The end of the year is a hectic time for many small business owners. Between personal tasks and seasonal demands at work, time as a small business owner is scarce, but there’s one important item you should keep in mind if you’re a small business owner or freelancer: Year-end Accounting!
Tax time isn’t the only time of year to keep accounting in mind. In fact, before the end of the year is a good time to take stock of your company’s finances and books so you’ll be prepared next year. Let’s take a look.
What is the Year-End Closing?
Year-end closing is an essential part of year-end accounting, which focuses on taking the appropriate steps to ensure that your small business’ financial transactions are recorded and up-to-date.
The goal is to balance the books for a 12-month period, assuming your company’s fiscal year coincides with the calendar year. It is important to do this because:
- It ensures the accuracy of annual reports and financial statements (e.g., it helps detect errors).
- It helps you prepare for collecting tax information.
- It allows you to make better financial decisions in the coming year.
What can you do with your business books?
🔎 Here’s a checklist of seven accounting tasks:
✅ Review Payroll-Related Information
Payroll-related tasks should be included, as should that you file Forms 941, which report the amount of your quarterly tax withholdings for company payments and FICA taxes. Other than this, there are spot checks, such as:
- Benefit changes or fringe benefit withholdings;
- Deferred compensation;
- Employee information;
- Employee wages and deductions;
- Payrolls (all must be reported);
- Increases and bonuses;
- Time off balances;
- Tax amounts withheld;
- It is also advisable to complete a final payroll report.
✅ Complete the Proper Employee and Contractor Forms
As a business owner, you’ll likely hire employees or contractors along the way, so you’ll want to make sure the following forms are prepared:
- W-2s: For employees, you must file your copies of Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by January 31.
- 1099-NEC: For contractors or self-employed individuals, you must complete IRS Form 1099-NEC, which is due to the IRS by the end of January.
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✅ Take Inventory
Make an accurate count of the materials and supplies you have because it helps you determine how much was spent on them and their current value. Compare your inventory totals with your balance sheet. If you notice inconsistencies between the inventory count and the balance sheet, fix the problem.
✅ Clean Up Business Receipts
Some small business owners rely on paper records and keep receipts in their office. If this is your approach, organize your receipts by type of expense and chronologically.
✅ Review Your Payables and Receivables
If your business operates on an accrual accounting system, it’s important to check what you owe and who owes you for tax purposes. Your payables are outstanding invoices sent to you by other entities, and your receivables are outstanding invoices you have sent to others.
At the end of the fiscal year, it is wise to tally your total accounts payable and receivable, because depending on your status or type of entity, some businesses must pay taxes on the accrued amount.
It also gives a good picture of your financial situation at the end of the year, and helps you find the missing invoices so you have a chance to settle them.
✅ Get Your Tax Records in Order
There are many steps to take to get your tax records in order before the end of the year. Here are some of the main year-end accounting procedures:
- Record additional accounting entries. This ledger keeps track of your company’s cash movements, and you must account for them so that they match the corresponding accounting periods.
- Reconcile your bank accounts. Keep in mind that these may be checks, cash, money orders or other payment applications.
- Balance your credit cards. Review your statements, compare them to your credit card receipts, and make sure your business expenses are accounted for correctly.
- Do a profit and loss review.
- Transfers profit and loss account balances to a balance sheet. Income statements are important, as they reveal how your company is doing financially. The balance sheet should show zero.
✅ Identify a plan for the new year
In terms of your accounting policies and procedures, take the pulse of what’s working and what’s not. Review the company’s numbers, and set an intention to have a successful year and start fresh in January. Many small business owners find that a new year brings renewed energy and motivation. Be prepared to take advantage of it!
Asking for professional accounting help is always an option. An accounting expert from Wave Tax can help you keep finances in order.
📅 Schedule an appointment with us at at info@wavetax.us