current month with a clear audit trail.

Illustration only. A firm’s gross margin is normally around 40%, but this month’s management accounts show 52%. The review finds that a supplier invoice for £6,000 of materials used in the month has not arrived. Posting it as an accrual brings the margin back to the expected level and stops the business overstating profit by £6,000.

What should the management pack contain?

For most small businesses a short pack works best: a profit and loss account against budget and last year; a balance sheet; a cash position and a short forecast; aged debtors and creditors headlines; and a few lines explaining the main variances. The trial balance sits behind it for anyone who wants detail. Consistency is more useful than volume: the same layout each month makes trends obvious.

What mistakes come up most often?

  • Cash basis by accident. Recording costs when invoices are paid rather than when goods are received makes monthly profit swing with payment timing.
  • Reopening closed months. Posting into a month already reported changes figures people have relied on and hides errors.
  • Reconciling the bank but nothing else. The bank can agree perfectly while debtors, creditors and VAT are wrong.
  • No supporting schedules. An accrual with no workings cannot be reviewed or reversed properly next month.
  • Leaving the director’s loan account to the year end. Personal payments through the business are easier to identify and agree monthly than in a single annual exercise.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.