Without a doubt, closing the books for the year can be a challenging task. From reconciling accounts, to making sure transactions are coded properly, if you’re not an accounting professional the year-end process can be daunting! We’ve compiled the following list to help make this task a little easier.
Reconcile all banking accounts
One of the most overlooked issues we see when it comes to closing the books at the end of the year is seeing banking and credit card accounts go unreconciled. Without making sure there are no duplicated or missing transactions, it’s impossible to know if your accounting software is generating accurate reports. This is especially true for companies that invoice out of the same software they keep their books on. No matter how well companies like Intuit, Xero, & Xoho market their products, they are still accounting programs at the end of the day which means errors can go undetected if you’re not careful. One of the easiest ways to ensure you have accurate financials is to reconcile all banking and credit card accounts.
Send out w-9 forms early
Don’t wait until January 20th to send out the W-9 forms you need for the independent contractors you paid through-out the year. Not only are there penalties for not filing the 1099’s you need to, there are also potential liabilities for not receiving a W-9 but issuing the 1099 anyways. By sending out W-9 requests now (or even sooner throughout the year), you’ll ensure that you have the information needed to timely file your 1099’s by January 31st. Need a copy of a W-9? Click here to get one from the IRS website!
Adjust all year-end loan balances
If you are paying on a loan that yields an interest rate, you’ll want to adjust the balances to your year-end statement. We recommend creating a payment schedule for each loan that helps classify the interest and principal portion of each payment.
Did you have draw one and/or draw two of the PPP loans forgiven? Make sure you adjust these off of your balance sheet by the end of the year!
Your company’s wages should be reported at their gross expense. It’s common for payroll service providers to pull out one draw for payroll taxes and withholding and another for the net payroll taxes. If this is the case, you’ll want to make sure you adjust both expense accounts at the end of the year to what they should be.
Ask my accountant/unclassified expenses
If you’ve recorded any expenses but used one of these place holder type of accounts, double check with your accountant to see how you should record these transactions before closing the books for the year.
Fixed assets & Depreciation
Make sure you record all major asset purchases and sales throughout the year. Depreciation lists with assets that have been sold in prior years is one common issue we see with new clients. Once your fixed asset list agrees to what it should, make sure you adjust your depreciation expense to what it should be.
Smell Test your books
When closing your books for the year, doing a high level review can help you spot any potential errors. Does one revenue or expense account appear to have an unreasonable increase or decrease from the prior year? This could mean that transactions are recorded to the wrong account.
We hope this list helps you have a smoother process this year! At Warnick CPA Services we understand the ins and outs of small business accounting. Not sure if you need help with your bookkeeping? Check out our other article here,