As the year winds down, it’s essential for businesses to take a proactive approach to their year-end accounting and financial reporting processes.
Year-end close is about wrapping up the past and setting the foundation for the upcoming year. To ensure your business closes its books accurately and is well-prepared for the year ahead, we’ve compiled the considerations below to guide you in your year-end close process.
1. Extended Close Period
Unlike typical month-end closes, consider keeping your books open a bit longer for the year-end close. This ensures that any late-arriving bills are accounted for. In cases where services have been consumed but the bills haven’t yet arrived, it’s crucial to accrue the amount. Management should accrue their best estimate if the exact amount of a bill is still unknown before the deadline to close the books. A valuable tip for keeping track of estimated accruals is comparing recurring vendor bills/expenses against what has been received and what hasn’t.
2. Reconciliation of Accounts
It’s fundamental to reconcile all bank and investment accounts. Although this should be a monthly task, its importance intensifies at the year-end close. Any uncleared transactions, especially checks, should be reviewed to determine if any are no longer active. For old uncashed checks, consider either voiding or reissuing them.
3. Customer Receivables
Undertake a thorough review of your customer receivables for collectability. Adjust the allowance for doubtful accounts to reflect estimated receivables that may no longer be fully collectible. Ensure that any irrecoverable receivables are written off.
4. Prepaid Expense Check
Scrutinize the prepaid expense schedule. Compare it against existing contracts and bills spanning more than a year to ensure alignment.
5. Fixed Assets Reconciliation
Cross-reference the fixed asset listing against tangible assets. If you identify any disposals, write them off, including the applicable accumulated depreciation.
6. Accounts Payable Aging Review
Focus particularly on bills over 90 days past due. It might be prudent to settle some of the old outstanding bills. Any invoices that will not be settled should be written off.
7. Income Statement Analysis
Carry out a line-by-line comparison with prior years. Identifying unexpected fluctuations can either help identify miscodings or provide insight into the variables influencing the shifts.
Tips for a Successful Year-End Close
Here are several steps that should be taken to make sure your year-end financials are complete and accurate.
8. Balance Sheet Account Support
Every balance sheet account should be substantiated with a corresponding schedule. While this should be part of each month-end close, it becomes even more critical at year-end. Utilize the extended closing period for further review, analysis and necessary adjustments.
9. 1099 Vendor Assessments
Review all new vendors that require a 1099 filing during the year. Ensure you have requested a copy of their W-9 form. It’s best to make this assessment periodically throughout the year in order to limit the number of new vendors to request a W-9 from mainly since the deadline to file is by the end of January.
The year-end close is a crucial period for businesses. While it might seem daunting, a systematic approach, as laid out above, can ensure that the year-end close process is efficient and helps limit errors. Prioritize accuracy, transparency and preparation, enabling your business to step into the new year confidently.
Author: Eric Lowe, CPA | [email protected]
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