What is financial close?

Palette Team

Financial close is an accounting term for when the books are closed at the end of an accounting cycle. This includes verifying and making necessary adjustments to all transactions and account balances. At this time, financial reports are also created as a source of truth for the organization at this specific period in time. There are 8 core steps to a financial close: 

  1. Identifying and recording transactions
  2. Posting to the general ledger
  3. Preparing an unadjusted trial balance
  4. Reconciling debits and credits
  5. Creating adjusted journal entries
  6. Creating adjusted trial balance and financial statements
  7. Closing the books to reset income statements and lock in balance sheet accounts

While financial close traditionally happened at the end of an accounting cycle, such as a month, quarter, or year, the concept of continuous accounting is moving more organizations to close more frequently, often at the end of each business day.

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