Year-End Accounting Checklist
It's that time of the year again—not the holidays (though those can certainly be fun), but when business owners and accountants begin feeling anxious over year-end accounting responsibilities—an endeavor that may appear hauntingly complex.
Don't despair; here we will assist you in making year-end accounting a smoother experience. We will discuss what year-end accounting entails and its challenges before providing you with a checklist to guarantee an almost stress-free year-end close.
What is Year-End Accounting?
Year-end accounting refers to an annual practice designed to close out and archive financial records from the prior year and prepare them for a fresh new financial year ahead. Think of year-end accounting as closing out one year while opening doors into another!
As an accountant, you’ll need to review all financial transactions of a business for one full year, reconciling bank statements and paying bills promptly while creating key documents like income and balance statements to show its current state as well as providing crucial tax filing assistance as well as aiding with strategic business decision-making.
Feeling overwhelmed with year-end tasks? Let’s break it down together.
Year-end accounting might appear straightforward at first glance; however, while its concept might seem straightforward enough, its actual application can often prove challenging due to various issues that come into play during this process.
Below are the most frequently encountered year-end accounting hassles:
Missing or Incomplete Documents: Staying organized can be daunting and can result in costly delays during year-end closing due to missing receipts or invoices causing major setbacks and frustrations.
Human Error: Even experienced accountants can make errors when handling large volumes of data, like math errors that skew your financial statements or data entry mistakes that prevent reconciling accounts.
Time Constraints: Businesses often find year-end an exceptionally hectic time of the year and finding sufficient resources to conduct an in-depth year-end review can often prove challenging.
Lack of Communication: Miscommunication between departments may result in errors and discrepancies within financial records; for instance, sales might not know about outstanding customer credits that contribute to understated liabilities on their balance sheet.
Why Planning Ahead is Essential?
How can we avoid year-end accounting headaches? The solution lies within ourselves--planning is key!
By starting early and creating a year-end closing checklist, preparing ahead can significantly lower the stress level during this accounting process. Here are a few benefits associated with doing this.
Error Reducing: By developing and following an actionable plan, errors and oversights become less likely.
Time-Saving: Starting early can help avoid last-minute stress during the year-end close.
Enhance accuracy: Planning ahead will enable you to produce accurate financial statements.
Peace of mind: Being confident that everything regarding year-end accounting is under control can bring great peace of mind, freeing you up to focus on other vital business concerns.
Year-End Accounting Checklist
Here is an extensive year-end accounting checklist designed to make this process less complex:
1. Accumulate All Necessary Documents
Step one of year-end closing is gathering all necessary documents.
Start by collecting
Bank statements,
Invoices,
Contracts,
Payroll Records,
Tax Documents, and
Receipts,
as these should all be reconciled together before reconciling your bank accounts.
2. Assess and Reconcile Bank Statements
Be certain that all deposits, withdrawals, and outstanding checks appear accurately on your bank statements.
3. Review and Update Account Receivables (ARs)
Locate any unpaid customer invoices and record them accordingly in your accounts receivable system. Be prepared to write off uncollectible debts as needed.
4. Revamp and Adjust Accounts Payable
Make sure that all outstanding bills and expenses that have yet to be covered by payments are included in your accounts payable list. Also, account for expenses that have accumulated but have yet to be covered by payments.
5. Inventory Check
To maintain accurate records of inventory items available for sale or consumption by consumers, performing an inventory count regularly is vitally important to maintain accurate accounts of what items exist and can be sold or consumed by them.
6. Create Your Depreciation Schedule
If your business owns fixed assets, creating a depreciation schedule to amortize them over their useful lives will be essential.
7. Accrue Income Taxes
In order to estimate and account for income tax liabilities over time, calculate an estimate and add it as soon as you know about them to the balance sheet.
8. Prepare Financial Statements
Once these steps have been accomplished, it's time to produce financial statements—
An Income Statement,
Balance Sheet, and
Statement of Cash Flows.
9. Analyze Your Financial Statements
After creating financial statements, be certain to carefully inspect them for errors or discrepancies and address them before moving on to the next step.
10. Submit Income Tax Return
After your financial statements have been approved by you and reviewed by an accountant, file your tax return with the Internal Revenue Service to complete all filing requirements for the next tax year.
Tools and Technology to Simplify Year-End Closing
There is good news: there are tools and technologies that can aid with streamlining the year-end accounting process; for instance:
Accounting Software: Software like QuickBooks and Xero can make much of the year-end close process more streamlined, including reconciling bank accounts and creating financial statements.
Cloud Accounting Solutions: Cloud accounting platforms make managing and accessing financial data much simpler from anywhere around the globe.
Tools to Track Expenses: These expense management tools make keeping tabs on and categorizing expenses simpler, making account reconciliation simpler.
Tips for a Smoother Year-End Close
Utilize both tools and technologies mentioned above as well as additional solutions such as these for an easier year-end close:
Plan Ahead: Set goals early, establish deadlines, and allocate resources according to them.
Optimize Checklist: Develop an adaptable checklist tailored specifically to the business requirements and processes in place at your organization.
Secure All Documents: For easy and safe storage of documents that matter most, including data you rely upon daily.
Modernize Communication: To ensure everyone remains on the same page, utilize collaboration tools and communication channels that ensure everyone remains aligned.
Automate Reconciliations: Utilizing software or tools designed to automate bank and credit card reconciliation processes will eliminate manual workarounds while freeing up time for more productive endeavors.
Conclusion
Year-end accounting can be an arduous task, but by following this blog and its checklist and tips, you can make the process much less daunting. Just be sure to plan ahead, stay organized, and seek help when necessary if desired for optimal year-end results.
So what are you waiting for? Start planning for the year-end accounting process right now!
