The accounting year ends on December 31st. This is the day that all the accounts are closed and balances are finalized.
Many companies use this day to prepare financial statements and other information for their clients and investors.
Accounting year-end is also a good time to evaluate your business performance, check for errors or inconsistencies in your books, and make sure that you have everything in order for tax purposes.
1. Gather and analyze financial statements
Once you’ve gathered your statements and financial records, it’s time to do a full analysis of your year-end numbers. It’s a good idea to print out all of your statements and go through them line by line with a highlighter or pen, comparing them to the money that is recorded in your own books.
If you’re using accounting software, this part may be much easier. Some programs will automatically check for mistakes or fraudulent transactions and highlight them for you.
Make sure that you have proper documentation for all transactions, including receipts, bills, invoices, and other records.
For example, if the amount that was reported on your statement doesn’t match what you see recorded in your own books or software program, find the receipt and make sure it matches up with the details of the transaction listed on the financial statement (i.e. same amount, business name, and location).
2. Collect past due invoices
You may have allowed a customer to pay late, thinking that he or she was good for the money. If so, you’re not alone; many business owners make this mistake.
However, if your company has a policy of collecting past due invoices in the New Year, it’s time to get started on that process now. Some businesses choose the end of December to do this; others wait until January 1st or even halfway through the month before they start collecting.
You may find it helpful to build a list of your late-paying customers and any contacts you have at those companies that can help you collect payment by the end of December.
So how should you go about doing collections? If you are comfortable with this task yourself and like working directly with customers, then it’s probably best to take care of collections yourself—especially if there aren’t many delinquent invoices within your business system.
You might want to try calling first, then sending an email follow-up as well as a phone call follow-up after that if necessary. But remember that no matter how mad you feel at someone who hasn’t paid his invoice yet, don’t let anger get in the way of getting paid in full.
Always remember what will best serve your business interests in these situations, which may mean being extremely polite and understanding even when someone isn’t paying up on time for services rendered.
3. Account for inventory
If you’re using inventory management software, perform a physical inventory count to verify that the system is accurate. If you are not, now is the time to do so. Inventory counts can be a pain, but they don’t have to require days of tedious work by hand.
While you can use barcode scanners and app-enabled mobile devices to make your life easier, even a spreadsheet will suffice in a pinch. The important thing is that you have an accurate idea of what you have on hand and what you need to order.
If your records indicate that you should have more of an item than there actually is in your warehouse, look into it. It could be poor record-keeping or it could be theft.
Even internal theft by employees needs to be investigated immediately.
4. Organize business receipts
If you keep your receipts organized, you will be able to find the ones that you need when it comes time to make deductions. Business receipts could end up in your wallet or in a pile on your desk.
When you start using spreadsheets or accounting software, entering information from all of these sources can become complicated and confusing. One way to organize business receipts is by using an app on your phone.
Several mobile apps will let you take a picture of a receipt and then enter the amount into the software program of your choice.
This method can reduce data entry errors because you don’t have to type out each receipt manually. Receipts can also be stored online so that they are more secure than paper documents.
5. Reconcile bank accounts and credit cards
Keeping accurate financial records starts with making sure your business books match up with your bank and credit card statements.
Reconciling these accounts at least once a month will help you track down missed transactions or errors, such as payments that were never received or returned merchandise that was never credited back to the account.
To reconcile your accounts, begin by comparing your internal records to the statement sent to you by the bank or credit card company in order to ensure all transactions have been accounted for and recorded properly in your own books.
6. Review accounts payable and receivable
Accounts payable are the debts and bills your company has. These could include office supplies, office furniture, rent, professional services, and more.
You should check this to make sure everything is recorded properly and paid to the right parties on time. Reconciling accounts payable can help you keep track of what’s owed so you never miss a payment or overpay for something.
The reconciliation process also helps avoid penalties for late payments, which can hurt your credit score.
Accounts receivable is what’s owed to you by clients, partners, subscribers, and customers. If you’re a freelancer or small business that works with clients directly, this money is especially important to keep track of so it doesn’t slip through the cracks.
Like accounts payable, reconciling these records gives you a clear picture of who owes you how much and when it needs to be paid so you know exactly what cash flow or lack thereof to expect for the year ahead.
To make year-end accounting less stressful for you as a business owner, it’s always advisable to hire an accountant or bookkeeper. They have the expertise needed to get the job done and reduce the burden in your hands.