Finance team: month-end close
Close the October books at a gym chain: accruals, prepayments, the bank rec and budget variance commentary.
ACCA exams this helps with: FA Financial Accounting MA Management Accounting See the ACCA map
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Every month, a finance team closes the books: it makes sure every cost and income item is in the right month, reconciles the bank, and explains how the results compare with the budget. The output is a set of management accounts for the directors. Trainees are often given parts of the close in their first weeks.
Example. The October electricity bill arrives in November. It is still October’s cost, so it is accrued in October’s accounts.
Key words
- Month-end close
- The process a finance team follows at the end of each month to make the accounts complete and correct: posting accruals and prepayments, reconciling the bank, and reviewing the results.Example: On the first working days of November, the team closes October’s accounts.
- Management accounts
- Internal reports, usually monthly, that show managers and directors how the business is performing against its budget. They are not published.Example: The October management accounts show profit of £27,650 against a budget of £32,500.
- Budget
- A plan, written before the period starts, of the income and costs the business expects.Example: The October budget said membership income would be £84,000.
- Variance
- The difference between an actual result and the budget.Example: Actual staff costs £43,900 − budget £41,000 = a variance of £2,900 (adverse).
- Favourable / adverse
- Words used to describe a variance. Favourable means the result is better than budget. Adverse means it is worse than budget.Example: Income £14,600 against a budget of £12,000 is £2,600 favourable. Costs £43,900 against a budget of £41,000 is £2,900 adverse.
Your brief and documents
You are a trainee in the finance team at Northwell Fitness Ltd, a small chain of gyms (a fictional company). It is the first working day of November and you are closing the October management accounts.
Morning,
Can you take the October close this month? I need:
- The month-end accruals and prepayments posted.
- The main bank account reconciled.
- Variances against budget, with a short commentary I can send to the finance director.
The FD wants the pack by Wednesday. Thanks, Jordan
Document 1: Items to review for October
| Item | Detail |
|---|---|
| Software subscription | £3,600 paid on 1 October for 12 months. The whole amount was posted to Software subscriptions. |
| Electricity | October bill not yet received. The supplier estimates £1,450. |
| Cleaning | October invoice for £820 received and posted in October. |
| Trade show | £2,400 paid in October for a stand at an event next April. Posted to Marketing. |
| Staff overtime | £1,900 of overtime worked in the last week of October, to be paid in November’s payroll. |
| Stationery | £140 bought and paid for in October. |
Document 2: Bank, 31 October
| Item | £ |
|---|---|
| Cash book balance (before adjustments) | 22,480 |
| Bank charges on the statement, not in the cash book | 35 |
| Card processing fees taken by direct debit, not in the cash book | 410 |
| BACS receipt from a corporate client, not in the cash book | 1,200 |
| Supplier payments made on 31 October, not yet on the statement | 2,850 |
| Cash paid in on 31 October, not yet on the statement | 1,300 |
| Balance per bank statement | 24,785 |
Document 3: October actual against budget (after your adjustments)
| Line | Budget £ | Actual £ |
|---|---|---|
| Membership income | 84,000 | 79,200 |
| Personal training income | 12,000 | 14,600 |
| Staff costs | 41,000 | 43,900 |
| Rent | 15,000 | 15,000 |
| Utilities | 4,500 | 6,050 |
| Marketing | 3,000 | 1,200 |
Watch it explained
Press play to watch the animation, or step through it at your own pace with the arrows.
Videos from YouTube tutors
These videos are made by independent tutors on YouTube, not by Trial Balance. Some use US terms or older exam names (for example F7 for FR), but the principles are the same.
How a senior would approach it
- For each item, ask: which month does this cost belong to? If it belongs to October but hasn’t been posted, accrue it. If it has been posted but belongs to later months, move it to prepayments.
- Accruals are often estimates. Use the best information you have, such as a supplier estimate or last month’s bill, and note what you based it on.
- Bank rec first, then the rest. Items on the statement but not in the cash book are posted. Timing differences are only listed on the reconciliation.
- Variance commentary explains, it doesn’t just repeat. “Staff costs are £2,900 over budget” repeats the table. “Staff costs are £2,900 over budget, mainly because of £1,900 of overtime covering staff absence” explains it. If you don’t know the reason yet, say what you will check.
- Favourable or adverse? Income above budget or costs below budget is favourable. Income below budget or costs above budget is adverse.
Your tasks
Work through the tasks in order, using the documents in your brief. Each task is checked when you press Check answer.