Key takeaways
- The accounts receivable month-end close is three controls performed in sequence: reconcile the AR subledger to the general ledger, review the aging, and confirm the ASC 606 revenue cutoff. Omit one and the receivables balance becomes an estimate no director should approve.
- Reconciliation ties the ledgers to zero. A $24M software company reporting a $2,140,000 subledger against a $2,197,500 control account carries a $57,500 discrepancy that documentation must decompose before closing.
- The aging determines the reserve. Applying loss rates of 0.5%, 3%, 12%, and 40% across the four aging buckets produces a $68,900 allowance for doubtful accounts under the ASC 326 aging-schedule method.
- Revenue cutoff is an ASC 606 control. A $46,000 obligation satisfied this period but invoiced next belongs in the closing month; a $63,000 invoice billed before delivery becomes deferred revenue.
- APQC benchmarks the median monthly close at 6.4 calendar days and the top quartile at 4.8. Receivables frequently determines which side of that boundary an organization occupies.
The accounts receivable month-end close is three controls executed in sequence: reconcile the AR subledger to the general ledger, review the aging, and confirm the ASC 606 revenue cutoff. Consider a $24M software company invoicing on net-30. Its subledger reports $2,140,000; the general ledger control account reports $2,197,500. That $57,500 discrepancy is the close’s opening assignment.
Velocity matters only once the number is defensible. APQC benchmarks the median monthly close at 6.4 calendar days, with top-quartile organizations finishing in 4.8 and the slowest quartile consuming 10 or more. Receivables typically determines the outcome, because reconciliation, aging deterioration, and revenue recognition all converge inside a single account.
What is the accounts receivable month-end close?
The accounts receivable month-end close is the monthly procedure that substantiates the AR balance as complete, accurate, and recognized in the correct period. It reconciles the subledger to the general ledger, evaluates the aging, establishes the allowance for doubtful accounts, and confirms revenue recognition under ASC 606. The deliverable is a receivables figure a controller will certify.
Each control intercepts a distinct error. Reconciliation surfaces unapplied cash and stray journal entries. Aging exposes deterioration. Cutoff isolates revenue recorded in the wrong month. Together they convert a $2.1M receivables line from an approximation into a supported balance.
This sequence constitutes the receivables discipline within the Continuous Close Method™. The ledger remains current throughout the month, so close week verifies the balance rather than reconstructing it under deadline.
How do you reconcile accounts receivable at month end?
Reconcile receivables by tying the subledger total to the general ledger control account, then explaining every dollar of difference to zero. The subledger aggregates open customer invoices; the control account holds the general ledger balance. When they diverge, the variance is unapplied cash, a manual journal, or a timing error, and each is investigated individually.
Decompose the software company’s $57,500 discrepancy. A customer remitted $46,000 that posted to the bank and the general ledger yet was never applied against the open invoice inside the subledger. A separate $11,500 manual credit reached the control account directly, circumventing the subledger.
Reversing the misposted journal and applying the deposit resolves $46,000 plus $11,500, or exactly $57,500. The ledgers now agree. Puzzle maintains the underlying subledger continuously; a controller performs the tie-out and clears the exceptions the automation surfaces.
What is revenue cutoff, and why does it matter at close?
Revenue cutoff assigns each sale to the period in which the performance obligation was satisfied, not the period it happened to be invoiced. It matters because ASC 606 recognizes revenue upon the transfer of control. An invoice date alone can therefore strand revenue in the wrong month and misstate both the top line and receivables.
The Financial Accounting Standards Board designates control as the determinant. Under FASB ASC 606, an entity recognizes revenue when it satisfies a performance obligation by transferring a good or service, and that transfer occurs when the customer obtains control.
“Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.”
FASB ASC 606-10-20, Revenue from Contracts with Customers
Apply the principle at the period boundary. A $46,000 engagement delivered on the final day of the month but invoiced afterward belongs in the closing period, because control transferred upon delivery. A $63,000 invoice generated ahead of delivery does not; it remains deferred revenue until the obligation is satisfied. The cutoff procedure repositions both amounts before the ledger locks.
How should you review the AR aging each month?
Review the aging by categorizing every outstanding receivable according to days elapsed since the invoice date, then pricing each category for anticipated loss. The distribution identifies which accounts warrant escalation, and the loss rates translate that distribution into the allowance for doubtful accounts. Convention establishes four buckets: 0–30, 31–60, 61–90, and 90-plus days.
ASC 326, the current expected credit loss model, sanctions an aging-schedule approach: apply a historical loss rate to each bucket and reserve the aggregate. The table models the company’s $2,140,000 receivable portfolio across the four categories and prices each at its assigned rate.
| Aging bucket | Balance | Share of AR | Loss rate | Reserve |
|---|---|---|---|---|
| 0–30 days | $1,480,000 | 69% | 0.5% | $7,400 |
| 31–60 days | $430,000 | 20% | 3% | $12,900 |
| 61–90 days | $155,000 | 7% | 12% | $18,600 |
| 90-plus days | $75,000 | 4% | 40% | $30,000 |
| Total | $2,140,000 | 100% | — | $68,900 |
The arithmetic totals $7,400 plus $12,900 plus $18,600 plus $30,000, producing a $68,900 allowance. The concentration is instructive. The 90-plus bucket represents merely 4% of the portfolio yet generates 44% of the reserve. A single delinquent account consequently influences the estimate more than the entire current bucket, which is precisely why the aging review functions as a genuine close control.
When do you write off or reserve for doubtful accounts?
You reserve continuously and write off once. The reserve estimates expected loss and is recognized every close under ASC 326. The write-off is the subsequent accounting event that eliminates a specific invoice once it becomes uncollectible, charged against the allowance already established.
ASC 326 recalibrated the timing. The AICPA guidance on expected credit losses for trade receivables confirms the model estimates lifetime losses from the moment a receivable is recorded. The standard became effective for private companies in fiscal years beginning after December 15, 2022, so awaiting demonstrated default no longer represents acceptable practice.
The write-off remains an inferior remedy. Once the $75,000 aged invoice is deemed worthless, IRS Topic No. 453 permits a deduction for “business bad debts, in full or in part, only if the amount you were owed is included in your gross income.” At the 21% federal corporate rate, that deduction returns $15,750 against $75,000 of forfeited cash. Aaron Ressel reviews the aging and the reserve with each client before the close locks, ensuring receivables are collected rather than deducted.
Carrying an aged receivable book is separately expensive. Financing that balance absorbs the 6.75% bank prime rate published by the Federal Reserve as of August 2026. Situate this discipline within the broader month-end close process and its relationship to bank reconciliation cadence. For the runway perspective on the same balance, consult accounts receivable for startups.
Frequently asked questions
How do you reconcile accounts receivable at month end?
Tie the AR subledger to the general ledger control account and resolve every variance to zero. The subledger sums open invoices; the control account holds the ledger balance. Where a $2,140,000 subledger confronts a $2,197,500 control account, the $57,500 gap traces to identifiable causes, usually unapplied cash or a manual entry that bypassed the subledger. Apply the deposit, reverse the misposted journal, and confirm agreement before locking. That tie-out is the initial control of the receivables close.
What is revenue cutoff and why does it matter at close?
Cutoff allocates each sale to the period its performance obligation was satisfied, independent of the invoice date. Under ASC 606 revenue follows the transfer of control, so relying on billing timing alone misstates both revenue and receivables. A $46,000 engagement delivered this month but billed afterward belongs here, whereas a $63,000 invoice raised before delivery becomes deferred revenue. Repositioning each amount before the ledger locks keeps reported revenue and the receivables balance mutually consistent.
How should you review the AR aging each month?
Categorize every outstanding receivable at 0–30, 31–60, 61–90, and 90-plus days, then apply a loss rate to each category. The distribution flags escalation priorities, and the rates establish the allowance for doubtful accounts. On a $2,140,000 portfolio, rates of 0.5%, 3%, 12%, and 40% yield a $68,900 reserve. Because the oldest bucket typically holds a slim share of the balance yet drives most of the reserve, the aging review operates as a control rather than a passive report.
When do you write off or reserve for doubtful accounts?
Reserve continuously; write off once. ASC 326, the current expected credit loss model, requires estimating expected losses every close from the moment a receivable arises, through an aging-schedule or loss-rate method. The write-off is a separate later entry removing a specific uncollectible invoice against the established allowance. The framework took effect for private companies in fiscal years beginning after December 15, 2022. Since a deduction at the 21% corporate rate recovers only $15,750 on a $75,000 invoice, collection consistently outperforms deduction.
How does ASC 606 timing show up in the monthly AR close?
It surfaces as the revenue-cutoff control. ASC 606 recognizes revenue when control of a good or service transfers to the customer, which fixes the period a receivable should appear. At close, that entails testing invoices near the period boundary: obligations satisfied within the month are recognized despite lagging billing, while amounts billed ahead of delivery are deferred. FASB ASC 606-10-20 defines control as the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset, and that definition governs which month each receivable occupies.
Revenue-recognition treatment cited from FASB ASC 606. Expected-credit-loss rules from FASB ASC 326 and AICPA guidance. Bad-debt deduction rules from IRS Topic No. 453. Close-cycle benchmarks from APQC. The 6.75% bank prime rate reflects the Federal Reserve H.15 release, as of August 2026. Client figures describe an anonymized modeled engagement, not a published benchmark. All figures verified as of August 2026.
