Year-end Closing Checklist for Accounting | 7 Tasks
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The Ultimate Year-end Closing Checklist for Accounting

The end of the year is a busy time for entrepreneurs and employers. If you’re like most business owners, you’re probably juggling year-end accounting procedures in addition to heavier traffic and sales.

Instead of scrambling (or forgetting) to get your year-end accounting processes done, use a year-end closing checklist to organize the way you wrap up the year.

Year-end closing checklist

Before the clock strikes midnight on December 31, you need to square away several accounting tasks. Your accounting books should be organized, up-to-date, and ready for the transition into a new year.

Before the year comes to a close, make sure you check these seven procedures off your year-end accounting closing checklist. Keep in mind, your year-end checklist might differ from another business’s depending on your size and processes.

year-end closing checklist

1. Gather financial statements

Your financial statements are a lifeline for your small business. They give you a glimpse of where your business stands financially. And, statements let you see past and current finances so you can forecast your business’s financial future.

Financial statements will ultimately help you understand your business’s financial standing and (hopefully) make tax season less of a burden on your company.

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:

  • Income statement
  • Cash flow statement
  • Balance sheet

Income statement

Your income statement, or profit and loss (P&L) statement, summarizes your revenue and expenses. Your income statement should list all of the money you gained and lost throughout the year.

Here are some things you might include on your P&L statement:

You can find your business bottom line by looking at the difference between money gained and lost on your statement.

Cash flow statement

Your cash flow statement lists your business’s incoming and outgoing cash. Cash flow statements only record the actual cash you have, not credit.

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.

Your cash flow statement can show you the timing in which money comes in or goes out of your business. For example, you can see which months have a higher cash flow and the months where your business’s cash flow is struggling.

Tracking your cash flow can also help you create a cash flow forecast and predict your future cash flow.

Balance sheet

Your business balance sheet shows your assets, liabilities, and equity and tracks your company’s financial progress.

Here’s a snapshot of the different aspects of your balance sheet:

Your liabilities and equity should always be the same amount as your assets.

Confused? Use the accounting equation below:

Assets = Liabilities + Equity

2. Collect past due invoices

If you want to wrap up your books for year-end, try to collect all of the money that customers owe to your business.

So, what do you do if a customer won’t pay? You can (and should):

  • Set up payment terms (e.g., due dates)
  • Document the payment process
  • Send out payment reminders
  • Contact customers with past due invoices
  • Establish a payment plan with customers

When reaching out to customers about past due invoices, be professional. Be understanding, patient, and positive when you reach out to late-paying customers. Not to mention, if you go rogue on a customer, they may lose respect for you and your business.

If collecting payments from customers is difficult, consider offering them a payment plan instead. The customer might not be able to pay their invoice off all at once. Negotiating an installment plan can help you get paid faster. Plus, it shows customers that you care about their business and understand their situation.

If you really can’t collect the money yourself, consider hiring outside help. Collection agencies will do the dirty work for you. However, the collection agency will keep a portion of the total amount due.

3. Collect forms

If you paid an employee or independent contractor during the year, make sure you have their forms on file for January. Otherwise, you will not be able to distribute 1099s or W-2s to your workers.

Forms W-9

If you paid an independent contractor or vendor $600 or more this year, you need to give them IRS Form 1099-MISC in January. To do so, ensure you’ve collected Form W-9 from all applicable contractors or vendors.

Before the end of the year, be sure you have a W-9 form on file for all contractors and vendors you paid $600 or more to throughout the year. If you’re missing a form, ask your vendor or contractor to complete one before year-end.

Forms W-4

If you have employees, you also need to make sure you have IRS Form W-4 on file for each of them. At year-end, check your records to verify you have Form W-4 for each employee you hired during the year (including terminated employees).

4. 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.

Things to look at and account for in your books include:

  • Raises
  • Year-end bonuses
  • Withheld tax amounts
  • Benefits

Like your year-end closing accounting checklist, make sure you also create and utilize a checklist for your year-end payroll process.

5. Account for inventory

You must get an accurate count of the materials and supplies you have on hand if your business stores inventory.

If your business has physical inventory, complete an inventory check before year-end. Match your inventory totals to your balance sheet. If you find discrepancies between your count and balance sheet, make adjustments.

Accounting for inventory at year-end can help you know how much you spent on inventory during the year and its value.

6. Organize your business receipts

Are you still storing your business receipts in a shoebox? If so, you might want to rethink the way you organize business receipts.

Disorganized receipts can put your small business at risk for sloppy and inaccurate books. Not to mention, messy records can increase your chances of making errors on your small business tax return and cause more issues in the future.

To keep your business receipts organized, you can:

  • Sort receipts by type of expense
  • Use folders and labels
  • Organize receipts chronologically
  • Store receipts digitally on your computer or device

To keep your receipts in shipshape year-round, make sure you organize from the get-go. As soon as you get a receipt, organize it using your filing or storage system. That way, you don’t have to worry about misplacing the receipt or forgetting to account for it.

7. Reconcile bank accounts

A major aspect of your accounting closing procedures checklist is reconciling your bank accounts.

Bank account reconciliation can help you verify that all of your accounting records match your bank accounts.

To reconcile your accounts, compare your bank statements to your accounting records. Your bank statements should match the balance listed in your books. If they don’t match, do a little digging to find the discrepancy. You may need to adjust one of your records for the balances to be equal (e.g., interest amounts).

Year-end can creep up quickly. Download our FREE guide, Are Your Books Ready for Year-end?, to learn what to include on your year-end accounting to-do list!

Looking for a way to make your year-end closing process a breeze? Patriot’s accounting software lets you streamline the way you organize and record transactions in your books. Get started with your self-guided demo today!

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This article has been updated from its original publication date of December 6, 2016.

This is not intended as legal advice; for more information, please click here.

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