The end of the year is almost here, and now is the ideal time to prepare for year-end bookkeeping. For small business owners, completing this task offers a variety of benefits. In addition to preparing your company for tax preparation, year-end bookkeeping reveals how well your company has done throughout the year.
Year-end bookkeeping enables you to access and run current financial statements for your business. Failure to complete the year-end bookkeeping process can cause you to fail to create a balance sheet, profit & loss statement, or other critical financial records.
With your books balanced and closed at the end of the financial year, you can be adequately prepared for tax time. You can also start the new year fresh, knowing that your financial records are in order and there are no lingering discrepancies.
The following series of steps will guide you in completing the necessary bookkeeping checklist for your company so that you can run and analyze accurate annual reports.
This year-end accounting checklist covers all the necessary bases. Complete the following steps for your small business, and you’ll be ready for whatever the new year has in store. This comprehensive list of must-dos ensures that your company’s financial records are up-to-date and everything has been recorded. That way, you can confidently balance and close the year’s books.
Whether your company runs on a calendar year or your fiscal year is slightly different, the following pointers will help you close out the previous year.
Start your year-end bookkeeping by communicating with your company bookkeeper. They can inform you of what information you need to gather to close your books. Scheduling some time now will help you avoid the end-of-the-year rush.
If your company is young and you don’t yet have a bookkeeper, or if you prefer to keep the bookkeeping in-house, decide what accounting software you’ll use. Several do-it-yourself accounting platforms, including Swift Books and QuickBooks, offer guidance on compiling your end-of-the-year accounting while guiding you through the bookkeeping process from start to finish.
Start year-end bookkeeping by taking a close look at accounts receivable. Ensure you’ve invoiced labor and product purchases and review all customer accounts. Now’s the time to send out past-due invoices for any overdue or outstanding invoices. Luckily, most accounting software systems facilitate emailing invoice reminders.
Getting outstanding customer invoices paid as soon as possible is essential for several reasons. In addition to adding cash to your company coffers and improving your cash flow, the end of the year is often when clients and customers close out their books. Addressing their overdue accounts now can put your company first in line when it comes to payments. Collecting unpaid invoices will also alert you to whether any of your outstanding receivables may need to be written off.
When you review accounts receivable and delinquent accounts, determine the reason if there has been an increase in unpaid invoices. This is also an ideal time to look at new ways to manage your accounts receivable next year. Consider making changes, such as offering incentives to customers that pay quickly or make online payments.
The ideal time to pay outstanding balances is before the end of the year. Paying now ensures that your accounts payable records are complete for the calendar year, and you get a more accurate picture of your annual net revenue. Paying off outstanding invoices to contractors and vendors also helps you start fresh with a new budget in the new year.
If you haven’t been recording your expenses throughout the year or have fallen behind, take the time to catch up. Make sure you take the time to indicate what you’ve spent over the last year and what it costs to run your business. Not only is entering all your expenses essential for your tax return but having complete records will give you an accurate bird’s-eye-view of your company’s financial standing.
It’s better to record your expenses throughout the year. That way, you can balance the books at the end of every month and keep an ongoing eye on essential financial records like your profit & loss statement and balance sheet.
If you’re behind on categorizing and recording your expenses, it’s best to get caught up as quickly as possible. The longer you wait, the more complicated your year-end bookkeeping experience will be. You don’t want to go through the stress of pulling an all-nighter to compile your bookkeeping records before the end of the year if it's avoidable.
Waiting until the last minute can also result in missing tax deductions that could save your company a lot of money. By procrastinating, you also risk not finding out about tax liabilities ahead of time when you could more easily prepare.
Running a successful business throughout the years requires you to separate all business and personal expenses. Doing so legitimizes your company and insulates you from trouble with the IRS. If Uncle Sam mistakes your business expenses for personal ones, it can cause penalties on your income tax and a loss of deductions.
Having separate business and personal accounts is also more professional. Customers and vendors take you more seriously when you have a business bank account.
Before closing out the year, remember to reconcile your books with your bank account by reviewing your payable records. You do this by ensuring that all business expenses and income receipts on your bank and credit card statements have been accounted for in your bookkeeping records.
Reconciling your books is essential because doing so alerts you to any bookkeeping mistakes or discrepancies that could impact the financial health of your company and the accuracy of your income statement.
When you reconcile your books, you review all inflows and outflows of cash on your bank and credit card statements. While doing this, ensure that all credits match debits and vice versa. You also want to verify that all purchases reflect correctly on the company income statement and balance sheet. For this to occur, the cash used to make the purchases needs to be recorded as a debit in the asset account and a credit in the cash account.
Also, ensure that all reimbursements have been accounted for in the bookkeeping records when reconciling the books.
Small business tax deductions can add up. Running a successful, profitable business means leveraging them as often as possible. For example, if your company provides services that require you to drive, the mileage can be a significant tax deduction.
Some accounting programs allow for tracking mileage. You and your employees can also write mileage in a log and use the information at the end of each month and the year to tally up your overall mileage and calculate the resulting deduction based on IRS guidelines.
It’s always best to review employee information before the end of the year. Check payroll taxes to see that payroll tax liabilities match your quarterly payroll returns. If they don’t, determine where the discrepancies are and make necessary adjustments to rectify the issue before closing your company books.
Also, verify and update all employee information. Personnel contact information must be correct when sending out W-2s. If you have 1099 contract employees, now is the time to check and update their information.
Now is also time to decide if you will give employee bonuses this year, and if so, how much. Bonuses will initiate withholding tax in payroll. When you make the bonus payments, you want to set aside money to cover the tax. The bonus total must also be included in your bookkeeping records.
Small businesses must record their inventory at the year’s start and end as required on several tax forms. Remember to do a final inventory count before you close your company books at the end of the calendar or fiscal year.
Your company balance sheet tracks what you own (your company assets) and your business liabilities (what your company owes.) Your inventory is considered an asset. Adding to your inventory causes the value to go up. When you sell items from your inventory and turn those items into cash, your inventory balance decreases.
During the inventory process, you also want to depreciate the inventory. Depreciation involves tracking value losses on your company balance sheet. Depreciation is the method by which the IRS determines what percentage of each asset in your inventory was used in the past year. The amount used is considered a tax deduction.
While doing inventory, you also want to determine any remaining items that are too damaged or outdated to sell and any loss from theft. Adjust your inventory to reflect this.
Once all the above processes are complete, it’s time to close your company books. Fortunately, quality accounting software makes the process quick and easy. Keep in mind that once you close your books and lock in the date, nothing can be changed on your books. Ensure that everything balances and that your books are complete before closing them.
When you’ve closed your books, you can run all the financial statements required by the IRS to complete your tax return. Your current statements will also be helpful if you plan on applying for loans.
If you want to save money and do your own bookkeeping, Swyft Books can help. Our intuitive software allows you to easily manage your books and create vital financial statements. We meet you where you are with your business by providing custom subscriptions. Our plans include monthly bookkeeping for up to 15 financial accounts, including credit cards, bank accounts, and loans. Take the stress out of your bookkeeping chores today, and call Swyft Books.
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