Closing the month means making sure every transaction of the month is in the books, correct and checked, before you look at the results. Without it, the profit figure is a guess, the GST return is built on incomplete data, and problems from October are found in February.
A small trader can close a month in half a day. A manufacturer with 50 staff might take three to five working days. The steps are the same.
Before you start: set dates
- Cut-off
- the last day of the month. Everything up to and including that date belongs to this month.
- Close date
- when the books for the month are final. Many firms aim for the 5th to 7th of the next month.
- Who does what
- write it down, even if it is two people.
Section 1Sales
- [ ] Every invoice for goods dispatched or services delivered in the month is raised.
- [ ] Invoice numbers run in an unbroken series, with cancelled invoices marked as cancelled.
- [ ] Credit notes for returns and rate differences are issued.
- [ ] Customer GSTINs and places of supply are correct on B2B invoices.
- [ ] Any delivery challans without an invoice are checked: goods on approval, job work or not yet billed.
Section 2Purchases
- [ ] Every supplier bill for goods received in the month is entered.
- [ ] Bills are matched to purchase orders and goods received. See three-way matching.
- [ ] Goods received without a bill are listed, so you know what is owed.
- [ ] Expense bills, such as transport, repairs and professional fees, are entered.
Section 3Bank and cash
- [ ] Every bank account is reconciled with the bank statement. Each entry in the statement is matched to an entry in your books.
- [ ] UPI receipts are matched to customers and invoices.
- [ ] Bank charges and interest are entered.
- [ ] Cash in hand is counted and agrees with the cash book.
- [ ] Unexplained receipts are listed for follow-up.
The bank reconciliation is the step most often skipped and the one that finds the most errors: payments recorded twice, customer receipts entered against the wrong name, cheques that bounced.
Section 4Customers and suppliers
- [ ] Customer balances are reviewed. Large or old balances are checked.
- [ ] Advances received are set against invoices where the goods or services have been delivered.
- [ ] Supplier balances are reviewed, especially for your top ten suppliers.
- [ ] Statements from large suppliers are checked against your books.
Section 5Stock
- [ ] Stock movements for the month are complete: purchases, sales, returns, transfers between godowns and issues to production.
- [ ] High-value items are counted. See stock counting.
- [ ] Damaged and expired stock is noted.
- [ ] Goods with job workers are confirmed.
Section 6Staff costs
- [ ] Attendance for the month is final.
- [ ] Salaries and wages are calculated and paid on time. Monthly wages are due before the seventh day of the next month under the Code on Wages.
- [ ] Wage slips are issued. See salary slip basics.
- [ ] PF and ESI contributions are worked out for payment by the 15th of the next month.
- [ ] Salary advances and loans to staff are recorded.
Section 7Tax
- [ ] The GST summary for the month is checked: output tax on sales, input credit on purchases.
- [ ] Input credit is checked against what your suppliers have reported, before you claim it.
- [ ] GSTR-1 data is ready from the month's invoices.
- [ ] TDS deducted on payments, such as rent, contractor payments and professional fees, is worked out for deposit.
Your CA will confirm the due dates that apply to you. Missing them brings late fees and interest.
Section 8Adjustments
- [ ] Expenses that belong to the month but have no bill yet, such as the power bill, are estimated and recorded if you prepare monthly accounts.
- [ ] Prepaid expenses, such as an annual insurance premium, are spread over the months they cover.
- [ ] Depreciation on machinery, vehicles and computers is recorded, if you do monthly accounts.
Small businesses that prepare accounts only at year end can skip most adjustments monthly, but should still do steps 1 to 7.
Common month-end problems
- Invoices raised in the next month for goods sent this month
- Sales and stock for both months are then wrong. Bill on the day of dispatch.
- Supplier bills arriving late
- Ask key suppliers to send bills by the 2nd. Record goods received without bills, so the cost is known.
- Unmatched UPI receipts
- Money that cannot be traced to a customer sits as a mystery. Clear the list every week, so month end has only a few left.
- Entries changed after the GST return is filed
- The books then differ from what was reported. Lock the month.
Section 9Check and lock
- [ ] The list of all account balances is reviewed for anything odd: a negative cash balance, a supplier with a debit balance, an expense head far above normal.
- [ ] The month is locked so that nobody changes entries in a closed month without approval.
Section 10Read the results
With the books closed, look at:
- Profit and loss for the month
- and the year so far, against last year. See reading a profit and loss statement.
- Customer dues
- by age.
- Stock
- value and slow-moving items.
- Cash forecast
- for the next 13 weeks. See cash flow for small business.
Write down three things you will act on this month. One review a month with action points does more than a perfect report nobody reads.
What changes with size
- Shop or small trader
- steps 1 to 3 and 7 are the core. One person, half a day.
- 10 to 50 staff
- all ten steps, with a named owner for each, and the close done by the 7th.
- Larger firms and several branches
- branch closes first, then the head office consolidates. Transfers between branches are matched both ways.
This checklist is general guidance. Your CA will add items specific to your business and its tax position. In MatruOS, the GST summary for the month shows output tax and input credit, and the GSTR-1 file is built from the month's invoices.