When you close your books at the end of the year, it’s important to verify that they’re up-to-date and accurate. All industries and businesses have different accounting and bookkeeping tasks, but here’s an overview of general tasks that are relevant to almost every business.
1. Record and categorize all your income and expenses
It can be easy to let a month slip by without recording your income and expenses, but at the end of the year, all your records need to be recorded and updated. Make sure that your business expenses are separate from personal. For example, if you work from home, a portion of your rent and utilities could be written off as a business expense.
2. Reconcile your bank accounts, credit cards, line of credit, loans, etc.
Verify that your statements match your bookkeeping records. If there are any mistakes, missing transactions or suspicious activity, you’ll want to do some investigating. Having inaccurate records result in underpaying or overpaying your income tax.
3. Run aging reports for accounts receivable and accounts payable
Check if there are any outstanding receivable and payable balances. If there are any projects you haven’t billed a client for, then create invoices and send them out. If there are still some payments you’re waiting to receive, send invoice reminders.
Verify that all your bills and expenses have been paid and recorded and check statements from your vendors with your own records to ensure accuracy.
4. Write off bad debts
Unfortunately, not everyone pays their bills. Invoices that don’t receive payment will need to either be written off or sent to a collection agency.
5. Verify employee payroll records and information
If you have a payroll, then it’s time to start preparing to file W-2s and W-3s. Check that you have a current mailing address for every employee.
6. Determine whether individual contractors or vendors are 1099 eligible
Contractors or vendors that were paid $600 or more during the year are 1099 eligible and will need a tax ID. The deadline to file a 1099 is January 31, so this is something you don’t want to put off!
If you’re unsure about this process, check in with your accountant or bookkeeper if you have one, and they will be able to help you.
7. Update inventory
If you sell physical products, review and ensure your count is up to date. Compare your count to what you have reported on your financial statements. If there are any discrepancies, investigate and adjust your books to reflect the correct inventory.
8. Update fixed assets
Any new fixed assets from this year will need documentation with a description, purchase date, and purchase cost. Assets sold during the year need to be recorded.
9. Run Profit & Loss and Balance Sheet reports
Generate a Profit & Loss (Income Statement) and a Balance Sheet for the year. When you meet with an accountant at the end of the year, you’ll need these reports to show them your income and expenses.
10. Meet with a CPA for a Year-End Tax Review
Now that you’ve got your books in order, it’s time to meet with a CPA. At the end of the year, small business owners should meet with a CPA to get an estimate on tax liability and make year-end adjustments. This will help you avoid penalties and give you fair notice before you need to pay the taxes.
We want to highlight the importance having your books updated and accurate before you meet with a CPA. This will save time both for you and the accountant. If you don’t, it can be very costly to have a bookkeeper put your reports together at the last minute.
Here are the basic documents you will need to provide your accountant at your year-end tax review:
A copy of your bookkeeping records
Financial statements for the year (balance sheet, P&L statement, cash flow statement)
Payroll records
Depending on your business, there may be other documents you need to provide, so contact your accountant to discuss what else you will need to bring.
How to Make Your Life Easier Come Year-End
As you can see, there’s a lot that goes into closing your books at the end of the year. That’s why you should not wait until last minute to get caught up. Constantly keeping your books up-to-date and ensuring accuracy all the way through will make your life a lot easier and give you the opportunity to make the best financial decisions in the new year.
Having your books in order before or shortly after the new year will set your year up for success. It will allow you to start planning and setting new goals knowing that the previous year is wrapped up nicely with a bow.
Do you find yourself struggling to keep up with your books? Here at Summit Bookkeeping, we offer customizable and flexible services to meet your needs. Whether you handle your own bookkeeping and just need occasional support or are in need of a full-charge bookkeeper, we’re happy to help. We can review your books on a regular basis to keep them up-to-date and accurate, allowing you to file your taxes without a headache at the end of the year.
Give us a call at (360) 756-5020 or contact us here. We'd love to talk with you!