Year-end bookkeeping tasks: Tips for closing your business’ books
6 min read
October 29, 2021 • Block Advisors
Year-end can be a hectic time for many small business owners, between personal to-dos and seasonal demands at work. But you know what else you should be thinking about if you’re a small business owner or self-employed person? Year-end bookkeeping!
Tax time isn’t the only time of year to consider your books. In fact, the end of the year is a typical prompt to attend to your finances. There are many things you can do during December that will both let you exit cleanly and be ready for what’s to come in January.
If you’re wondering what activities are important, we’ll weigh in here.
What is year-end closing?
Year-end closing is an essential part of year-end bookkeeping. This task focuses on taking the proper steps to ensure your small business’ financial transactions are recorded and up to date.
At year-end, the goal is to balance your small business’ books for a 12-month time frame, given you operate on a calendar-year schedule. It’s important to do this because it:
- Ushers accurate annual reports and financial statements (ex. helps with spotting errors)
- Helps you prepare for tax information gathering
- Allows you to make better financial decisions in the future year
If you operate on a fiscal year instead of a calendar-year schedule, you or your bookkeepers can still use this information as an end of financial year checklist.
Bookkeeping forms and documents year-end checklist
Before you can start to mark tasks off your to-do list, you’ll need to gather your important bookkeeping and tax forms and documents. Review this year-end checklist for that paperwork.
- Bank and credit card information
- Invoice lists and POS monthly reports
- Previous tax returns
- Balance sheet/P&L statement
- Outstanding invoices, bills, credits, and uncleared funds
- Depreciation schedule or fixed asset list for all business assets
Year-end checklist for bookkeeping tasks
What can you do to get your books in order? Below are seven year-end bookkeeping checklist items for you to plan for.
1 – Review payroll-related information
Whether you have just one or several employees, payroll-related duties should be counted in your year-end tasks, To this end, make sure your payroll records are up to date. Additionally, make sure Form 941, which report your quarterly tax withholding amount for employer payments and FICA taxes, are submitted for each quarter.
Beyond that, spot check:
- Benefit changes or withholding of fringe benefits
- Deferred compensation
- Employee information
- Employee wages and deductions
- Paychecks (All should be reported)
- Raises and bonuses
- Time-off balances
- Withheld tax amounts
It’s also wise to run a final payroll report.
2 – Complete the appropriate forms from employees and contractors
As a business owner, it’s likely that you’ll hire employees or contractors along the way, so you’ll want to make sure the following forms are prepped:
W-2s for employees – You should file your copies of Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by January 31.
1099-NEC for contractors or vendors – You’ll need to complete IRS Form 1099-NEC, which is due to the IRS at the end January.
3 – Take inventory
Get an accurate count of the materials and supplies you have because it helps you determine how much was spent on it and its current value. Match your inventory totals to your balance sheet. If you see inconsistencies between your inventory count and balance sheet, fix the issue.
4 – Clean up business receipts
Some small business owners rely on paper records and keep receipts stashed in their office. If this is the approach you take, organize your receipts:
- By type of expense
Need help organizing you receipts, expenses, and other documents? Our tax pros get your paperwork in order, helping you avoid missed deductions. Ask your tax pro about our add-on Year-End Tax Filing Readiness Service during your appointment (Schedule C filers only).
5 – Check your payables and receivables
If your business operates using an accrual system, it’s important to check your payables (outstanding bills sent to you by other entities) or receivables (outstanding invoices you sent other entities) for tax purposes.
At the end of the year, it’s wise to tally total payables and receivables, because:
- Depending on your state or entity type, some businesses need to pay taxes on the accrued amount. (While not every small business needs to pay tax on accrued amounts, larger companies do.)
- It offers a good picture of your year-end financial position
- It helps you determine and view if you’re missing invoices
6 – Get your fiscal records in order
There are multiple steps to take to get your fiscal records in order prior to year-end. Here are some key year-end bookkeeping procedures:
- Record any additional bookkeeping entries: If you’re a small business, you’ll likely have a journal. This ledger keeps track of money moves. Post your entries so that they match up with the appropriate accounting periods.
- Reconcile your bank accounts with your check register (record of deposits and disbursements) so you can compare the bank statement to your deposits and disbursements, whether by check, cash, money order, or other payment app.
- Review credit card statements, compare with credit card receipts, and make sure business expenses are accurately posted.
- Do a profit and loss review: Create and review your P&L statement to assess business profits and losses for your business.
- Transfer balances from income statement accounts to a balance sheet: What goes on an income statement, also known as a P&L statement? Income statements are another important document that reveal how your business is doing from a financial standpoint over a specific reporting period. At the end of the year, it’s important to transfer balances on your income statement to a balance sheet. They also make sure the posted balance of your business’ retained earnings is accurate, should you post year-end closing entries. The statement should show a balance of $0.
7 – Identify a plan for the new year
In terms of your bookkeeping policies and procedures, take a pulse on what’s working and what’s not and review your small business’ numbers so you can set an intention to have a successful year the following year and get a start fresh in January. A new year often brings renewed energy and motivation, so be ready to capitalize on that!
Where to get more help with year-end bookkeeping procedures
Closing year-end can be an overwhelming task without the time or right resources to help you out. While you might think this post is an end of financial year checklist for bookkeepers, it is directed toward small business owners.
But you don’t have to round out your business’ books on your own at year end. Block Advisors small business certified tax pros can simplify your bookkeeping tasks—keeping your finances on track and letting you focus on the business you love.
See how we can help with your bookkeeping needs and answer your bookkeeping questions.
If you need help organizing your receipts, expenses, and other documents, use our Year-End Tax Filing Readiness service. Our tax pros can get your paperwork in order, helping you avoid missed deductions for just $50 per hour.