Accounting procedures for the end of the year

Use this accounting checklist to close out one year and prepare for the next.

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accounting procedures
By Ellen Rohr, author and business makeover expert (Paid Contributor)
Published: September 02, 2016

Once the fourth quarter hits, it's time to assess your financial year, finish strong, and get ready for the New Year. It's also time to tidy up your accounting.

If you make the effort to review your accounts before the year ends, you'll have time to make decisions that will impact your profitability and tax liability. Once the year ends, your options are more limited. Schedule a date with your accountant to review your financials — and follow these steps, so you can come prepared.   

Use your balance sheet as a starting point

Comb through every line and every account on your balance sheet. In simple terms, assets are what you have. Liabilities are what you owe, and can be verified with loan statements or credit card statements. Equity is the difference between assets and liabilities.

"If you make the effort to review your accounts before the year ends, you'll have time to make decisions that will impact your profitability and tax liability."

Asset accounts

  • Reconcile all checking and savings accounts.

  • Audit your accounts receivable. If you show uncollectible receivables, now maybe the time to write them off to bad debt.

  • Make sure all assets appear on the balance sheet in the appropriate asset section. If you lump similar assets together, make certain that you have an accurate list of the individual asset items, and that it matches the total in your balance sheet.

  • If you sold any business assets during the year, you must recognize the gain or loss on the sale and record it properly. (Please note there are different accounting practices in the case of a 1031 exchange.)

  • If you traded any assets against the purchase of a new asset, make sure you've correctly posted the value of the new asset.

  • Make a specific entry for depreciation/amortization of all assets. It's easy to disregard these costs since they didn't come in the form of one identifiable purchase, but calling them out on your balance sheet will guarantee that you account for ongoing, accumulated expenses.

  • Count your inventory, and ensure the actual value of your inventory is accurate on your balance sheet.

Liability accounts

  • Make sure all liabilities are listed and the outstanding balances match year-end statements from lenders.

  • Make certain that interest on the income statement matches the actual interest portion of your liability that you paid during the year.

  • Review your payroll tax liabilities. Be sure they are accurate. If you use a payroll service to take care of paying your company's liabilities, double-check that the liability accounts have a balance of zero at the end of the year.

Equity accounts

  • Have any partners/officers borrowed any money from the company? Have they put additional capital funds into the company? This should be recorded here. Check your balances, and make certain they are correct.

  • Retained earnings is a real number that reflects the accumulated profit and loss from the beginning of your company's operations. Check with your accountant to make sure this number is accurate.

Payroll

  • If you use a payroll service, be sure to let the company know of any bonuses you've issued to employees over the course of the year. Review all quarterly and year-end reports and files.

If you prepare your own payroll, there are many forms and deposits that need to be filed, see https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-2

Income and expenses

  • Make certain you've posted all of your sales for the year.

  • Post any returns, discounts, or write-offs to bad debt.

  • Enter all of your year-end expense invoices.

  • Review your direct cost and expense accounts. Look at the details of any account that seems out of line or unusual.

Finally, make sure you back up your company accounting data and store it off site.

Embrace the process. Spending a little time streamlining your finances now will help you considerably in the long run – and set you on the right course for the future.

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