Skip to main content

Original text


Powered by Google TranslateTranslate
Powered by Google TranslateTranslate
8-Step Checklist for Closing Your Books at Year-End
by Ryan Duffy
>
January 20, 2023
Rating
man using calculator to do year end taxes

One of the things that many small business owners dread is the administrative and accounting tasks the law requires for running their small business. But if you keep up on accounting matters throughout the year, it won’t seem like such an overwhelming burden at the end of your fiscal year.

Why Close the Books?

The term “closing the books” means that all financial transactions for the fiscal year are wrapped up, consolidated, and reported. This will show what income and expenses were generated and the company’s profits or losses during that time. Delineating these figures one year from the other ensures that the previous year’s figures aren’t carried over, potentially skewing an accurate accounting picture.

As a small business owner, you can use this time and information to review the health of your business and get a good financial understanding of the past year. It sets you up for the next business year and provides you with the necessary information to file taxes for the year.

If you are ready to close your books for your year-end, here is a simple eight-step checklist to get prepared.

1. Make sure all projects and orders are invoiced and collected

Before you close your books, you must close out the financial year by ensuring that everything is invoiced out and all income is recorded. For those who haven’t yet paid invoices, send out reminders to get payments in as soon as possible. This gives you time to determine if the payment will not be not forthcoming, so you will have the ability to write it off.

2. Make sure all contractors, vendors, employees, and other bills are paid and up to date

Before closing out year-end books, make sure that you have paid all unpaid vendors, contractors, employees, and other financial obligations.

3. Categorize and record all business expenses

Make sure that all previous year’s expenses are recorded and properly categorized so you can easily locate those that are allowable for tax deductions. It is also critical to ensure that all personal and business expenses are kept separate.

4. Make sure that your bank accounts and other accounts reconcile with your income and expenses

While your income and expenses must be continually updated, they must also match your bank account and credit card statements. Even if you are using business bookkeeping software, it is a good idea to double-check all your numbers.

5. Check your payroll taxes

Before closing your books, you need to ensure that your monthly and year-end payroll expenses match. This should be done as part of reconciling your expenses and before you file your income taxes for the year. If you have questions about your payroll taxes, make sure to speak with a tax professional.

6. Verify employee and independent contractor information

Make sure that you have all correct forms on file, including W-4s and W-9s for employees and independent contractors. It is important that you have the correct information for your employees or contractors to ensure that their W-2 and 1099 forms are going to the proper place, especially those who no longer work for the company. You may wish to send an email around to all current and former employees to ensure that your information is updated and correct.

7. Conduct a physical inventory check

You will need to know your final inventory count on the day you close your books. As a small business owner, you should record inventory at the beginning and end of each year. This information will give you the beginning inventory numbers for the following year and is also required on tax forms.

8. Run your financial statements

Your profit and loss statement and balance sheet will give you a good overview of your business’s financial position at the end of the year. Once your general ledger balances are correct, you are ready for next year. And these will help make your taxes less of a burden. You can now set your lock date and close your books.

While closing the books at year-end and performing other required administrative tasks for your small business may seem daunting, understanding how the process works and what is required takes away some of the mystery of small business ownership. There are also many accounting software programs on the market that allow a small business owner the ease of automation when it comes to closing the books at year-end.

SHARE THIS ARTICLE
About the author
Ryan Duffy Headshot
Ryan Duffy
Ryan Duffy is an attorney based in Charlotte, North Carolina. Ryan attended Villanova University School of Law.
Read full bio
CONNECT
712 H St NE PMB 98848
}
Washington, DC 20002
1-800-634-0245

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

Chat generously provided by:LiveChat

In partnership with
Jump back to top