Module 5: Month-End Close

Where we are in the workflow: Invoice it → Track it → Collect it → Categorize it → Reconcile it → Report it. This module pulls everything you have learned into one repeatable routine. Month-end close is the moment the books go from "work in progress" to "finished and trustworthy."

Module goal: You will be able to run a complete, organized month-end close for a client: review the bank activity, review A/R, clear Undeposited Funds and uncategorized items, complete reconciliations, review the financial statements for reasonableness, and lock the period, all in a predictable order and on a predictable schedule.

Running case continues: It is October 2. Bright Path Cleaning Co. has finished September. Dana Reyes asks: "When will my September numbers be final, and how do I know nothing was missed?" This module is your answer.

Key Terms for This Module

• Month-end close: the set of tasks that finalize a month's books so the reports can be relied on.
• Cutoff: the rule that transactions belong to the period in which they occurred. A September sale belongs in September, even if it is recorded in October.
• Holding account: a temporary account (such as Undeposited Funds or a "Questions for Client" account) that should be emptied before the close.
• Open items: unresolved questions or missing documents that you disclose to the client rather than hide.
• Reasonableness review: stepping back from the numbers to ask, "Does this make sense for this business?"
• Closing date: a QBO setting that locks a period so past transactions can't be changed by accident.
• Adjusting entry: a journal entry (for example, depreciation or accrued expenses) that corrects or completes the books. These are made only with the guidance of the client's tax preparer.

Lesson 5.1: The Month-End Checklist

Learning Objectives

• Explain why a consistent close process protects both you and the client.
• Follow the standard close sequence and understand why the order matters.
• Set up a close calendar with realistic deadlines.
• Know what to collect from the client before you start.

Content and Theory

A month-end close is not one task. It is a sequence of checks, and each one depends on the one before it. If you skip around, you will find errors late, or worse, not at all.

Why a checklist?

• Consistency: every client gets the same quality of work, every month.
• Completeness: nothing is forgotten when you are busy.
• Evidence: a completed checklist shows exactly what you did and when.
• Speed: a familiar routine becomes faster with each month.

The standard close sequence. The order is deliberate: clean up first, prove second, review third, lock last.

1. Collect documents. Bank statements, credit card statements, loan statements, and any receipts or answers the client owes you.
2. Review the bank feeds and make sure every transaction is processed (Lesson 5.2).
3. Review A/R (Lesson 5.3).
4. Clear Undeposited Funds (Lesson 5.4).
5. Clear uncategorized transactions and holding accounts (Lesson 5.5).
6. Reconcile every account (Lesson 5.6).
7. Review the financial statements (Lesson 5.7).
8. Make any approved adjusting entries. Only with the tax preparer's guidance.
9. Lock the period with a closing date (Lesson 5.7).
10. Prepare and deliver the reports (Module 7).

Why reconcile after cleanup? Reconciling proves the recorded transactions agree with the bank. If transactions are still missing or uncategorized, you will chase differences that cleanup would have solved. And why review the statements after reconciling? Because the reports are only trustworthy once the balances are proven.

Timing. Most small-business closes are completed within about 5 to 10 business days of month-end, mainly because statements arrive a few days after the month closes. Agree a target with each client, and put it in writing.

Cutoff. Always ask, "Which month does this transaction belong to?" Transactions are assigned to the period in which they happened, not the day you entered them. This matters most for invoices (invoice date), payments (payment date), and bills.

What the client owes you: statements (if the feed can't supply them), receipts for unclear items, answers to your question log, and confirmation of any unusual events (new loans, big purchases, refunds).

Step-by-Step Walkthrough: Setting Up the Close Routine

1. Create a Month-End Close Checklist for the client (use the template) with the ten steps above, each with a status, date completed, and notes.
2. Agree a close calendar with the client. For example:
   • Business day 1 to 2: request statements and answers.
   • Business day 3 to 5: bank review, A/R review, Undeposited Funds, uncategorized items.
   • Business day 5 to 6: reconciliations.
   • Business day 7: financial statement review and closing date.
   • Business day 8: deliver the reporting package.
3. Send the client a month-end request message on the first business day (template below).
4. Work through the checklist in order, updating it as you go.
5. Record any open items on the checklist, and carry them into your client summary.

Month-end request template:

Hi Dana, it's time to close September. To finish by [date], could you send me: (1) the September statements for the checking, savings, and Visa accounts, if the bank doesn't send them to me directly; (2) receipts for any purchases over $100; and (3) answers to any questions I've sent. Also, please let me know about anything unusual this month, such as new loans, large purchases, or refunds. Thank you!

Real-World Example

Dana replies to the request on October 2 with the checking and Visa statements, but she forgets the savings statement.

Solution breakdown:

• Proceed with everything you can do: bank review, A/R, Undeposited Funds, uncategorized items, and the checking and Visa reconciliations.
• Mark "Savings statement: requested Oct 2" as an open item on the checklist, and send a polite reminder on October 4.
• If it hasn't arrived by the deadline, deliver the package with the savings account clearly noted as not yet reconciled, and explain why.

Doing what you can and disclosing what you couldn't is far better than waiting silently, or pretending it was done.

Best Practices and Common Pitfalls

• ✅ Start every close on the same business day each month, so the client learns the rhythm.
• ✅ Keep the checklist and the statements together in the client's folder.
• ✅ Update the checklist as you finish each step, not at the end.
• ⚠️ Don't reconcile before the feed is fully processed.
• ⚠️ Don't lock the period before the review is finished.
• ⚠️ Don't promise a close date you can't meet because the client hasn't provided statements. Tie your deadline to their response.
• ⚠️ Don't "finish" a close by leaving quiet open items. Always disclose them.

Tool Translation: Xero has a similar close process, and its lock dates feature (Lesson 5.7) protects closed periods.

Sheets companion: The Month-End Close Checklist template (task, owner, status, date completed, notes) plus a Close Calendar tab with each client's deadlines.

Lesson 5.2: Bank Review

Learning Objectives

• Confirm every bank and credit card feed is fully processed for the period.
• Spot unusual, duplicated, or misclassified transactions.
• Review excluded items and feed connection health.

Content and Theory

Bank review is your first quality check. It happens before reconciliation, and its goal is to make sure the account activity in QBO is complete and sensible.

What "complete" means:

• The For review count is zero for every account, for every date in the month.
• Every real bank transaction is either matched or added. Nothing is stuck.
• The Excluded tab contains only true duplicates or non-business items, each with a documented reason.
• The bank feed is connected and up to date (no reconnect notice).

What "sensible" means: Look beyond whether each line is filed. Ask whether each line was filed correctly. A "For review" count of zero can still hide mistakes, such as an owner deposit posted as income or a transfer posted as an expense.

What to scan for:

• Large transactions: do they make sense for this business? Check the payee, category, and support.
• Duplicates: the same amount, payee, and date entered twice.
• Deposits posted as income that are really transfers, owner contributions, or loans.
• Personal-looking spending: groceries, entertainment, or unusual cash withdrawals that may need to be owner draws.
• Missing recurring items: rent, insurance, subscriptions, or loan payments that normally appear but don't.
• Cutoff: transactions dated near the start or end of the month, to make sure they're in the right period.
• Payee consistency: the same vendor spelled several ways.

Step-by-Step Walkthrough

1. Go to Banking and check each connected account's status. Reconnect anything that shows an error.
2. Open each account's For review tab. Confirm the count is zero for the month. Process anything left (Module 3).
3. Open the Excluded tab. Check each item, and restore any real transaction.
4. Run Transaction Detail by Account (Reports) for each bank and card account, filtered to the month.
5. Sort by amount, highest first. Review the top 10 to 15 transactions.
6. Sort by payee to spot duplicates and inconsistent names.
7. Compare the number of transactions in QBO to the statement (Module 4 does this again at reconciliation).
8. Log every finding and every correction on the checklist.

Real-World Example

While reviewing Bright Path's September checking activity, sorted by amount, you see the $2,000 deposit from D Reyes sitting in Residential Cleaning Income.

Solution breakdown:

• This is Dana's personal money moved into the business, an owner contribution (Lesson 3.6), not revenue. It was likely posted quickly and without a check.
• Change the category to Owner's Investment.
• Note it on the checklist. If the same pattern shows up again, create a rule or message the client about how she moves money.
• Effect: September's income is reduced by $2,000, and profit is no longer overstated.

Best Practices and Common Pitfalls

• ✅ Review by amount, not only by date. Big items matter most.
• ✅ Look at what is missing as well as what is there.
• ✅ Reconnect feeds early. A silent disconnect can leave weeks of missing data.
• ⚠️ A zero "For review" count is not proof. Categorization must be right, too.
• ⚠️ Don't leave real transactions sitting in the Excluded tab.
• ⚠️ Don't dismiss an odd transaction because it's small. Patterns start small.

Tool Translation: In Xero, use the account transactions report and check for unreconciled statement lines.

Sheets companion: A "Bank Review Notes" tab with date, account, transaction, issue found, and fix applied.

Lesson 5.3: A/R Review

Learning Objectives

• Confirm all billing for the month has been recorded and correctly dated.
• Confirm all payments are applied.
• Tie the A/R Aging report to the Balance Sheet.
• Prepare collections follow-up and decisions for the client.

Content and Theory

A/R is often the largest and most error-prone balance in a service business's books. The A/R review at month-end checks three things: is everything billed, is everything applied, and does the balance tie?

1. Is everything billed? Revenue can only be recorded once you invoice. Work performed but never invoiced is unbilled revenue, and on an accrual basis it belongs in the month the work was done. Compare QBO's invoices to the client's schedule, job list, or calendar for the month.

2. Is everything applied? Look for payments that were received but never linked to an invoice, and credits that were created but never used (Lessons 2.4 and 2.6). These make invoices look overdue when they aren't, and hide what customers really owe.

3. Does it tie? The A/R Aging Summary total, run as of the last day of the month, must equal the Accounts Receivable balance on the Balance Sheet for the same date and basis.

4. Is anything stuck? Review overdue balances, promised payments, and anything that needs a decision from the client (payment plan, write-off, stop service).

Cutoff for payments. A payment received in October belongs to October, even though you may be entering it in early October while closing September. Record it with the actual payment date, and the September aging as of September 30 will still show the invoice as open. This is correct.

Step-by-Step Walkthrough

1. Get the client's schedule or job list for the month.
2. Run Sales, then Invoices (or the Invoice List) for the month and compare it to the schedule. List jobs with no invoice.
3. Create any missing invoices, using the date the work was done (with the client's approval).
4. Check the customer list for unapplied payments and unused credits. Apply or resolve them.
5. Confirm recurring invoices ran as planned.
6. Run the A/R Aging Summary as of the last day of the month.
7. Run the Balance Sheet for the same date and compare the A/R line to the aging total.
8. Prepare a short list of overdue items and decisions needed for the client summary.

Real-World Example

Bright Path's October close (a later month): Dana's schedule shows a $175 office cleaning for Northside Dental on October 29 that was never invoiced. The A/R Aging as of October 31 totals $2,310, but the Balance Sheet shows A/R of $2,400.

Solution breakdown:

• Unbilled revenue: Create the $175 invoice dated October 29 (with Dana's approval). It belongs to October.
• The $90 gap between aging and balance sheet: Something was posted to A/R outside a normal invoice or payment. Look at the A/R account register and find the $90 entry (for example, a journal entry or a manual adjustment). Fix or explain it before closing.
• Do not send reports where these two numbers disagree.

Best Practices and Common Pitfalls

• ✅ Always compare invoices to a source outside QBO (schedule, job list, contracts).
• ✅ Use the actual work or payment date, not today's date.
• ✅ Tie aging to the Balance Sheet every month, no exceptions.
• ✅ Report overdue balances to the client in every close summary.
• ⚠️ Don't invoice for work you can't confirm was done.
• ⚠️ Don't backdate invoices into a closed period without unlocking it deliberately and documenting why.
• ⚠️ Don't write off balances to make the aging "cleaner." That's the client's decision (Lesson 2.6).

Tool Translation: In Xero, compare the Aged Receivables Summary to the Balance Sheet accounts receivable line.

Sheets companion: An "A/R Close Tie-Out" tab with three cells: Aging total, Balance Sheet A/R, and Difference (must be zero).

Lesson 5.4: Undeposited Funds

Learning Objectives

• Explain why Undeposited Funds should be zero, or fully explained, at month-end.
• Find and diagnose stuck payments.
• Fix the double-counting problems that create stuck balances.

Content and Theory

Recall from Lesson 2.3 that Undeposited Funds is a temporary holding account for customer payments that have been recorded but not yet grouped into a bank deposit. Think of it as a mailbox of checks waiting for the bank.

At month-end it should be either $0 or contain only payments that are genuinely in transit (for example, a check received on the last day of the month that will be deposited on the first business day of the next month). Anything else is a problem.

Why stuck balances matter:

• They inflate assets on the Balance Sheet with money that doesn't exist in any account.
• They usually indicate a double-count or a payment that was never deposited.
• They block reconciliation, because the bank deposit can't be ticked against the payments.

Common causes:

• Double-counted income: the customer payment was recorded to Undeposited Funds, and the bank feed deposit was categorized as income instead of matched (Lesson 3.2). The books show the income twice, and the payment never leaves Undeposited Funds.
• Deposit not created: the payment was recorded but no Bank Deposit was ever made.
• Payment never deposited: a lost or uncashed check, or a payment that was later refunded or voided.
• Processor payouts: payments recorded gross, but payouts arrive net of fees and were never grouped correctly (Lesson 2.5).

Step-by-Step Walkthrough

1. Run the Balance Sheet as of month-end and check the Undeposited Funds line.
2. If it isn't zero, click into it (or run Transaction Detail by Account for Undeposited Funds) to list every item.
3. For each item, ask: Did this money reach the bank? Check the bank statement and feed for a matching deposit.
4. If it reached the bank and was categorized as income: undo the wrongly added feed transaction, create a Bank Deposit that includes the payment, and match the feed line to that deposit.
5. If it has not reached the bank yet and is a genuine in-transit item: leave it, and note it on the checklist.
6. If it will never reach the bank: confirm with the client, and reverse or void the payment properly.
7. Re-run the Balance Sheet and confirm Undeposited Funds is zero or explained.

Real-World Example

At the end of a later month, Bright Path's Balance Sheet shows Undeposited Funds of $270.00. Looking at the detail, there is one payment: Northside Dental, $270.00, recorded three weeks ago. The bank feed shows a $270.00 deposit that was categorized to Commercial Cleaning Income by an auto-add rule.

Solution breakdown:

• The customer paid once, but income is now recorded twice: once through the invoice and again through the categorized deposit.
• Undo the categorized deposit in the Categorized tab so the feed line returns to For review.
• Create a Bank Deposit that includes the $270.00 payment from Undeposited Funds.
• Match the feed line to that deposit.
• Result: Undeposited Funds returns to $0, and commercial income falls by $270.00 to the correct amount.
• Prevent it from happening again by removing or correcting the rule that categorized customer deposits.

Best Practices and Common Pitfalls

• ✅ Check Undeposited Funds every month. It is one of the fastest ways to find double-counted income.
• ✅ Explain every remaining item with a date and reason.
• ✅ Never build bank rules for customer deposits (Lesson 3.9).
• ⚠️ Don't clear Undeposited Funds by moving the balance to income or another account. Find out what really happened.
• ⚠️ Don't leave old items sitting for months. They only get harder to trace.
• ⚠️ Don't delete a customer payment to "fix" the balance without checking that the invoice is handled correctly.

Tool Translation: Xero doesn't have Undeposited Funds by default. Similar issues appear as unreconciled payments or batch deposits that don't match the bank line.

Sheets companion: A "Deposit Tracker" that lists each payment, the deposit it belongs to, and the bank date, so items in transit are visible.

Lesson 5.5: Uncategorized Transactions

Learning Objectives

• Perform a final sweep for uncategorized and holding-account balances.
• Find transactions with missing information (payee, category, and so on).
• Handle client questions that are still unanswered at the close deadline.

Content and Theory

In Lesson 3.8 you learned to clear uncategorized transactions as you work. At month-end, you do a final sweep to make sure none were missed and none crept back in.

Where to look:

• Uncategorized Income, Uncategorized Expense, and Uncategorized Asset on the P&L and Balance Sheet.
• Any holding account you use for questions (such as "Ask My Accountant" or "Questions for Client"). It must be $0 at close.
• Opening Balance Equity: should be $0 (Lesson 1.4).
• Vague accounts like "Miscellaneous," which may be hiding items that need proper categories.
• Transactions with no payee or unclear memo text.

When the client hasn't answered. Sometimes a question is still open at the deadline. You have two honest options, and one dishonest one:

• ✅ Wait a short, agreed time for the answer, if it is significant.
• ✅ Deliver the reports with an "Open Items" note that lists each unresolved transaction (date, description, amount) and states plainly that the reports may change when answered.
• ❌ Guess a category to make the balance zero. That gives the client a false sense of accuracy.

Open Items note format:

"The following transactions are still awaiting information from you and are held in [account] as of the report date: (1) Sept 15, Venmo payment, $150.00. (2) Sept 26, ATM withdrawal, $100.00. Once we have your answers, these will be moved to the right categories and the reports updated."

Step-by-Step Walkthrough

1. Run the Profit and Loss for the month. Look for any balance in the uncategorized accounts or "Miscellaneous."
2. Run the Balance Sheet and check the uncategorized asset account, holding accounts, and Opening Balance Equity.
3. Use Transaction Detail by Account to list each item in any of those accounts.
4. Reclassify each item you can now support, using the client's answers and receipts.
5. Update your Client Question Log (Lesson 3.8) with the answer and the category you applied.
6. For any item still unanswered, write the Open Items note and add it to the checklist.
7. Re-run the P&L and Balance Sheet to confirm the results.

Real-World Example

At Bright Path's September close, two questions are still unanswered on the deadline: a $150.00 Venmo payment and a $100.00 ATM withdrawal. In the practice case, Dana replied in Lesson 3.8 with the answers, so both are now categorized (Contract Labor and Owner's Draw).

Solution breakdown:

• Run the September P&L and confirm Uncategorized Expense is $0.
• Check the holding account (if you used one) and confirm it is $0.
• Confirm Opening Balance Equity is $0, or note why it isn't.
• Record on the checklist: "Uncategorized: $0. Holding account: $0. Open questions: none."

If Dana hadn't answered, you would have delivered the reports with the Open Items note above, rather than guessing.

Best Practices and Common Pitfalls

• ✅ Set a response deadline in your month-end request message so questions don't drift.
• ✅ Disclose open items clearly and factually.
• ✅ Keep the Client Question Log current, since it is your audit trail.
• ⚠️ Don't move unresolved items to "Miscellaneous" to make the P&L look tidy.
• ⚠️ Don't let the same unanswered question carry over for several months without escalating it.
• ⚠️ Don't deliver reports that imply everything is settled when it isn't.

Tool Translation: In Xero, look at any suspense-type account and unreconciled statement lines, and use the same Open Items note.

Sheets companion: The Client Question Log (from Module 3) with a "Still open at close?" column that feeds the Open Items note.

Lesson 5.6: Reconciliations

Learning Objectives

• Reconcile every bank and credit card account as part of the close.
• Review other balance sheet accounts that should agree with outside statements.
• Confirm reconciliation evidence is saved and complete.

Content and Theory

Module 4 taught you how to reconcile one account. At month-end you reconcile all of them, and you also check the other balances that can be proven against an outside document.

Accounts to reconcile every month:

• Every bank account (checking, savings, and so on).
• Every credit card.
• Any payment processor or clearing account (PayPal, Stripe, Square) against its activity report.

Other balances to compare with outside documents:

• Loans: the QBO loan balance should equal the lender's statement balance. Only the principal portion of each payment reduces it.
• Sales tax payable: should agree with what the client has collected and remitted.
• Payroll liabilities: should agree with payroll reports and payments.
• Opening Balance Equity: should be $0.

The close standard for a reconciled account:

• The Difference is $0.00 with no adjustment entry.
• The statement ending balance equals the cleared balance.
• Every uncleared item has a reason (Lesson 4.6).
• The Reconciliation Report and the statement are saved in the client folder.

If a statement is missing: Reconcile everything you can, mark that account as an open item, and follow up (as in Lesson 5.1). Never reconcile an account to the online balance instead.

Step-by-Step Walkthrough

1. List every account that needs reconciling (bank, savings, cards, and clearing accounts) on the checklist.
2. For each one, follow the Module 4 process: check the beginning balance, enter the statement ending balance and date, tick the items, and reach a $0.00 difference.
3. Save each Reconciliation Report (Summary and Detail) as a PDF with the statement.
4. Run the Reconciliation Discrepancy report to confirm no reconciled transactions were changed.
5. Compare loan balances with the lender's statement.
6. Compare other liability accounts with their reports.
7. Update the checklist with each account's status and date completed.

Real-World Example

For September, Bright Path has three accounts: Business Checking (…4417), Business Savings (…9902), and the Business Visa (…8821). The checking and Visa statements have arrived. The savings statement has not.

Solution breakdown:

• Reconcile the checking account: statement ending balance $5,602.15, Difference $0.00.
• Reconcile the Visa: statement ending balance owed $604.76, Difference $0.00.
• Loan check: the lender's statement should show principal reduced by $360.00 this month (the interest of $65.00 is an expense).
• Savings: not reconciled. List it as an open item, "Savings statement requested Oct 2, not yet received."
• Save the reports and update the checklist.

Best Practices and Common Pitfalls

• ✅ Reconcile every account, including small or rarely used ones. Hidden accounts hide problems.
• ✅ Reconcile accounts in a consistent order and record the date completed.
• ✅ Tie loan balances to lender statements every month or quarter.
• ⚠️ Don't reconcile with a forced adjustment.
• ⚠️ Don't skip an account because "nothing happened." Quiet accounts can still have fees or interest.
• ⚠️ Don't call the close complete if any account is unreconciled without saying so.

Tool Translation: In Xero, run the Bank Reconciliation Summary for each account and compare it to statement balances.

Sheets companion: A "Reconciliation Status" tab: account, statement date, statement balance, difference, date completed, and PDF location.

Lesson 5.7: Financial Statement Review and Locking the Period

Learning Objectives

• Review the Profit and Loss and Balance Sheet for reasonableness.
• Compare to the prior month and investigate unusual changes.
• Verify key balance sheet accounts against proof.
• Set a closing date correctly.

Content and Theory

Once the balances are proven, you review the reports the client will read. Numbers can tie out and still not make sense. Your job is to be the first skeptical reader.

Profit and Loss review. Run the P&L for the month and compare it to the prior month.

• Does income look right? Compare it to the client's expectations and the invoices you know about.
• Is anything missing? Expenses that normally appear every month (rent, insurance, subscriptions, loan interest) but don't may not have been recorded.
• Is anything new? A category that appears for the first time deserves a question.
• Large swings: a category up or down by more than about 20 to 30 percent should be explained.
• Miscellaneous or uncategorized: should be zero or trivial.

Balance Sheet review. Run it as of the last day of the month.

• Bank and card balances: equal the reconciled statement balances.
• Accounts Receivable: equals the A/R Aging total.
• Undeposited Funds: zero, or explained.
• Negative balances in accounts that shouldn't be negative (for example, a negative bank account or negative A/R): investigate.
• Loans: equal the lender's balance.
• Opening Balance Equity: zero.
• Equity section: owner draws and contributions look reasonable and are recorded in equity, not on the P&L.

Accounting method check. Confirm the reports are on the basis the client uses (cash or accrual). Switching the basis on a report shows how much of the difference is unpaid invoices (A/R) or unpaid bills.

Adjusting entries. Some businesses need year-end or month-end entries such as depreciation, prepaid expenses, or accrued expenses. These involve tax and accounting judgment. Make them only with the direction of the client's tax preparer or accountant.

Locking the period. After the review, set a closing date so the month can't be changed by accident. In QBO this is in the company's Advanced settings, under the Accounting section, where you turn on Close the books, choose the closing date (the last day of the month you just closed), and choose whether changes require a warning or a warning plus a password. Setting it typically requires administrator access, so confirm with the client that this is authorized. If a change is needed later, unlock, correct it, document why, and lock again.

Step-by-Step Walkthrough

1. Run the Profit and Loss for the month and a Profit and Loss comparison to the prior month (Reports, then customize and choose the comparison period).
2. Mark every line that changed a lot, is new, or is missing. Write a one-line explanation or question for each.
3. Investigate the ones you can't explain (open the transactions behind the number).
4. Run the Balance Sheet as of the last day of the month.
5. Complete the Balance Sheet checks listed above, and record each result on the checklist.
6. Toggle the report basis between Cash and Accrual to confirm you understand the difference.
7. Get the client's approval that the numbers make sense.
8. Set the closing date to the last day of the month, with a password if the client agrees.
9. Update the checklist and move on to preparing the reporting package (Module 7).

Real-World Example

Bright Path's September P&L (accrual basis) shows total income of $2,740.87 and net income of $1,533.39. August shows total income of $2,940.00 and net income of $2,094.47.

Solution breakdown:

• Income is down about $199 (6.8%). Reasonable. It matches the invoices you processed.
• New categories: Contract Labor $150.00 and Office Supplies $37.25 did not appear in August. Both are explained (the Venmo payment to Dana's Saturday helper, and the Office Depot card purchase).
• Cleaning Supplies up about 30% ($380.00 to $494.88). Reasonable, since there was a larger Sunset order.
• Advertising up 50% ($90.00 to $135.00). Worth a question to Dana about whether she has started Google Ads.
• Profit fell about $561, from higher expenses and a little less income. This is what you will explain in your client summary.
• Balance Sheet checks: checking $5,602.15 equals the reconciliation, Visa $604.76 equals the statement, A/R $1,885.00 equals the aging, Undeposited Funds $0.
• Set the closing date to September 30.

Best Practices and Common Pitfalls

• ✅ Always compare to the prior month. Changes are where errors and insights live.
• ✅ Look for what is missing as well as what is there.
• ✅ Explain changes in plain language for the client.
• ✅ Set the closing date after the review, and only once the client has approved.
• ⚠️ Don't assume balanced numbers mean correct numbers.
• ⚠️ Don't lock a period with unresolved issues unless the client understands and accepts them.
• ⚠️ Don't make adjusting entries on your own initiative.
• ⚠️ Don't forget that unlocking a closed period is a serious step. Document why.

Tool Translation: Xero has Lock dates in the financial settings, with one date for all users and one that leaves advisers able to edit.

Sheets companion: A "Statement Review" tab with two columns for every P&L line (this month, last month) and a column for the change and your explanation.

Module 5 Knowledge Check

Answer each question. Your answers are checked only when you click Check answers — nothing is revealed until then.

Module 5 Practical Exercise: Close Bright Path's September Books

Scenario: It's October 2. Dana writes: "Please close out September. Let me know if you find anything I need to look at. I've sent the checking and Visa statements. I'll get the savings one to you soon." Work in the practice file you have built through Modules 1 to 4. Set the file's accounting method to Accrual for this exercise.

What You Have

• September invoices, payments, credits, refunds, and deposits from Module 2.
• The September bank feed categorized in Module 3, and the reconciliations from Module 4 (checking ending balance $5,602.15, Visa ending balance owed $604.76).
• Dana's September job list (below).
• The August P&L summary for comparison (below).
• The savings statement has not arrived.

Dana's September Job List

• Sept 1 to 28: Harper Office Park, 4 weekly office cleanings ($350 each), invoiced on invoice 1001, with a $50 credit for one missed visit
• Sept 3: Maria Santos, Standard Home Cleaning, $120 (invoice 1002)
• Sept 5: Ramon Lopez, Deep Cleaning, $220 (invoice 1003)
• Sept 8: Northside Dental, Office Cleaning, $900 (invoice 1004)
• Sept 10: Nisha Patel, Standard Home Cleaning, $120 (invoice 1006), cancelled and refunded on Sept 14
• Sept 19: K. Okafor, same-day cleaning, $150 (paid by Zelle)

August P&L Summary (Accrual)

• Total income: $2,940.00
• Cleaning Supplies: $380.00
• Vehicle: Fuel: $86.00
• Software and Subscriptions: $27.98
• Advertising and Marketing: $90.00
• Insurance: $96.00
• Utilities: Phone: $82.15
• Contract Labor: $0.00
• Office Supplies: $0.00
• Bank Charges: $15.00
• Interest Expense: $68.40
• Total expenses: $845.53
• Net income: $2,094.47

Tasks

1. Set up the checklist. Create the Month-End Close Checklist for Bright Path (ten steps from Lesson 5.1). Add a close calendar with target dates, and write the month-end request message you would have sent on October 1.
2. Bank review. Confirm "For review" is zero for checking, savings, and the Visa. Check the Excluded tab. Run Transaction Detail by Account for checking and sort by amount, and log anything you would question.
3. A/R review. Compare Dana's job list to your invoices and confirm nothing is unbilled. Run the A/R Aging as of September 30 and tie it to the Balance Sheet. Then, on October 2, Alicia Chen pays her $340.00 invoice. Record it dated October 2, and confirm the September 30 aging and Balance Sheet still show $1,885.00 (cutoff).
4. Undeposited Funds. Confirm the balance is $0 as of September 30, or explain any item.
5. Uncategorized sweep. Confirm Uncategorized Income, Uncategorized Expense, any holding account, and Opening Balance Equity are all $0 (or explain).
6. Reconciliations. Confirm checking and Visa are reconciled with saved reports. Record the savings account as an open item (statement requested, not received), and write a short follow-up message to Dana.
7. Financial statement review. Run the September P&L (accrual) and compare it to August. List every line that changed significantly or is new, with a one-line explanation or question for each. Run the September 30 Balance Sheet and complete the checks below.
8. Basis check. Run the September P&L on a cash basis and explain, in one or two sentences, why income differs from the accrual figure.
9. Lock the period. Set the closing date to September 30 (use a password in the practice file).
10. Client summary. Write a note to Dana (6 to 10 sentences) that states September is closed, gives net income, explains the biggest changes from August, lists the overdue receivables, and discloses the open item (savings statement).

Balance Sheet Checks (as of September 30)

• Business Checking equals the reconciled statement balance.
• Business Visa equals the statement balance owed.
• Accounts Receivable equals the A/R Aging total.
• Undeposited Funds is zero.
• Loan Payable decreased by the September principal payment.
• Business Savings increased by the $500 transfer.
• Opening Balance Equity is zero (or you can explain why it isn't).
• No unexpected negative balances.

Deliverables

The completed checklist and close calendar; screenshots of the September P&L (accrual), P&L comparison, Balance Sheet, A/R Aging, and the closing date setting; your list of variances with explanations; your Open Items note and savings follow-up message; and the client summary.

Self-Assessment Rubric

• Process and order: Excellent means tasks were completed in the correct sequence and logged on the checklist. Needs work means steps were skipped or reordered without reason.
• Cutoff and A/R: Excellent means the October 2 payment was dated correctly and the September 30 aging still ties at $1,885.00. Needs work means the payment was dated in September or aging no longer ties.
• Holding accounts and reconciliations: Excellent means all zero or explained, checking and Visa reconciled, and savings honestly disclosed as open. Needs work means the savings account was reconciled to an online balance or ignored.
• Statement review: Excellent means variances identified and explained, missing and new items noted, and the cash versus accrual difference explained. Needs work means the numbers were only tied, not reviewed.
• Lock and communication: Excellent means the closing date was set after review and the client summary is clear, accurate, and discloses open items. Needs work means the period was locked early or the summary hides the open item.

Stretch Challenge

Dana asks, "Why is my profit lower than August when I had almost as many jobs?" Write a three-sentence answer using the variances you found, and suggest one thing she could do to keep expenses in check.

---

Check Your Work

Finished the exercise? Compare your work against the answers below.