Usually, the end of the year is a busy time for most people. But as a small business owner, you have even more things to worry about before January 1. When it comes to wrapping up the year for your business, you need to close your books. Take a look at our year-end closing checklist.
Year-end closing checklist
You need to handle several accounting tasks before the year ends. Your books should be organized and set up for a smooth transition into the new year. Make sure you check these five year-end closing procedures off your to-do list before the year comes to a close.
#1. Compile financial statements
Statements are financial tools for your business. They help you see where your past and current finances stand so you can plan for the future.
Use information recorded in your accounting books to compile year-end accounting statements. There are three important financial statements you should create.
The profit and loss statement summarizes your revenue and expenses. List all the money you gained and lost during the year on your profit and loss statement for small business. The bottom line will show the difference between money gained and lost.
The balance sheet shows your annual assets, liabilities, and capital. A small business balance sheet is another way of looking at your finances. You can see how much capital you have and how much money you owe.
The cash flow statement shows how changes in income and expenses affect your cash on hand. Cash flow reporting doesn’t just measure money available. It also shows the timing in which money comes in and out of your business. You can see which months are high and low for cash on hand.
These types of accounting records will help you understand your financial health, and will ultimately make tax season less stressful.
#2. Collect past due invoices
To wrap up your books, try to collect all the money owed to you. You should avoid rolling late payments over into the new year. There are several steps you can take to collect from a customer who won’t pay.
Contact the late-paying customer to find out why you have not received any money from them. They might have simply forgotten about the invoice. Or, they might only be able to pay part of the amount due. Negotiating your invoice payment terms could help you get paid faster. Send reminders to the customer until the invoice is paid.
You might need to hire a collection agency to help you collect a late invoice. When the customer pays, the collection agency will keep a portion of the total amount due.
#3. Check Forms W-9
Did you pay an independent contractor or vendor $600 or more this year? If so, you need a Form W-9 from each person or business.
Form W-9 is an information form that you keep in your records. You use Form W-9 to fill out Form 1099-MISC. Form 1099-MISC reports certain types of compensation, like payments to contractors.
Collect completed Forms W-9 from contractors who have not given you the form during the year. Form 1099-MISC is due to contractors and the IRS by January 1, so you must get all your completed Forms W-9 before that deadline.
#4. Organize your receipts
Keeping your receipts and other financial documents in a shoebox is not a good idea. Disorganized receipts put your business at risk for incorrectly recorded books.
Messy records heighten your chances of making errors on your business tax return. And, you might miss out on small business tax deductions. To deduct an expense, you need to show proof. If you lose the receipt, you don’t have evidence of the business purchase.
#5. Reconcile your bank accounts
To reconcile your bank accounts, compare your bank statements to your accounting records. As part of your year-end accounting procedures, your bank statements should match the balance in your books.
You may need to adjust one of the records for the balances to be equal. For example, you might see earned interest on a bank statement that might not be recorded in your books yet. In that case, you would add the interest earned to your books.
Bank statement reconciliation can help you verify that all your records are accurate. The IRS expects your accounts to be consistent.
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