Year-end close bookkeeping, also known as year-end closing or year-end accounting, refers to the process of finalizing a company’s financial records and preparing them for the end of the fiscal year. This process is critical for accurate financial reporting and tax compliance. Here are the key steps involved in year-end close bookkeeping:
- Review Transactions: Begin by reviewing all financial transactions that have occurred throughout the year. This includes income, expenses, assets, liabilities, and equity transactions. Ensure that all financial data is complete and accurate.
- Reconcile Accounts: Reconciliation involves comparing financial records with external documents or statements to ensure they match. Common reconciliations include bank account reconciliations, accounts receivable and accounts payable reconciliations, and inventory reconciliations.
- Adjust Journal Entries: Make any necessary adjusting journal entries to correct errors, allocate expenses, or recognize revenue properly. Common adjustments may involve depreciation, accrued expenses, prepaid expenses, and unearned revenue.
- Depreciation and Amortization: Update the depreciation and amortization schedules for the company’s fixed assets and intangible assets, respectively. These adjustments reflect the wear and tear of assets over time.
- Inventory Valuation: If the company carries inventory, perform an inventory valuation to determine the cost of goods sold (COGS) and the value of remaining inventory on hand. This may involve using methods like FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).
- Accruals and Deferrals: Ensure that any accrued income or expenses and deferred revenue or expenses are correctly accounted for. This involves recognizing revenue or expenses that have been earned or incurred but not yet recorded.
- Financial Statement Preparation: Prepare the company’s financial statements, including the income statement (profit and loss statement), balance sheet, and cash flow statement. These statements provide a snapshot of the company’s financial position and performance for the year.
- Tax Compliance: Ensure that all tax-related matters are in order, including the calculation of income tax liabilities, deductions, credits, and the preparation of any necessary tax returns.
- Audit and Review: If required, undergo an external audit or review of the financial statements by a certified public accountant (CPA) to ensure compliance with accounting standards and regulations.
- Closing Entries: Post closing entries to reset temporary accounts, such as revenue and expense accounts, to zero. This process is essential to start the new fiscal year with accurate financial records.
- Archiving Documentation: Keep all financial records, supporting documents, and backup documentation for future reference and potential audits.
Year-end close bookkeeping is a crucial part of financial management for businesses as it provides a clear picture of the company’s financial health and ensures that financial statements are accurate for external reporting and tax purposes. It also helps in making informed decisions and planning for the upcoming year.
Silicon Harbor Business Services is based in Mount Pleasant, SC. We provide solid, practical advice to small business owners and select individuals. We work with Quickbooks Online, Quickbooks Desktop and Quickbooks Enterprise.
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