Here is a year-end bookkeeping checklist for a small business owner to keep your books on track:
1. Reconcile the books
A bank reconciliation is important to ensure all the transactions recorded on the books are matching with the bank statement. This gives a positive sign for your business that everything is in the right spot. If you find any discrepancy in the process fix it.
For calculating the business taxable income you have to make sure to reconcile other accounts to ensure that your financial records are complete. If the financial record is incorrect then you may not know whether you are overpaying or underpaying the income tax. So reconcile other accounts such as:
- Business credit card accounts
- Business loan accounts and
- Payroll accounts
2. Review Bookkeeping
- Review your bookkeeping on an ongoing basis especially prior to year-end and clear up any outstanding issues.
- Ensure that your accounting software is up to date and reconciled
- Ensure that analysis of accounting information processed and it is in compliance with statutory requirements.
- Do some tax planning before the start of the new year
3. Review Asset
Look through the details of your asset accounts and see for any glaring errors that are mistakenly booked. If you are starting at certain charges in a fixed asset account, then record it to the right account immediately due to its direct effect on the ending balance of statements.
4. Discuss with accountant
Discussing with the accountant prior to year-end is the right time to resolve any questionable transactions in the recording so that you can keep the books reconciled. Moreover, you can consolidate all doubtful questions in one spot for easy review with a tax advisor before the year-end.
5. Review with tax professionals
Reviewing the current financial condition of an organization with tax experts before year-end is important to get an estimate on tax liability. A bookkeeper has two reasons for reviewing taxes before the year-end:
- You can make many tax-advantageous moves prior to year-end in spite of waiting until the calendar turns to a new tax year.
- If you owe taxes wouldn’t you preferably have 4 months notification rather than just a few weeks?
If you owe tax then it is always better to be prepared so you should not be surprised by your tax liability.
6. Develop a Budget & Forecast
Make a habit to develop a budget for your business for the upcoming year before the year-end. Create milestones for every quarter while building a budget. Utilize the budget to guide your business. Compare your progress with respect to your budget throughout the year so you stay on track.
7. Review your Organization
After completing all the financial year-end tasks, take a look at your organization structure as a whole. Go through the details of the organizational chart, do the SWOT analysis, find the strength and weaknesses of your organization. Identify the opportunities or gaps in the organizational chart and put efforts to fill the gaps. This way you can set goals and refine the long-term vision.
8. Clean Up Accounts Receivable (AR) and Accounts Payable (AP)
Year-end is the right time to have a quick overview of accounts receivables (AR) and accounts payable (AP). Running an aging report on both AR and AP may reveal a few issues.
Firstly, Regular AR mistakes are not balancing credits against old invoices. You need to attempt to gather the outstanding receivables balances before the year-end and write off the bad debt never collected.
Secondly, looking over old aged payables may uncover some old inaccurate balances. Make a few research on any suspicious balances and request statements from those vendors.
Thus approaching year-end along with outsourced bookkeeping company taking care of payables and receivables will benefit you.
“Bookkeeping and accounting services involve both bookkeeping as well as accounting functions. Accounting starts where bookkeeping ends. Bookkeeping just records the financial transaction in a timely manner whereas accounting interprets those transactions. Bookkeeping provides the day to day details whereas accounting provides the details of the entire year of your business. So without having an accounting checklist, you may not be able to plan your year-end task for your business.”
Let’s move on...
Here is a year-end accounting checklist for a small business owner to keep your accounts up-to-date
1. Ensure your bookkeeping is updated and accurate
Accounting follows bookkeeping so it is essential to check and ensure that all the records are updated. If you find few mistakes in any transactions or missed out on any transactions then you can correct all those before sending your books to your accountant.
For accuracy reconcile your bank/credit card statement with your accounting records and check the transaction that is missed or double-counted or incorrectly classified. It’s important to match the ledger balance.
Check each line item of your income statement with the balance sheet and review the transactions on every account and ensure that it is accurate.
2. Profit and Loss Review
For small business owners, reviewing profit and loss accounts at the year-end is very important to evaluate the performance of an enterprise and provide a basis for forecasting future performance.
A profit and loss statement not only provides information about an enterprise’s income and expenses but it also enables you to increase your earnings by reducing unnecessary expenses and increasing incomes. Thus by using the profit and loss account you can make projections for future revenue based on past sales and expected income.
3. Perform an Inventory count
If you have an inventory of any kind in your business it is important to perform physical inventory count before the end of the financial year. This will help you to determine the total value of inventory available on hand and how much has been damaged, stolen, etc.
4. Check Payroll
Payroll accounting and payroll records go hand in hand. It is essential for you to accurately accrue all unpaid salaries and wages earned by employees as a liability in accounting at the financial year-end.
5. Reflect on High level
Year-end is the right time to reflect on your business on a higher level. Analyze your business by asking a few questions yourself
What went right and what went wrong in your business?
What were your yearly goals and did you achieve them?
Is your business provides income that you expected?
Whether your business provides enjoyment or stress?
What are your lessons learned?
It’s very important to document all this information during your reflection so you can easily retrieve this at any point in the new year. Later this will help you to improve your business operation to achieve your mission and change your life as a business owner.
6. Organize Your Receipts
Organizing receipts that belong to your small business is important to avoid messy records and eliminate the chances of error on your small business tax return.
Receipts may be of inventory, office supplies, advertising, travel, entertainment, and other related purchases. You can organize your business receipts:
- By sorting receipts as per expense type
- By using folders and labels
- By organizing receipts in chronological order
- By storing receipts on the cloud
Thus immediately after receiving the receipt, organize it using filing or storage system. This way you will never misplace the receipt or forget to account for it.
7. Tax Plan
Tax planning at the year-end provides you an opportunity to position certain transactions to save tax. Therefore plan to increase your expenses at the year-end to lower your taxable income.
Try to defer sending invoices to customers, if possible, hold invoices until January. This will reduce your taxable income in the current year.
There are many more in-depth tax strategies to employ for big saving on taxes. Meet your small business tax accountant to optimize your tax plan.
As a small business owner, compiling year-end accounting and bookkeeping checklist is important since it gives you a financial report that projects your current state of financials.
This financial report which is generated through appropriate accounting and bookkeeping services helps you to make significant decisions.
Thus a year-end accounting and bookkeeping checklist helps you to stay on top of your accounting and bookkeeping services and set you up for success in the New Year.
If you find that completing these tasks is becoming a hard nut to crack then you can outsource accounting for small business to paysquare. Paysquare is one of the best accounting services in India which will help you make sense of your bookkeeping and accounting at the year-end.