Did switching your calendar to November 1st throw you for a head-spin?
But while we are more mesmerized by how fast this year came and went, many business owners routinely find themselves unprepared and scrambling to correctly close their books at year-end.
We know how overwhelming the year end-procedures can be, especially if you’re juggling them in addition to heavier traffic and sales.
Instead of rushing to prepare to close out the year, use a year-end closing checklist to organize the way you wrap up the year! Our MCDA CCG financial professionals have identified the most common mistakes business owners make during this high-pressure time and have created the following checklist to ensure that you can confidently close out the year.
What Is Year-End Accounting?
Before diving into our detailed checklist, let’s first discuss why year-end accounting is important for your business. As a business owner, you want to ensure that your financial transactions are up to date, properly recorded, and that you’re ready to transition into the new year. Year end accounting begins by balancing — then closing — your books for a 12-month period to allow you to run accurate annual reports and financial statements for your business.
This is also used to help you spot and correct any errors in your books.
When your books are properly balanced and closed at year-end, you will be sufficiently prepared for tax season.
Year-End Closing Checklist
No matter the size or type of your business, your accounting books should be organized, up-to-date, and ready to transition into a new year.
Before the year comes to a close, make sure you check these procedures off your year-end accounting closing checklist.
Step 1: Collect Financial Statements
Your financial statements are critical components of your business as they provide a visual of your company’s financial position. Furthermore, proper statements allow you to see past and current finances, enabling you to forecast your company’s financial future while lessening the burden of tax season.
You can access your financial records in your accounting books. Use your accounting records to compile year-end statements. There are a few financial statements that you should have handy, including:
Your income statement, or profit and loss (P&L) statement, is a summary of your revenue and expenses. It should list all of the money you earned and lost throughout the year.
Cash flow statement
Your cash flow statement lists your business’s incoming and outgoing cash.
Cash flow can be positive, meaning that your business has more incoming money than expenses. You have negative cash flow when you spend more money than what you’re bringing in.
Tracking your cash flow can also help you create a cash flow forecast and predict your future cash flow.
Your business balance sheet shows your assets, liabilities, and equity and tracks your company’s financial progress.
Here’s a look of the different aspects of your balance sheet:
Assets: What you own
Liabilities: What you owe
Equity: Money leftover after you pay expenses
Your liabilities and equity should always be the same amount as your assets.
Step 2: Create Invoices and Collect Past Due Invoices
As you prepare to close out your business’s financial year it’s imperative that all income and expenses are properly recorded and up-to-date.
If you have any unbilled invoices, don’t wait any longer to send them. Get all unbilled projects and orders invoiced immediately. For the customers who have yet to pay their invoices, immediately follow up with them (most accounting software provide email invoice reminders). Customer won’t pay? Check out this link for some tips.
Step 3: Record Expenses
It’s common to fall behind on recording and categorizing your expenses, but now is the time to catch up. Ensure all expenses are entered into your accounting software for accurate record-keeping and to help your accountant find all of the tax-deductible expenses your business qualifies for.
Step 4. Collect Forms
If you paid an employee or independent contractor during the year, ensure you have their forms on file for January. Go over all current and past employee and contractor information for the year and verify that the information you have on file is completely accurate. Consider sending an email to your team to find out if there have been any changes.
Step 5. Check Payroll
Your accounting and payroll records go hand in hand. At year-end, make sure all of your payroll records are accurate and up-to-date in your books.
You should create and utilize a checklist for your year end payroll processes like your year end accounting checklist.
You want to ensure that your payroll tax liabilities match your quarterly payroll returns. If there are any discrepancies, talk to your accountant to get everything in order before you close the books.
Before the end of your financial year, decide whether or not your company will be offering employee bonuses. If so, you’ll need to set aside the proper withholding tax.
Step 6: Count Your Inventory
Next, you must get an accurate count of your supplies and material in your business stores inventory. If you do store physical inventory, complete a check before year end. Accounting for inventory helps you see how much you spent on inventory during the year and its value.
Match your inventory totals to your balance sheet and make adjustments if you find any inconsistencies.
Organize Business Receipts
If your receipts are disorganized you are putting your business at risk for sloppy and inaccurate books. This can increase your chances of making errors on your business tax return and cause more problems down the road.
To maintain organized business receipts, consider:
- Sorting receipts by expense type
- Using folders and labels
- Organizing receipts by date
- Storing receipts digitally
Step 8: Reconcile Your Bank Accounts
Once all of your income and expenses are properly recorded, be sure to reconcile all of the bank and credit card accounts for your business. You want to make sure that the income and expenses recorded in your accounting software match the totals from your official bank statements. If they don’t, there’s a discrepancy or mistake somewhere that you’ll need to address.
Need help reconciling your accounts? Reach out to an accounting professional or message our team for assistance.
Step 9: Create A Company File
Once you have completed the above steps, create a store a company file of the year’s data. Not only do you want to keep important accounting data safe, your accountant will also need access to your company file in order to make any necessary year-end adjustments and to file taxes.
And this concludes our checklist! We hope that this checklist can serve as a powerful tool in your business year-end close.
If you are feeling slightly overwhelmed, you’re not alone -while it’s crucial that you properly close out the year, the preparation involved can intimidate even the most assured business owner.
If you would like to simplify these year-end close processes business, reach out as our MCDA CCG financial professionals are more than happy to help! With industry-wide experience walking business owners through complex financial processes, we are certain that our methods will set you up for financial success for the upcoming year. Our success with the companies we work with demonstrates the value we can provide to your own.
Take action and cure the headache of financial overwhelm by calling our headquarters -in Placentia, Orange County, California-today!