Lesson 2 of 5 · 7 min read
The 8-step month-end close
Every financial close follows the same eight steps. This lesson walks through each one — what it does, who owns it, and why it matters.
The close sequence
1. Costing period close →
2. Depreciation run →
3. Payroll posting →
4. FX revaluation →
5. Allocations →
6. Bank reconciliation →
7. Subledger close →
8. GL closeThe order matters. Each step depends on outputs from the previous ones. Run depreciation before payroll and you’ll have to re-run everything when a late asset acquisition is posted. Run allocations before FX revaluation and the allocated balances use stale exchange rates.
Step-by-step
1. Costing period close
Owner: Cost accountant. Purpose: Finalize inventory and manufacturing costs for the period.
AION calculates the period average cost for every item, rolls up manufacturing variance, and closes out any open job orders from the period. After this step, no more material issues or completions can post to the closing period.
Output: Locked inventory cost layer for the period. COGS and FG values are now final.
2. Depreciation run
Owner: Fixed asset accountant. Purpose: Post the monthly depreciation expense for all fixed assets.
AION runs through every asset’s depreciation schedule (straight-line, declining balance, units of production — whichever is configured per asset category), calculates the month’s depreciation, and posts a batch journal entry:
| Account | DR | CR |
|---|---|---|
| 6100 Depreciation Expense | X | |
| 1500 Accumulated Depreciation | X |
3. Payroll posting
Owner: Payroll clerk + finance. Purpose: Post the month’s payroll run to the GL.
After HR approves the pay run, the SLA engine posts:
| Account | DR | CR |
|---|---|---|
| 6200 Salary Expense | X | |
| 6210 Benefits Expense | Y | |
| 2300 AP — Salaries | X+Y−Z | |
| 2310 GOSI Liability | Z |
4. FX revaluation
Owner: CFO / controller. Purpose: Revalue all foreign-currency balances (bank accounts, AP, AR) at the month-end exchange rate.
Any balance in a currency other than your functional currency is restated at today’s rate. The difference vs. the original booking rate posts to FX Gain/Loss:
| Account | DR or CR |
|---|---|
| 7200 FX Gain / Loss | Difference |
| 1010 / 2100 / 1100 / etc. (source account) |
5. Allocations
Owner: Controller. Purpose: Distribute shared costs (rent, utilities, overhead) across cost centers or operating units according to pre-defined rules.
Example: rent is 10,000 SAR, to be allocated 70% to Manufacturing, 30% to Distribution. AION’s allocation engine posts:
| Account | DR | CR |
|---|---|---|
| 6500 Rent Expense — Mfg | 7,000 | |
| 6500 Rent Expense — Dist | 3,000 | |
| 6500 Rent Expense — HQ | 10,000 |
6. Bank reconciliation
Owner: Cash management / treasury. Purpose: Match every transaction on the bank statement to a transaction in AION.
Import the bank CSV/MT940. AION auto-matches by reference number, amount, and date. Unmatched items are investigated — usually timing differences (check cleared but not yet recorded, or vice versa) or bank fees not yet posted.
After reconciliation, the bank GL balance equals the reconciled bank statement balance. Any difference is documented in a reconciliation memo.
7. Subledger close
Owner: Module accountants. Purpose: Close AP, AR, Inventory, Fixed Assets, and Cash for the period. After this, no more transactions can post to the closing period in those subledgers.
AION verifies that each subledger ties to the GL control account:
- AP subledger total = GL account 2100 balance
- AR subledger total = GL account 1100 balance
- Inventory subledger total = GL accounts 1200 + 1210 + 1220 balances
- Fixed Asset subledger net = GL accounts 1400 − 1500 balances
Any mismatch is flagged as a reconciling item.
8. GL close
Owner: Controller / CFO. Purpose: Close the GL period itself. After this, no transactions of any kind can post to the period.
AION moves the period status from Open to Closed (with optional Soft Close state between, for adjustments). Once hard-closed, only a prior-period adjustment workflow (CFO-approved, audit-trailed) can touch it.
Why the order matters
Reversing the sequence breaks things. Examples:
- Depreciation before payroll: If payroll posts to an asset’s maintenance account (unlikely but possible), depreciation would have missed that cost.
- Allocations before FX revaluation: Foreign-currency cost center balances would be allocated at stale rates.
- Subledger close before GL reconciliation: Subledger-to-GL differences would be locked in.
- GL close before bank rec: Any late bank fees or fx variance can’t be posted.
A mature finance team runs these in order, checks each step, only advances when the previous step’s output is verified clean.
SMB close breakdowns
- “We close by the 20th” — 20 days after month-end. Revenue is 66% through the next month before you know how last month went.
- “The subledger doesn’t tie, but we’ve written it off for now” — means your AR or AP balance is wrong and nobody knows by how much.
- “We do depreciation at year-end” — monthly P&L understates expenses by the depreciation amount for 11 months. Management reports are wrong.
- “FX is done by the auditor once a year” — your foreign bank balances and AR/AP are restated to a year-old rate. When you report to lenders mid-year, the number is fiction.
Next lesson
In Lesson 3 — How AION cuts close time, we’ll walk through the automation that takes this from a 10-day process to a 2-day process.