Month-End Close for a Garment Factory: Reconcile Before Reporting

A balanced ledger can still tell the wrong story

A fabric delivery reaches the factory on the last afternoon of the month. Stores records the rolls, but the supplier's invoice arrives three days later. The finance team has already drafted its monthly report. Should the receipt wait for next month, or does the close need to change?

The invoice date alone cannot answer that question. The facts and the accounting basis matter too. A useful month-end close connects factory events to the ledger. It explains differences and leaves a record of the review. Producing a balanced trial balance is only one part of that work.

This guide uses a fictional garment factory to build a practical close process. Its accounting examples apply the stated IFRS principles to simple facts. Actual reports must follow the entity's accounting framework, policies and local rules. A management close calendar does not set a tax deadline. Nor does it, on its own, produce a full set of compliant financial statements.

The worked amounts are invented currency units, abbreviated CU. Tax is excluded from the simplified ledger throughout. We will trace each change from its source to the accounts. That makes it easier to find errors and avoid counting the same event twice.

Set the period and the evidence cut-off

The close begins with a shared definition of the reporting period. For a September close, gather the records for events through September 30. Some supporting documents may arrive in October. It also needs a controlled point at which the draft report is reviewed and approved.

Those are different dates. The period end describes what the accounts cover. The evidence cut-off sets the working timetable for collecting information. A later cut-off gives the team more time to collect evidence. It does not move the date of a receipt or the work that staff performed.

Each department should know what it must provide. Stores supplies receipt, issue, return and transfer records. Production confirms work in progress and completed output. Payroll provides approved earned amounts and unresolved attendance items. Sales supplies the documents needed to assess deliveries, returns and customer balances.

Finance then connects those records to the accounting policy. A truck at the gate provides evidence of an event. Its accounting treatment still depends on the contract and the facts. Check goods held for another party and goods in transit. Also check factory-owned goods held by an outside processor.

The IFRS Foundation's IAS 10 overview makes a key distinction. Later evidence may reveal a condition that already existed at period end. A condition that arose later is different. That distinction helps explain why a late document can matter to an earlier period. IAS 10 addresses financial statements and their approval for issue. Management sets the factory's monthly internal deadline as a separate matter.

Build a calendar around dependencies

One department cannot finish an account that depends on another department's unfinished records. Show the expected evidence on the close calendar. Name the person who must provide it. A list of report names alone leaves those tasks unclear.

The following timetable is an illustrative five-working-day close. A factory should adapt it to its systems, risk and reporting needs; five days is not a universal standard.

Some work can overlap. Bank matching and fixed-asset review need not wait for every inventory estimate. The final inventory reconciliation needs to include posted adjustments. The final profit report must use the approved version of the ledger.

The accounts manager should make dependencies visible when a task slips. If payroll is pending, name the missing attendance file. State who must supply it and when it is due. The reviewer can then judge whether a sound estimate is possible. If not, the report may need to remain provisional.

Reconcile balances, not just spreadsheet totals

A reconciliation compares two records of the same account. Both must cover the same basis. It starts with the period, entity, currency and relevant balance. It then lists the differences, explains them and shows what remains to be resolved.

For example, the supplier-payable listing may agree with the general ledger. Yet both may omit a goods receipt that has not reached finance. The two records match, but both can be incomplete. Their agreement does not prove that the factory has recorded every liability. Completeness needs evidence from outside that particular pair of records.

The US GAO's 2025 Green Book explains how reconciliations compare records. They help find missing, wrong or unauthorised entries. It also discusses separating incompatible duties and documenting control work. This is a US federal control framework. We use its general control principles here. The Green Book does not impose a legal duty on garment factories.

A factory reconciliation should name its preparer and reviewer. It also needs links to the source reports and the review date. The reviewer needs to see the underlying differences, not only a green status cell. A balance may remain unexplained for months. Carrying it forward each time does not make it more reliable.

Two large errors can also cancel. Suppose an invoice and an equal credit note are both posted twice. The net balance stays unchanged. Review the relevant transactions and old open items as well as the final total. A journal that merely makes two numbers agree can hide the warning. It leaves the cause unresolved.

Preserve the records behind the comparison

A report can have the right heading and still cover the wrong population. An inventory export may omit a store location. A supplier listing may show only overdue invoices. A payroll file may exclude employees whose records were held for review. The close pack should retain the filters and scope used to produce each total.

The timing of the export matters too. Suppose finance downloads the inventory ledger before stores posts the final receipt batch. The later stores report will differ even if both systems work correctly. The reviewer needs the extraction time and posting status to explain that difference. After posting the late batch, update both records. Use those versions for the final comparison.

An interface control should check more than whether a file was sent. Did the receiving system accept all records? Were rejected items corrected and posted once? If a file was sent again, could it create duplicate receipts? Record counts and value totals can help reveal a failed transfer. The team must still check the exceptions.

Units deserve a specific field. Fabric metres, kilograms and rolls are not interchangeable quantities. The accounting report may show value while the stores report shows physical units. The reconciliation needs a valid bridge between physical units and value. An unexplained adjustment cannot supply that bridge.

Separate entity and location as well. Two stores may belong to the same entity. A transfer between them differs from a sale between separate companies. An outside processor may hold stock that still belongs in the factory's accounts. Check the facts before excluding it. A location filter should not decide ownership by accident.

The final close file should preserve the source extracts actually used. A live report may change with later postings. Keep an approved snapshot or another sound record of exactly what the report covered. The next reviewer can then trace the result. There is no need to guess which filters the team used.

Trace the late fabric receipt through both months

Return to the September delivery. Assume the factory controlled the fabric and owed the supplier at September 30. The contract and receipt evidence support both facts. All 500 metres were still held at that date. Their complete cost is CU4 per metre, with no further freight, tax or other cost to add in this example.

The receipt value is 500 × CU4 = CU2,000. Both inventory and the related liability were omitted from the September ledger. On these facts, the receipt belongs in September. A late invoice does not make it an October purchase.

The September entry is a CU2,000 debit to inventory and a CU2,000 credit to an accrued goods liability. Factories may call the latter account goods received not invoiced, or GRNI. Its name matters less than its purpose and its link to the receipt.

The invoice arrives on October 3 for the same CU2,000. Finance matches it to the receipt and the existing liability. It clears the accrued goods liability with a debit. The matching credit goes to the supplier payable. It does not debit inventory a second time.

That second step deserves a clear control. Some systems reverse accruals automatically. The reviewer must check what will happen when the invoice is posted. Trace the manual accrual through the accounts. Then check any automatic reversal and the purchase entry. Their combined effect could leave a duplicate asset or a temporary gap. The process should follow one documented route and reconcile the result.

If the invoice differs from the estimate, find the reason. Check which period the difference belongs to. It should not be pushed into a convenient account merely to clear GRNI. A quantity difference may need different treatment from a price change. Freight and tax differences also need review under the entity's policies.

Keep inventory quantity and value separate

The IAS 2 summary explains that inventory is measured at the lower of cost and net realisable value. Net realisable value starts with the expected selling proceeds. It deducts the relevant costs to complete and sell the goods. The close therefore needs more than a quantity total.

For the fictional factory, the unadjusted inventory balance is CU12,500. Adding the omitted fabric brings recorded cost to CU14,500. A separate finished-garment lot within that balance has cost CU600. The damage existed at September 30. Evidence supports a net realisable value of CU450.

The write-down is CU600 − CU450 = CU150. The example records an inventory write-down expense and reduces inventory by CU150. Closing inventory becomes CU12,500 + CU2,000 − CU150 = CU14,350.

The finished-garment lot is separate from the new fabric receipt. Its physical quantity has not changed because its value fell. Stores keeps the lot's identity and quality status. Finance keeps the evidence for its value. A valuation adjustment is not a record of physical disposal.

Work in progress needs a similar connection between factory status and accounting records. A production quantity does not prove a value on its own. Use the approved cost basis at the close. Check whether material, labour or overhead has already been included elsewhere. Transfers from one production stage to another should not create inventory twice.

An order quotation is also a different document from an inventory valuation. ApparelDiary's garment costing guide explains the production-cost and price relationship. The close still needs the entity's accounting basis for the goods it holds at period end.

Accrue earned payroll on the right cost basis

Payday and the period of service may fall in different months. IAS 19, paragraph 11, addresses short-term benefits earned through employee service. The unpaid amount is recognised as a liability. It is also an expense, with one exception. Another standard may require or permit that amount as part of an asset's cost.

In the worked close, staff earned CU900 of administrative wages in September. Payment falls in October. The amount is supported and was omitted from the ledger. Here it is an ordinary period expense. The entry debits administrative wage expense and credits wages payable by CU900.

This assumption is deliberate. Production labour may form part of inventory cost under the applicable policy. Some payroll accruals may belong in inventory. Charging them all straight to profit can give the wrong stock and expense values. Match each payroll category to the cost system. One account code may not suit every worker's role.

Payroll staff should check the approved register and deductions. They reconcile those records with amounts paid and amounts still owed. Pending time corrections need an owner and a documented estimate where appropriate. Use the available attendance and wage-rate records. An arbitrary share of last month's wages is a weaker basis.

An entry can be arithmetically correct while the wage arrangement is unlawful. Check the rate, deductions and payment date under the relevant rules. Those matters follow the employment terms and local rules. Use the approved amounts in the close and flag disputes. An open payroll issue must not quietly appear as settled.

Review receipts and revenue as separate events

Cash arriving from a customer does not always mean the factory has earned revenue. IFRS 15 ties revenue to the transfer of promised goods or services under the contract. Timing may depend on whether the relevant obligation is satisfied at a point in time or over time.

Assume the factory received CU1,500 for an order before September ended. It had not yet transferred any promised goods or services on that order. The contract meets the relevant recognition criteria. No revenue has been earned on that advance. The receipt was wrongly credited to revenue instead of a contract liability.

IFRS 15 paragraph 106 addresses payments received before the related transfer. It explains why they give rise to a contract liability. The correcting entry debits revenue and credits contract liabilities by CU1,500. Cash remains where it is; the correction changes the reason for holding it.

For other orders, finance must decide which period includes the revenue. Review the contract alongside the delivery evidence. An invoice date, dispatch note or warehouse exit can provide useful evidence. None sets a universal rule apart from the contract. Returns, credits and disputed deliveries need review on the same basis.

The customer ledger must show what each credit means. It may be a genuine advance, an overpayment or a receipt awaiting allocation. It may also settle an existing invoice. Each can appear as a credit in the customer account. Their causes differ, so their presentation may differ too.

Review foreign balances before reporting profit

A supplier need not send a new invoice for the payable's value to change. Exchange rates can alter its value in the entity's functional currency. IAS 21 distinguishes monetary balances from non-monetary items. Paragraph 23 uses the closing rate for foreign-currency monetary items. Paragraph 28 addresses the resulting exchange differences, subject to its stated exceptions.

An ordinary supplier invoice remains unpaid. Assume its amount is 1,500 foreign currency units. It was recorded at CU2.00 per foreign unit, or CU3,000. The closing rate is CU2.10, so its closing value is 1,500 × 2.10 = CU3,150.

The liability rises by CU150. This example has no hedge accounting, net-investment issue or other special treatment. Finance records a CU150 exchange loss. It increases the supplier payable by the same amount.

Both exchange rates are invented teaching values, not current market quotes. A real close needs an approved rate source, the reporting date and a clear quote direction. The calculation uses local currency per foreign unit. If the rate is quoted the other way round, the arithmetic changes.

The team should not apply this payable calculation to every foreign-related balance. Historical-cost inventory and foreign-currency advances can raise different issues. Finance must classify the item first, then use the relevant policy and guidance. Using one spreadsheet rate for every account may look consistent. It can still create errors.

Follow every adjustment into the final figures

Before the changes, the fictional ledger shows assets of CU50,000. Liabilities are CU30,500 and equity is CU19,500. Equity includes the current month's CU7,300 profit. Assume all other balances are correct. The simplified model excludes tax, owner transactions and other equity movements.

The five identified corrections are:

The total reduction in profit is CU150 + CU900 + CU1,500 + CU150 = CU2,700. Adjusted profit is CU7,300 − CU2,700 = CU4,600. The fabric receipt changes assets and liabilities but leaves profit unchanged. All that fabric remains in inventory in this example.

The balance-sheet reconciliation gives a separate check:

Assets: CU50,000 + CU2,000 − CU150 = CU51,850.

Liabilities: CU30,500 + CU2,000 + CU900 + CU1,500 + CU150 = CU35,050.

Equity: CU19,500 − CU2,700 = CU16,800.

Thus CU35,050 + CU16,800 = CU51,850, matching assets. The entries preserve the accounting equation while changing its reported amounts.

The unadjusted cash balance was CU8,500, including the customer advance already received. None of these correcting entries changes cash, so it remains CU8,500. A CU2,700 reduction in accounting profit is not a CU2,700 cash outflow at the close.

This arithmetic check is necessary but not sufficient. A wrong debit with an equal wrong credit would also balance. The reviewer must still assess the underlying event, account, amount and period.

Make the review visible in the close pack

The close pack should let another finance professional trace each material balance. The preparer should not need to rebuild the month's records to explain it. Link each account schedule to the final ledger. Include the source records that support its figures. Proposed entries should show why they are needed and who approved them.

The reviewer should challenge changes that do not fit the factory's activity. Rising finished stock alongside reported strong sales may need explanation. A sudden fall in wages payable may reflect payment, a missing accrual or a wrong reversal. A steady percentage may still be wrong. Missing values in both its numerator and denominator can hide the error.

Reviews need a clear level of authority. The person preparing a journal should not be the sole approver of that same judgement. Full separation may be hard in a small team. An owner or another qualified person may need to review the work to reduce that risk. That review must have access to the evidence and enough time to challenge it.

An ERP can support these links. It can control posting and retain report versions and audit trails. It still needs reliable source data and correctly set interfaces. ApparelDiary's ERP factory checklist provides a broader way to assess those connections. During the close review, trace records into the ledger. Check failed imports as well as those that arrived.

Close the period without hiding open questions

Some items may remain uncertain when management needs a report. The close pack should distinguish a supported estimate from an unexplained difference. It should identify the amount at risk, the evidence still needed, the owner and the next action. Material uncertainty may require further work or a clearly provisional report.

After approval, lock the period under the entity's access policy. Keep the issued report version. A later change should have a documented reopening or correction route. If someone quietly changes a spreadsheet, two report versions may remain in use. Managers could then disagree about the month's profit.

Begin the next close with the items left open. Check the planned reversals as well. Was the CU2,000 receipt matched to its October invoice? Was the CU900 wage liability paid or otherwise cleared? Did an automatic entry reverse exactly what was intended? A completed calendar is less useful than evidence that these balances moved correctly.

Finally, improve the source process that caused each recurring adjustment. Late receiving records may need a better daily interface. Repeated unsupported accruals may reveal weak purchase or payroll records. Month-end should confirm the month's accounting. Better daily processes reduce the need for last-minute repair.

References

• IFRS Foundation: IAS 10, Events after the Reporting Period.

• US GAO: 2025 Green Book, including reconciliation and separation-of-duties guidance.

• IFRS Foundation: IAS 2, Inventories.

• IFRS Foundation: IAS 19, Employee Benefits, paragraph 11.

• IFRS Foundation: IFRS 15 overview and contract-liability guidance in paragraph 106.

• IFRS Foundation: IAS 21, foreign-currency transactions and balances.