Annual Accounting Closing Plan

​In accounting, a “close” refers to what used to be a literal “closing of the books,” meaning when an accountant enters an accounting period’s final entries into the ledger and creates the appropriate financial reports from it.
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Closing entries verify that all the numbers in the accounting period at hand are accurate and balance out. How long an accounting period is, depends on each government, and most differentiate between a “soft” close, which may occur more frequently, and a “hard” close, which may occur only once a year.

Soft vs. Hard Close

Most local governments in California perform a “soft close” of their accounting records each month. As a result, they are generally pretty good at it.
 
A soft close usually entails:

• Analyzing and reconciling key balance sheet accounts but not all balance sheet accounts
• Not accruing payables and receivables
• Less analytical review of Profit & Loss vs budget

​​By contrast, most governments perform a “hard close” only at fiscal year-end. Because of this infrequency, employees tend to forget details and timing of tasks and have difficulty locating relevant information from prior years.
 
The hard close at fiscal year-end usually entails:

• Analyzing and reconciling all balance sheet accounts
• Accruing payables related to goods and services received based on invoices received but not yet paid plus an estimate for invoices not yet received
• Accruing receivables based on analysis of subsequent collection plus know uncollected amounts
• Updated liabilities for pension and OPEB plans
• Significant analytical review of budget vs actual revenues and expenses
• Preparing the annual financial report (perhaps CAFR)
• Coordinating the annual audit with the government’s external auditors

Closing Plan

To make the process of the fiscal year-end “hard close” easier, it is extremely helpful to have a written annual closing plan. Such closing plan identifies every task that needs to be done to close the books, prepare the annual financial report, and coordinate with the outside auditors.
 
The plan provides the following benefits:

• Assures management has thoroughly thought through the tasks that need to be performed, including critical path, sequence and timing
• Allows management to assign each task to a responsible employee
• Allows employees to see how their tasks fit into the entire process
• Provides a tool to track progress

​Every government’s closing plan will be different based on their financial system, deadlines for filing financial statements, preferences of management and auditors, information disclosed in the financial report, and so on. However, there are numerous steps that are the same for all governments. The closing plan can be as detailed as is helpful to assure timely and accurate completion of the closing of the books and the preparation of the financial statements.

Please click here to see a Sample Closing Plan that can be tailored to your government’s circumstances.
(Click the link above to download and view the plan in editable Excel-format.)
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If you have more questions related to the accounting close procedure, feel free to reach out to Kevin directly:

Kevin Harper, CPA
kharper@kevinharpercpa.com
(510) 593-503

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