The entry of invoices, adjustments, and payments is an ongoing process that should not be subject to functional constraints if the data in the computer is to reflect the current business position accurately. Month end processing, on the other hand, is a review procedure that attempts to give an accurate picture of the business at a specific time -- the end of the last day of a designated month.
To reconcile these two objectives every activity record is given an effective date. This allows invoices to be entered several calendar months late and still appear in the correct reporting month at month end. When the month end preparation is run, the month ending date is entered. The reports include every activity in the system with an effective date on or before this date. Those dated later are ignored. This type of cut-off is particularly important when selecting transactions to journalize to the General Ledger for a given reporting period.
The first step of the process is to prepare the system for final month end completion. A series of reports are produced which are used by management to confirm the integrity of the data at month end. If any errors or omissions are discovered, the application can be restored to the pre-month end position. The corrections will then be made, and the preparation will be repeated.
Completion of the month end begins with close-off reports. It ends by performing the aging calculations, cleaning up the data base, and producing opening reports for the new month. Cleaning up the data base includes removing invoices from the Outstanding Invoices. An invoice is considered closed if:
This definition of a closed invoice is essential to proper audit trails when month-ends are delayed beyond the first payments made in the next month.
The General Ledger transactions are generated into a hold file. They remain there until the General Ledger is ready to receive them. The transactions are then released to an assembly area. The General Ledger system then takes over responsibility for them.