Year-end is usually the time to take stock and review the current year. For small businesses, it signals the completion of an accounting period – hence the need to put things in order in preparation for the next period.
As a business owner, you must close your books at least once a year to file an income tax and also prepare financial statements. Beyond this, it also helps you to know where your business stands financially. With that, you can make the necessary adjustments or changes.
Below we’ve put together ten steps that you can follow to prepare your books for year-end. This will help every small business owner, especially the DIY enthusiasts who do their bookkeeping themselves.
Reconcile your monthly transactions
Reconciling your monthly transactions and bank statements are very vital. It makes preparing your books at the end of the year simpler and straightforward. Further, it makes you track every financial activity that occurs in your company. So, by year-end, you know what to expect.
Work toward sending 1099s
These are tax forms from individuals or companies that your firm has made payment to. It could be for either rent or other services. You must file these forms with the IRS at the appropriate time.
This process requires you sending out IRS form W9 to these vendors and then recording the accurate information into your bookkeeping system in readiness for the next accounting period.
Take year-end inventory
Be it physical products, supplies, or assets; you must take inventory, and then compare it to the value you have on your balance sheet. Ensure that there are no irregularities (missing or damaged items). If you notice any, make sure you record them accordingly.
Record all payments from your clients
You need to record all payments from clients as soon as possible. This helps you to keep an accurate record of all received payments and the outstanding ones, if any. It also makes it easy to balance your book at the end of the year.
Print a year-end general ledger
The YTD general ledger shows the opening and closing balances of your accounts in the year. It includes the total debits and credits as well as the net activity within this same period. You should always do a thorough check to ensure that all the transactions are posted to the correct accounts with documents to back them up.
Review your accounts payable and accounts receivable
The essence of doing this review is to ensure that your accounts payable and accounts receivable are in order. Doing this could help you uncover some discrepancies. For instance, you could find invoices that you’ve already paid in accounts payable.
Or discover amounts in accounts receivable, whereas they have not been billed for. Try to access all the invoices and ensure that there are no pending payments. What your statements say should tally with the activities that have taken place.
Reconcile all credit card accounts and statements
Ensure that you sort out all expenses charged to a credit card and also make sure that they are dated correctly. Note that the expenses should be dated when charged and not when the statement is paid.
This means that it’s possible to charge expenses at year-end, have the statements come at the beginning of the next year, and still be able to capture the expenses in the current year.
Go through your income statements
After reconciling your transactions, you can view your income statements to see how your business has fared overall. This will include expenses as well as profits and deficits. You need to do this monthly, so you can spot irregularities before they escalate.
Review your balance sheet
A balance sheet reveals the current value of your business. In reviewing it, try to compare the present value to previous periods. It helps you to see the progression or decline as the case may be. Also, you need to look out for other irregularities and sort them out immediately.
Budget for the next year
When you’re done with all the necessary checks and balances and have a clear picture of how things stand, you can then proceed with the following year’s budget. You must put every tiny detail into consideration while doing that, so you don’t get it wrong. Having a wrong budget will not only deny you profit, but it may also cause you to run on a loss.
Preparing and closing your books for year-end should never be seen as a mere formality. It is something that every business owner must do to keep track of their business’s financials. Aside from helping you to prepare your books efficiently, the above steps will also make your general bookkeeping experience a pleasant one.
If you would like assistance with closing your books or would like an analysis of your closing process, please contact us.
