The Ultimate Year-End Checklist for Closing Your Books
It's the most wonderful time of the year until you realize that you still have year-end accounting tasks to complete. For new business owners, closing the books can be a daunting task.
We've made the process easy by breaking it down into 17 steps. Although it may seem overwhelming, these steps will allow you to take control of your finances and be ready for the new year. We have also provided a printable checklist for the end of the year to make it easier.
What is YEAR-END ACCOUNTING?
Before we get into the details of year-end financial accounting, let's first define what year-end is and why it is essential for your company. Year-end accounting involves a series of steps that are performed to ensure that financial transactions are accurate and up-to-date. Year-end accounting is used to balance and close your books for 12 months. This allows you to create accurate financials and annual reports for your business. You can also spot and fix errors in your books with year-end accounting.
You can also prepare for tax time by having your books balanced and close at year-end. Then, with your financial records in order, you can start the new year fresh.
WHAT TIME DOES THE ACCOUNTING YESTERDAY END?
Some people find the term "year-end" confusing because it does not always refer to the calendar year that runs from January 1 through December 31. As a result, businesses often choose to use a 12-month period that is more appropriate for their business.
Any period that lasts 12 consecutive months is considered a fiscal year-end. Many businesses choose to have their fiscal year coincide with the calendar year from January 1 through December 31. However, some companies may opt for a 12-month period that is not consistent with the calendar year. For example, some retailers may have difficulty juggling the demands of the holiday season and the need to balance the books. These businesses might follow a different schedule, such as a fiscal year from February 1 through January 31.
Choose the best option for your company. The traditional calendar year is fine for some. Others may prefer a period more in line with business operations, such as the end of a period of high sales.
How to Close the Books in 17 Easy Steps
Are you ready to find out how to close the books at the end of each year? These are the 17 steps to closing the books. These year-end accounting procedures will help you prepare to run year-end financial statements. They also allow you to start the new year with perfectly balanced books.
STEP 1: CREATE VOICES
Ensuring all income, expenses, and income are correctly recorded is one of the most important aspects of closing your business's financial years. Therefore, all unbilled orders and projects should be invoiced immediately.
STEP 2 - SEND INVOICE REMINDERS
You should also follow up immediately with customers who haven't paid their invoices. Most accounting software can send reminder emails for invoice payments. Make use of this feature to get your invoices paid quickly.
As a last resort, you can write off unpaid invoices that are not paid or refused to pay you. This is provided you have made enough efforts to collect the payment. Talk to your accountant to determine if this is the right action for your small business.
STEP 3 - RECORD EXPENSES
Now is the perfect time to get caught up in categorizing and recording your expenses. But, first, make sure you document all costs in your accounting software. This will allow your accountant to find all tax-deductible expenses that your company is eligible for.
This can be made more accessible by keeping track of your expenses throughout the year.
STEP 4 - SEPARATE PERSONAL & BUSINESS Expenses
Small businesses should have a separate account for business expenses. But, this is not the case for many freelancers and smaller companies. This means you need to separate personal and business expenses.
The IRS could issue an IRS audit if they suspect small business deductions are personal expenses. Therefore, it is essential to separate your personal and business expenses. You can easily separate expenses with accounting programs like QuickBooks and XERO.
STEP 5: UPDATE MILEAGE LOG
Tax season is right around the corner. Keep your mileage log up-to-date to maximize your small business tax deductions.
Specific programs, like QuickBooks and XERO, allow you to track your mileage within their app. You can also use a paper log to record your mileage and the date and reason you traveled.
STEP 6 - PAY BILLS FROM VENDORS
You must ensure that all customers pay you. Additionally, you must repay any vendor debts your small business may have.
STEP 7: PAY CONTRACTORS
Make sure you pay all your contractors before closing your books.
We have a list of the top payroll software for small businesses that will make it easier to pay employees and contractors.
STEP 8: RECONCILE BANK ACCOUNTS
After all your income and expenses have been adequately recorded, reconcile all bank and credit card accounts. Verify that your income and expenses match those on your bank statements. This will help you to identify any discrepancies or mistakes.
Reconciling your accounts monthly can make the process more efficient and less time-consuming.
Need assistance reconciling your year-end and monthly accounts? Ask your accountant or contact your accounting program's help center for assistance.
STEP 9: UPDATE FILLED ASSETS
Before closing the books, ensure that all fixed assets are current. Add any additional fixed assets you might have forgotten.
Fixed assets are long-term assets with a longer life span than one fiscal year.
If your company purchases new computers, they would be considered fixed assets, not expenses. Although you may have paid an expense for the computer, it is a fixed asset that lasts more than one year.
STEP 10: RUN DEPRECIATION
You will need to depreciate all your fixed assets for the year. Fixed assets can last for more than one year. Depreciation is how the IRS determines how much time was spent on an asset in a given year. The amount that was used can be deducted from your tax. You can talk to your accountant to get more information. You can either have your accountant assist you in running depreciation or use accounting software programs like Xero or QuickBooks to do it yourself.
STEP 11: DECIDE ON EMPLOYEE BONUSES
Decide whether your company will offer employee bonuses before the end of your financial years. If you decide to provide employee bonuses, ensure you have the appropriate withholding tax.
STEP 12: DOUBLE CHECK PAYROLL TAXES
Ensure your payroll tax liabilities align with your quarterly payroll returns. Talk to your accountant if there are discrepancies before closing the books.
STEP 13 - VERIFY EMPLOYEE INFORMATION
Review all information about current and former employees and contractors for the year. First, verify that everything is correct. Then, send an email to your team to confirm that there have not been any changes. Contact information for employees must be accurate to send W-2s and 1099s before tax season.
STEP 14: COUNT YOUR Inventory
Next, do your final inventory count. This count should be done on the day your books close (in many cases, December 31). As these numbers are used on multiple tax forms, small businesses should record inventory at the beginning and end of each year.
STEP 15: RUN THE REPORTS
Your accounting software can run a Profit and Loss (or Income Statement) and a Balance Sheet report. Verify that both reports are correct.
You might also like to run your Statement of Cashflows and be ahead of the curve by running critical reports that your accountant will require for taxes.
STEP 16: CREATE AN COMPANY FILE
This step is crucial. After you have completed steps 1-15, create your company file with the year's data. It is not a good idea to lose important accounting data. Your accountant will require access to the company file to file tax returns and make year-end adjustments.
If your software does not have a company file function, you can export essential data to separate files and save them securely.
STEP 17: CLOSE ALL BOOKS
After you have completed each step and checked off every part of the Year-End Checklist, you can officially close your books. Again, accounting software makes it easy.
Users won't be able to add or edit transactions made before the lock date or close their books. Most businesses will create a password to restrict access to transactions that have occurred before the closing date. This allows your accountant to double-check everything and make any necessary adjustments.
Most accounting software, including QuickBooks and Xero, allow you to close the books or lock closed periods. For more information, you can either search the help center of your software or talk to your accountant.
GET STARTED WITH OUR YEAR-END ACCOUNTING CHECKLIST
Are you ready to jump-start your year-end accounting software project? First, check out our year-end accounting checklist to ensure you don't miss a step. Then, after you have closed your books, continue the momentum and prepare for tax season. Don't let April 15 slip by you. We have many great resources to help you prepare.
