As 2020 comes to an end, companies across the country are working diligently to close out their books so that tax returns can be filed on time and you can review insight into the year’s performance. As work stacks up, it is easy to miss a step in this process, which could cost you time and money. Loeffler Financial Group has created a comprehensive checklist to help you adapt to your end of year closing process.
RECORD AND RECONCILE
This is the first step to ensure all transactions are up-to-date, and complete for the end-of-year close. This includes all current bills and invoices, even if they still need to be paid. Review all past documentation to make sure everything has been recorded and nothing is missing.
It’s vital to ensure all transactions you’ve recorded in your bookkeeping software match what’s on your bank and credit card statements. To do this, you will need to perform a bank reconciliation. Our QuickBooks staff member can help make completing this task less strenuous.
COLLECT W-9S
If you pay a vendor $600 or more for services, you may need to issue Form 1099-MISC. The information on this form is used to create the 1099s you will use to report the total amount paid to the IRS. Best practices state when hiring a contractor, freelancer, or vendor, it is always best to have them fill out a W-9S before beginning any work or issuing their first payment.
CHECK YOUR ACCOUNTS RECEIVABLE AND INVOICES
Reviewing your receivables regularly to make sure you’re getting paid is a good idea. Review your outstanding invoices and note whether the invoices are marked paid or not. Look into any missing invoices. Reviewing these invoices will provide you with a better understanding of where you stand, and let you know if some customers are behind in paying their invoices. Don’t be afraid to call them, and let them know their status – as you need to mark their invoices as paid to close the books.
PAYROLL ESSENTIALS
Verify all employee information before issuing Form W-2. A missing or incorrect name or Social Security number can lead to penalties. Make sure all paychecks from the year have been recorded. Be sure to include all payments for commissions and bonus pay.
Planning is essential when it comes to bonus payments. Lead time will ensure timely delivery and the opportunity to review the accuracy of the checks before the check date. Remember, a bonus will often push an employee’s pay into a higher tax bracket for that pay period. Consider the tax implications for the employee on a local, state, and federal level before running the bonus payroll.
CHECK WHAT’S IN HOUSE
Year-end inventory counts can be a significant undertaking. However, it can make things clear if there are problems, such as bad inventory management or errors in stock. If there’s a considerable discrepancy between the inventory count and your bookkeeping, it should be corrected promptly.
Once you’ve completed your inventory counts, and have reconciled your point-of-sale system, ask yourself, Is there any room for improvement? Can you make your counts more efficient? Record your thoughts, review them with your accountant, and apply them in the new year.
YEAR-END ACCRUALS
Accruals are adjustments for revenue that have been earned but not posted to the general ledger accounts, and expenses that have been incurred but are not posted to the general ledger accounts. Year-end accruals are adjusting entries to make sure revenue and costs are recorded in the correct fiscal year.
Record year-end accruals, if you are not already recording monthly depreciation, payroll, and payments made for services not yet received.
REVIEW YOUR FINANCIAL STATEMENTS
Once your bookkeeping is complete, it’s a good idea to look through your income statement and balance sheet – make sure everything appears correct. Look for dollar amounts that don’t seem to match. Catching these mistakes now can save you time and trouble later.
Remember to look for things like:
- Negative account balances
- Balances that differ (seem too high or too low)
- Substantial differences in last year’s account balances
LOCK THE PERIOD
It’s so easy to type in a wrong date, especially when January hits, and you have to type 2021 and not 2020. Remember, numbers are the single source of truth for every business, providing your results and how your company is performing. If you are continuing to change things after the fact, you won’t have a good handle on how your business is performing.
NEXT STEPS
Don’t be overwhelmed if you are not ticking all of these boxes. Take it one step at a time, and work through these tasks. If you’re still confused on where to start, reach out to our team of accounting experts at Loeffler Financial Group to help you make sense of your accounting and year-end. We’re here for you!
717.393.7366 | info@loefflerfinancial.com