The end of the year is a critical time for your business. Accurately and efficiently closing your books at year-end is essential to success – helping you analyze the decisions you’ve made in the past year, remedy any issues, and make informed decisions for the year to come, as well as preparing the business for proper tax reporting and filing.
However, the process can certainly be daunting. It’s estimated that the average accounting team takes approximately 25 days to complete a year-end close – reviewing, reconciling and verifying all financial transactions, while calculating business expenses, income, revenue, assets, investments, equity, and more. The year-end close also coincides with the month-end close, and the quarter-end close, resulting in a heavy workload.
Your CPA can assist you with this process, customizing the closing to the specific needs of your business. However, if you’re tackling the closing yourself, we’ve put together a checklist of important tasks that will help you get started.
- Prepare a closing schedule
First and foremost, identify and make a list of all important deadlines for your business, and the activities that must be completed by each date. This includes reporting and data processing deadlines, as well as your fiscal close date.
- Gather documents
Be sure to have copies of your filed 1099’s, W-2s, tax returns, and payroll reports. You’ll also need any outstanding invoices and receipts in order to close the books, including any employee expenses.
- Verify vendor W-9s
Review your vendor file to ensure that you have W-9s for all of the vendors you used this year. 1099-MISC and NEC statements must be issued to recipients no later than January 31.
- Reconcile your assets
This not only means reconciling your cash accounts, but can also include reconciling your inventory accounts if you maintain a physical inventory. If you have inventory that is not salable, you will need to write it off as an expense.
- Reconcile your transactions
You’ll need to reconcile your bank accounts and credit cards through December 31st, and resolve any unreconciled discrepancies, paying attention to any checks issued and following up on any outstanding items.
- Review your balance sheet
All of your balances must be properly stated and supported, and your cash accounts must match your bank reconciliations. Ensure that all applicable assets have been capitalized according to your fixed asset policy, and that the proper amortization and depreciation have been recorded. You’ll also need to reconcile your retained earnings, business loans and interest, vendor payments, and sales tax payable. Don’t forget to review the detail of accrued expenses such as PTO, bonuses, commissions, and any payroll amounts that were earned this year, but are scheduled to be paid after year-end. You should also verify that any 401(k) matches or other retirement payments have been recorded.
- Review your profit and loss report
It’s important to run a detailed profit and loss report to ensure that your revenue, cost of goods sold, expenses, and income are recorded correctly. You can compare month to month, and year over year to look for any big swings or discrepancies that might need further investigation.
- Reconcile payroll
It’s also a good idea to review your year-to-date payroll register for salaries and wages, or a year-end earnings history report. Generally, payroll should reconcile to your W-3, however there are certain exceptions, like medical, dental, life and disability insurance, or retirement plans, that may not reconcile.
- Review prior year adjustments
Your year-end books must reconcile with last year’s tax return. If any accounting updates or journal entries were performed during tax preparation, these should be reflected in your books. For partnerships, you should also ensure that your profit/loss allocation among partners has been correctly reported.
This list is not all inclusive, and may vary depending on your specific situation. Your CPA can offer personalized advice and assist you with a smooth year-end close. It’s best to be proactive – engage your CPA early so that they can help you take steps to make year-end closing easier. If you have questions, leave a comment below, or feel free to contact me directly. I’m happy to help!