Xero month end checklist: 12 checks before you trust the numbers

Short answer: closing the month in Xero means making the books complete for that month before anyone reads the reports. In order: reconcile every bank, card and loan account to the last day; clear draft and awaiting-approval invoices and bills; invoice all the work done; enter the supplier bills that belong to the month; spread big annual costs and accrue missing ones; post payroll and depreciation; tie the Balance Sheet control accounts to their reports; read the Profit and Loss by month for anything odd; then set a lock date. It takes an owner with a tidy file about an hour, and a bookkeeper much less once it is routine. In the worked month below, five fixes moved profit from £11,200 to £14,490, and the gross margin from 63.2% to 57.8%: the unclosed month was wrong in both directions.

The checklist

#	Check	Where in Xero	Done when
1	Reconcile every bank, credit card and loan account to the last day	Dashboard bank widgets, then the Bank Reconciliation report	Nothing left to reconcile up to the month end, and the statement balance equals the bank’s own statement
2	Clear draft and awaiting-approval invoices	Sales overview, the Draft and Awaiting approval tabs	Each one is approved, dated in the right month or deleted
3	Invoice all the work done in the month	Your job list or timesheets against the month’s invoices	Nothing finished in the month is still unbilled
4	Clear draft and awaiting-approval bills	Purchases overview, the Draft and Awaiting approval tabs	Same as invoices
5	Enter late bills for the month	Bills dated on the supplier’s invoice date	Every supplier invoice for work received in the month is in, even if it arrived in the new month
6	Accrue what has no bill yet	A manual journal with an auto-reversing date	Costs you know about are in the month they belong to
7	Spread annual and quarterly costs (prepayments)	A Prepayments asset account and a repeating manual journal	One month’s share hits the Profit and Loss, not the whole year
8	Post payroll and check the liabilities	Pay runs, then Wages Payable and the PAYE or PAYG accounts on the Balance Sheet	The liabilities match the payroll reports
9	Run depreciation, and adjust stock if you count it	Fixed assets, Run depreciation; a stock journal	Assets and stock on the Balance Sheet are at the month-end value
10	Tie the control accounts	Aged Receivables and Aged Payables totals against the Balance Sheet; clearing and suspense accounts	The aged totals match; clearing, suspense and Historical Adjustment accounts are zero or explained
11	Read the Profit and Loss by month	Profit and Loss with the last few months side by side	Every big jump has a reason you can say in one sentence
12	Set a lock date	Financial settings, Lock dates	Nobody can change the month by accident

Then run the reports and send them. The order matters: steps 2 to 9 change the numbers that step 10 and 11 check, and there is no point locking a month you have not read.

A worked month end: a plumbing firm in Leeds

These figures are made up. Priya runs a plumbing and heating firm with two engineers and keeps her own books in Xero, on the accrual basis. On 2 October the September Profit and Loss already looked good. Then she ran the checklist.

Check	What she found	Effect on September profit £
4. Draft bills	A £1,850 merchant bill for boiler parts sat in Draft since mid-September	(1,850)
3. Unbilled work	A £2,400 bathroom job finished on 29 September had not been invoiced	+2,400
7. Annual costs	The £3,600 yearly van and liability insurance, paid on 1 September, was all coded to Insurance	+3,300 (only £300 belongs to September)
1. Bank	A £640 fuel card payment was in twice: once from the bank feed and once as a manual spend money	+640
5. Late bills	A £1,200 subcontractor invoice for September work arrived on 3 October	(1,200)
	Net change	+3,290

Amounts are before VAT.

Line	Before the close £	After the close £
Sales	38,000	40,400
Direct costs (parts and subcontractors)	(14,000)	(17,050)
Gross profit	24,000	23,350
Overheads	(12,800)	(8,860)
Net profit	11,200	14,490
Gross margin	63.2%	57.8%

Brackets are costs. The direct costs went up by the £1,850 parts bill and the £1,200 subcontractor; the overheads came down by the £3,300 of insurance moved to Prepayments and the £640 duplicate.

Profit after the close is 29.4% higher than the open month showed, so Priya was about to underestimate her month. But the margin is 5.4 points lower. The open month hid the fact that each job kept less of every pound: parts and subcontractors now cost 42.2% of sales, not 36.8%. If she had judged September on the first report, she would have seen a strong margin and a so-so profit, and the real story is the reverse. The P&L management guide shows what to do once the margin is the problem.

Two of the five fixes were timing (the insurance and the late bill), two were missing paperwork (the draft bill and the unbilled job) and one was a plain duplicate. That mix is typical: few month-end fixes are about big mistakes, most are about putting things in the right month.

Each step in more detail

1. Reconcile to the last day, not to “today”. Reconcile up to the month end and run the Bank Reconciliation report at that date. The statement balance on the report must equal the closing balance on the bank’s own statement. Do it for credit cards, loan accounts and payment clearing accounts such as Stripe or PayPal as well. The bank reconciliation report guide explains each line, and when the bank balance doesn’t match covers feed problems and duplicates like Priya’s fuel card.

2 to 4. Drafts and unbilled work. A draft invoice or bill does not appear on the Profit and Loss or the aged reports at all, so a month with drafts in it is incomplete. Approve them with the right date or delete them. For unbilled work, compare what was finished in the month with what was invoiced; in a trade business this is the line most often missed.

5 and 6. Late bills and accruals. Enter a supplier’s bill on the date of their invoice, so a September invoice that arrives in October still lands in September. If the work is done but there is no invoice yet (a utility, a subcontractor who bills late), post a manual journal for your best estimate, debit the cost and credit an Accruals liability account, and give it an auto-reversing date of the first of the next month. When the real bill arrives in the new month, the reversal cancels the estimate. Only accrue amounts large enough to change what you would decide. Accruals in Xero walks through the journal with a worked two months.

7. Prepayments. A yearly cost paid in one month makes that month look terrible and the other eleven look too good. Code the payment to a Prepayments current asset account, then set up a repeating manual journal that moves one month’s share (here £300) from Prepayments to the cost account each month. Insurance, software paid yearly, and subscriptions are the usual ones. Prepayments in Xero walks through the journal step by step with a worked year.

8. Payroll. If you use Xero Payroll, post each pay run in the month. Then look at Wages Payable and the PAYE (UK), PAYG withholding (Australia) or PAYE (NZ) liability on the Balance Sheet: they should equal what is due per the payroll reports. A balance that keeps growing usually means payments are coded to the wages expense instead of to the liability. The payroll reports guide shows which reports to compare.

9. Depreciation and stock. If you keep a fixed asset register in Xero, run depreciation to the month end (depreciation in Xero shows the setup with a worked year). If you hold stock and do not use tracked inventory for all of it, count it and post a journal to move the stock account to the counted value; otherwise the cost of sales is a guess. The cost of goods sold guide shows the journal.

10. Control accounts. The Aged Receivables total at the month end should equal Accounts Receivable on the Balance Sheet, and Aged Payables should equal Accounts Payable; the aged debtors and creditors guide explains the date settings that make them differ. Clearing accounts should be zero, suspense should be zero (how to clear it), and the GST or VAT account should match what the next return will show (VAT return, BAS, NZ GST return). The trial balance guide is the fastest way to scan every balance on one page.

11. Read the Profit and Loss by month. Put this month next to the last three or six. A cost that doubled, a sales line at zero, or an expense in the wrong account stands out side by side in a way it never does on one month. The Profit and Loss by month guide sets up the layout.

12. Lock the month. Xero has two lock dates under Financial settings: one that stops everyone except users with the adviser role from changing anything on or before the date, and one that stops everyone, advisers included. Owners who do their own books usually set the first one at each month end, so a late bill or a re-coded transaction cannot quietly change a month that has already been reported. Your accountant can still post year-end adjustments as an adviser. The last month of the financial year needs a few more steps (stock count, bad debts, payroll year end, the handover): the Xero year end checklist lists them.

Common mistakes

• Reconciling to today instead of to the month end. The reports are then right for no particular date.
• Treating “nothing to reconcile” as finished. It means the bank side is done. Drafts, late bills, prepayments and payroll are the other half.
• Expensing a whole year’s cost in one month, then wondering why that month made a loss.
• Leaving drafts open for weeks. They are invisible on every report.
• Reading the reports before the close, then deciding on numbers that move by thousands a few days later.
• Not setting a lock date, so last month’s figures change after they were sent to the bank or the board.

Common questions

What is a month end close in Xero? It is the set of checks that make one month’s books complete before you read or send the reports: reconcile the bank and cards to the last day, clear drafts, enter late bills, post accruals, prepayments, payroll and depreciation, check the Balance Sheet control accounts, then set a lock date so the month cannot change.

How long should month end take? For a small business with tidy books and daily bank reconciliation, about an hour. Most of the time goes on chasing missing bills and unbilled work, so the closer the reconciliation is kept during the month, the shorter the close.

When should the month be closed? Within one to two weeks of the month end, once the late supplier invoices have arrived. Waiting longer makes the reports less useful; closing on the first day means late bills land in the wrong month.

How do I set a lock date in Xero? In Financial settings, set the lock date to the last day of the closed month. There are two: one stops everyone except advisers from making changes on or before that date, the other stops everyone. Most small businesses use the first, so the accountant can still post adjustments.

What is the difference between an accrual and a prepayment? An accrual is a cost that belongs to this month but has not been billed yet, so you add it now and reverse it when the bill arrives. A prepayment is a cost paid now that belongs to later months, so you hold it on the Balance Sheet and release one month’s share at a time.

Do I need to do month end if I use cash basis reports? The bank reconciliation, drafts and payroll checks still matter. Accruals and prepayments do not apply on a cash basis, because costs fall in the month they are paid. The cash vs accrual guide explains which basis your reports use.

Can a bookkeeper do month end for me? Yes. Ask them to send the Bank Reconciliation report at the month end, the Profit and Loss by month and a few lines on what changed. The monthly management pack guide shows what to ask for.

After the close: the numbers, every Monday

ReportPilot does not close your month or post journals. It reads your Xero figures and sends a short plain-English email every Monday: sales and profit against last month and the same month last year, the cash in the bank, money owed to you that is past due and by whom, and bills due in the next two weeks against your cash. It asks Xero for read-only access, and there is a 14-day free trial with no card.