Accounts payable month-end close: checklist and how to speed it up

If an invoice for October work sits unentered in someone’s inbox, October expenses are understated and November’s are overstated. If the AP aging does not agree to the AP control account, the balance sheet cannot be signed off. Those two risks drive almost every step in the AP close.

AP also feeds other close tasks. Cost accounting needs posted bills to report job or department costs, treasury needs the aging to forecast cash, and the controller needs the accrual list to review the month’s expenses.

For task 9, see how to prevent duplicate invoice payments. For a printable version of the steps, follow the procedure below.

1. 1

   Step 1

   Set and announce the AP cut-off date, so everyone knows which invoices belong to the month being closed.
2. 2

   Step 2

   Capture every invoice received up to the cut-off, including ones sitting in inboxes, with approvers or with the receiving team.
3. 3

   Step 3

   Work the exception queue: resolve price and quantity variances, missing receipts and missing approvals, or document why an item stays open.
4. 4

   Step 4

   Accrue goods and services received but not yet invoiced, using receiving records, open purchase orders and known recurring costs.
5. 5

   Step 5

   Reconcile the AP subledger to the general ledger AP control account and investigate every difference.
6. 6

   Step 6

   Reconcile statements from your largest vendors to catch missing invoices, unapplied credits and duplicates.
7. 7

   Step 7

   Review and post reclasses (prepaids, capital items, miscoded expenses), then produce the AP aging report for the close package.

The same survey found that 94% of teams use Excel in their month-end close and 50% name it a key reason the close is slow. More benchmarks by industry are in our month-end close benchmarks report.

For AP, those blockers usually look like this:

• Cross-team dependencies. Invoices waiting for a budget owner’s approval, or receipts not yet recorded by the warehouse, so invoices cannot be matched.
• Legacy systems. Invoices keyed by hand from PDFs, and accruals built in a spreadsheet from emails.
• Understaffing. A month of invoices processed in the last week, so exceptions pile up when there is least time to resolve them.

The October 31 entry debits the expense or inventory accounts and credits accrued liabilities for $23,590. On November 1 the entry is reversed. When the vendor invoices arrive in November, they are entered as normal bills, and the reversal stops the cost from being counted twice. If the actual invoice differs from the estimate, only the difference lands in November.

• Process continuously. Enter invoices as they arrive instead of in a month-end batch, so the last week holds only that week’s invoices.
• Match daily. Run three-way matching as invoices and receipts arrive, so variances surface while there is time to fix them.
• Set exception service levels. Give each exception type an owner and a target time to resolve, and track the invoice exception rate.
• Automate accruals. Generate the received-not-invoiced list from receipts and open POs, then review it rather than build it.
• Route approvals by rule. Clear invoice approval routing keeps invoices from waiting with the wrong person at month end.

To estimate how many days these changes could save, try the month-end close time calculator.

Approved bills sync to QuickBooks Online, Xero, FreshBooks or Zoho Books. Read more in our guide to month-end close software.