Wrap Up the Year Like a Pro: Must-See Year-End Close Tips!

When the end of the year approaches, companies, no matter the nature of their operation, begin to focus on one of the most important accounting activities—the year-end closing. Companies use processes to close their accounting records for the year and record all financial activities to prepare their financial statements. This finally puts you in a good position to gauge the financial standings of your business and prepare for the future.

To many accountants and business owners, this period may sound complicated, especially with the nearing year-end close. But if you organize yourself correctly and pay attention to the details, you can finish out the year strong. In this guide, we will focus on those tips and tricks that are important when it comes to year-end closing and how to avoid problems in the new fiscal year.

1. Start preparing early

This, therefore, makes a good strategy to start preparing for year-end closing a long time before December arrives. Rushing to a source for financial information or to balance accounts can be stressful and time-consuming. Also, there is a danger of missing vital facts within a short period. There are many advantages to beginning preparation for an investment early in advance.

• Set Deadlines: A year-end closing plan is also prepared for each activity, with interrelated deadlines for some of the activities, which include bank account reconciliation, outstanding invoices, and payroll closing. Be sure to make these deadlines understood by the rest who are working in your team.
• Monthly Reviews: It will just be a matter of extending your month-end workout so you get by year-end close, and that’s why if you are reviewing your financials every month, by the time year-end comes, it will not be that much of a change. It is also important to make some sort of review of your balance sheets and the profit-and-loss statements in order to identify any critical differences.

2. Reconcile All Accounts

It is also an important step to prepare and review the accounts to confirm figures held internally tally with the documents outside. In this step, it will be needed to ensure that the record of all activities is correct and there are no differences between the documented information and the real results.

• Bank Reconciliations: Sign the check copies against the bank statements and compare the same with your accounting software ledger, or any other ledger where you maintain the banking transactions. Any such disparities have to be resolved on the spot.
• Credit Card and Loan Accounts: Yet do not forget to balance credit card and loan accounts also. See to it that all payments are recorded, all interest accrued, all charges imposed, and all other liabilities recorded correctly.

3. Check accounts receivable and payable.

Coordinate yourself with your Mr. or Ms. to make sure that all accounts receivable and bills or accounts payable are thoroughly settled. It shall help you know what other payments are expected to be received and what other receivables need to be paid.

• Accounts Receivable: Check through outstanding bills or invoices and follow up with any clients who owe you money for any products or services. Sometimes setting part of the receivables aside is insufficient, and you might have to write it off as bad debts.
• Accounts Payable: Ensure all bills have been recorded and paid or recorded pending or still to be paid in the future. By reviewing the vendor statements, you will be able to reverse-check that you are not due to make some payment or that there are some expenses that you possibly overlooked. Lastly, it is always wise to clear any unpaid balances for the previous month to have an opportunity to deduct them from your end-of-year returns.

4. This includes the raw materials’ counts and adjustments, as well as additions of new furniture or disposal of old ones.

For some companies that operate inventory, it is essential to take an inventory at the end of the year. This will help in managing your accounts balance sheet in a better way since it will always represent the current value of the inventory you hold.

• Physical Inventory Count: Performing a physical inventory count is important as it allows you to check if your records tally with the actual quantities. You will have to modify your records with differences, for example, shrinkage or damaged product.
• Write-Offs: Identify all the worthless stock that should be taken to the waste bin or written off. This will assist in cleaning up your books and may even minimize your taxable income for the year.

5. Analyze financial statements

As the end of the year results, your financial statements represent how your business has done in the past year. Reading these statements can also give any business the information that it needs to know about its financial standing and its weak points.

• Income Statement (Profit and Loss): This statement summarizes how much money your business made, how much it spent, and how much you made or lost in the year. You need to review your business’ revenues and costs to find out how much profit a business made. Identify patterns that could be useful when it is time to make a decision.
• Balance Sheet: The balance sheet displays your company’s balance of assets, its liabilities, and its equity at the end of the fiscal year. It gives the statement of financial position and so will indicate whether there are any problems of liquidity or solvency.
• Cash Flow Statement: This statement shows where your cash is coming from and where it is going to be in your business. The analysis of your cash balances is very important so that your business can meet financial obligations and invest in its expansion.

6. Review and Adjust Accruals

Accrual accounting involves the acknowledgment of expenses and sales and other practices at the time that the obligation is incurred, irrespective of the physical form of cash. Spend some time before closing out the year on the accrual accounts to make sure they are correct.

• Accrued Expenses: Check over any of the expenditures you have claimed for but have not made payment for, like wages, interest, or utilities. Ensure they are well documented in terms of bookkeeping.
• Accrued Revenue: If you have supplied goods or services and have not yet been paid, you need to make sure that the revenue is recognized for the period in which the revenue was earned.

7. Address Tax Obligations

The end-of-year process is also a good time to review your tax planning as well. Understanding your taxes can help you minimize your tax duties and ensure that there are no unwelcome shocks in the course of filing your taxes.

• Tax Deduction Review: Determine any deductions for tax purposes like expenses of doing business like travel, purchases of equipment and food, uniforms, and donations. Ensure that all recipients of deductible expenses have well documented them before the close of that financial year.
• Depreciation: Check and review your asset depreciation schedule to confirm whether all the fixed assets taken are being depreciated correctly. They should consider ordering new equipment before the close of the year so that you can benefit from a tax break.

8. Payroll is coming, and this means it is time to close the books and prepare for end-of-year reporting.

Payroll is another usual segment of the process of the year-end close. At year-end, make every calculation and check regarding payrolls credible, and make sure you have complied with your tax liabilities.

• W-2s and 1099s: Companies that operate within the United States, should make sure to complete their W-2 forms for employees and their 1099 forms for the contractors by the end of January. Make sure you have paid all the payroll taxes.
• Bonuses and Adjustments: Year-end bonuses, where planned, must be included in the payroll system. Any adjustments in wages or reimbursement for expenses incurred while on duty, honoraria, or allowances should then be reviewed.

9. Back-Up Financial Data

Another important step is to make all necessary financial data backups to guard against data loss and have a copy of your year-end close. This comprises your accounting software files and other records, spreadsheets, and any other supporting information.

• Cloud Backup: The best way of handling financial data is to opt for a reliable cloud-based storage system. This alone guards you against loss of data and also allows you to access your records from the comfort of your home.
• Physical Backup: However, it will be worth recommending storing a copy also on a physical disk, for example, on an external hard disk or a USB stick as an additional layer of security.

10. Consult Your Accountant

In cases of immense complications in business financial affairs or if there is doubt concerning the aspect of year-end closing, the expert advice of an accountant or CPA is most recommendable. They can offer recommendable insights in such areas as taxation, tax regulation, and financial reporting.

• Tax Planning: Talk to a tax professional to be sure to receive good advice, avoid blunders, and keep as much money in your pocket as possible.
• Financial Review: An accountant can also come in handy to look at your financial statement and advise on the performance of your business in the new year.

Conclusion

The close of the year may not be as daunting as it seems. If you abide by these great tips and get started early, you will ensure that you are not bogged down by these common mistakes and end the year on a high note. Not only will this provide you with concrete and accurate records and compliances of your business, but it will also provide you with a benchmark to perform better in the coming year. Consciously or unconsciously, everyone who has ever worked in the accounting profession knows that mastering the year-end close is equally valuable for an accountant and a business owner.