UK Month End

[Dipak Patel]

Hi

I was asked in an interview 'Why is month end so busy?' and I answered with as all of the transactions have to be closed off. I thought this answer would suffice but obviously didn't. I'm looking to make the move from audit to industry, so whilst I know it is a busy period I'm not sure why?

What would be a good answer at interview?

Thanks in advance

 

[Southside Bean Counter]

Were you interviewing for a position? That is an odd question for an employer to ask you, as a candidate. That is a question you should be asking them. When I was performing month end accounting, it was busy because there were entries that couldn't be completed prior to month end. There are invoices, and other revenue reports I didn't get until the begining of the next month. Also, you should ask how many days their end of month are. I worked in a place that had an 8 day close, and also worked in a place with a 5 day close. This will also determine how busy your month end is.

 

[Counterofbeans]

I agree, that's a very strange question to ask a candidate. I don't understand what it means, "all transactions need to be closed off" though.

There's a whole host of reasons, which vary by company, as to why month end could be less than timely.

But if you really want to know what I'd say, in short, my answer would be something along the lines of: "Because the accounting department needs to accumulate/process, summarize and report the activities that took place during the month that just ended" & see how they responded to that.

 

[Dipak Patel]

Thanks Southside Bean Counter!

Yep - I think they were trying to gauge how much I knew because of my background in audit and all of my experience is in audit, so I'm guessing they may be thinking if I'm worth training up?

Following on from your answer I have a few more questions:

1. Which entries cannot be made prior to month end?

2. Re the invoices and revenue reports is that because of time / cut-off....eg an invoice which relates to mid January (assuming month end is the same as the calendar month) but isn't received until 4th February hence has to be recorded in the correct period?

In which case what happens if an invoice is received 2 months after the period it relates to?
(and an appropriate accrual hasn't been made)

3. With regards to how many days their month end close is, is this the time they have to complete the reporting pack for the month?

4. What are the most challenging issues during the month end (I know this is a very generic question but just want to be prepared!


Thank you in advance!

 

[Southside Bean Counter]

Dipak,

1. You won't be able to complete certain entries prior to the last day of the month, if that information includes a full month's info. For example, there are invoices we would receive from vendors after the last day of the month (because they include the entire month's activity), so I would have to wait to receive those invoices, then I would book the expense. If those invoices don't come in time for the month end cut-off, you would have to do an accrual for the expense. Now, if you know there are certain vendors that are always late with invoices, you could set up a monthly reversing accrual, and complete that before the end of the month, because it is just an estimate.

2. Yes, this goes along with #1. If the invoice isn't received for 2 months after the service, and accrual hasn't been made, you would have to record it in the period you received it, even though it was not for that period. If you were aware of the expense, you should've accrued for it 2 months ago.

3. The amount of days in their close, determines how many days they have to record entries (effecting their books) for that period. Let's say you have a 5 day close. You only have 5 days to close the books. If you get an invoice after day 5, it is too late to record the expense, and it will have to be recorded in the following month. That's why close can be very stressful at some places (my last job being one of them). We had a 5 day close, and a huge number of entries, and analysis to do before the end of day 5. I would actually try to get all the entries done by day 4, so I could use the last day of close to review my recs to see if there were any errors. If I found an error, I would still have time to correct it.

4. The most challenging this I faced at my last job were the tight month end deadlines. I had soooo many entries I had to complete (some required difficult analysis that could take up to 2 hours). So, when you are dealing with those types of entries, in that short amount of time, you open yourself up to simple mistakes, because you are just trying to go through them as fast as you can. If you make a mistake on one entry (depending on what type of entry it is), it could effect other entries, so you create more work for yourself in order to correct the mistake. There are also time where you have to wait on others in order to complete an entry, which again, sets you behind as far as deadlines.

 

[Fidget]

Dipak, in answer to your questions:

1. Depends, but generally if the value of anything coming in or going out can't be known until the last day of the month because it is calculated as at the last day of the month, then it'll be a day or a few days afterwards that you have the actual figure that needs to be included in the accounts for that month.

2. Since time waits for no man (or invoice), until somebody invents a time machine, it's too bad, basically. Late arriving invoices need to be processed in the current period. Depending on the value of the invoice this might require restatement. Unlikely for month end as these are internal accounts, and more likely if omission is material enough to distort final year end accounts. And even at that, what's material to one organisation, might be a drop in the ocean to another.

An e-purchase ordering system is a good way to get round that possibility as the amount will be accrued at the point of ordering. Monthly statements from suppliers also help (assuming somebody reconciles them) because they show up invoices that haven't appeared yet, so an accrual can be made for them. Neither is fool-proof though as there's no accounting for somebody bypassing the purchasing system and picking up the phone to order something, nor suppliers not including something on their statements.

3. Yes, and it varies between organisations.

4. The only answer to that is meeting the deadline for submission. Whilst every organisation producing month/year end accounts is working towards a common aim, the systems/people/timescales they have to achieve it, varies.