Just when you start looking toward the new year, here it comes — the need to close the books on the old year. Coinciding with regular monthly and quarterly closes, it makes for a workload that nearly rivals tax season.
Still, the task of validating and adjusting account balances is a responsibility that you hold sacred. There are compliance issues, of course, but there is also the necessity of preparing the company to start the next period on solid footing – ideally with accounts at zero.
Executives are counting on you to produce a clean close that simplifies and clarifies their decision-making process. Taking a professional, strategically planned approach to the job puts you in control. Try these tips to take control, and give yourself the power to close out the year cleanly, quickly, accurately, and with minimal stress.
What makes end-of-year financial reporting so difficult?
The fiscal year can close at the end of the calendar year or on a date corresponding to the day the business was registered. In the case of a mid-year close, the company owner might want to align with industry standards or create a system that aligns with seasonal peaks in the business.
Closing the fiscal year can deliver a host of challenges. In fact, it’s estimated that completing an annual close takes 25 days – nearly a full month of concerted effort. The close entails a year’s worth of financial transactions to review, reconcile and verify. Business expenses, income, revenue, assets, investments and equity are all scrutinized.
Why does this combination of tasks become so burdensome? Learn to anticipate and navigate these typical obstacles, and the job becomes easier:
- Missing receipts and invoices. One of the primary functions of the project is balancing accounts payable and accounts receivable, which often boils down to transactions conducted by individual employees. Their spends help grow the company, but they might not be diligent about keeping records. Tracking them down takes time and effort.
- Human error. Mistakes happen. The chances of errors compound as the task grows more complex, the paperwork piles up and the pressure builds. An incorrect entry or misfiled document can snowball into unintended consequences.
- Manual data entry. Old-style methods of inputting data into spreadsheets by hand is time-consuming and can spawn errors, which heightens frustration. Accounting automation software captures the power of technology to make entries more accurate and efficient.
- Inefficient communication. Emails. Phone messages. Unanswered questions. Misunderstandings. Delays due to vacations, illness or lack of responsiveness. The back-and-forth required to acquire critical documents or get the explanation behind a transaction can be exhausting.
How to make your annual close easier
If you’re not the type who tackles big jobs in small bites, it’s time to learn. Like keeping up with housecleaning or reorganizing a cluttered attic, any daunting task is more likely to get done when it’s divided into manageable tasks. Stay on top of the laborious reconciliation process, and you free time in that final month for the more strategic steps of reviewing ledgers, preparing financial reports and setting goals for the coming year.
When you plan ahead and make end-of-year financial reporting a year-round priority, closing out the fiscal year doesn’t have to be an uphill climb. For this heavy haul, checklists help, too. You’re juggling an armful of paperwork and critical details, so a checklist helps ensure that nothing is dropped. It also keeps the entire team on track and focused on shared priorities.
Year-end accounting checklist
Consider this simple eight-point checklist to make sure you have a stress-free experience, tidy up the details and close the books on time:
- Prepare a closing schedule. Sure, breaking down a task into bite-sized pieces makes life easier, but a deadline that’s months away doesn’t stand a chance when daily demands are landing on your desk. Create a schedule that notes important dates and crucial deadlines for the activities that can be completed in advance. Make it clear, to yourself and your team, that its deadlines and housekeeping tasks will not be superseded —even on the busiest days.
- Gather outstanding invoices and receipts. People are more likely to comply with demands outside their proscribed job duties when they understand the “why.” Be clear with employees what is expected of them and why it matters. Give them plenty of notice, but always plan for delays. Automation software that includes digital receipt capture streamlines the procedure and simplifies the task, for more willing participants.
- Review asset accounts. Know the value of your company’s assets by reconciling all cash accounts and recording all adjusting entries. If appropriate, compare inventory accounts with the physical stock on hand, and review any prepaid spends.
- Reconcile all transactions. Match every recorded transaction down to the penny, scrutinizing evidence from credit card statements, bank statements, invoices and receipts. Think audit-ready, and you’ll lessen the end-of-year scramble.
- Close out accounts receivable and payable. Make sure that records of money coming in or out match the actual occurrence. It helps to compare amounts received or paid to amounts accrued. When an outstanding balance appears, create adjusting entries in the original journal entries to reflect the situation.
- Accrue accounts receivable. No matter the date that ends the fiscal year, there will likely be receivables due when the calendar turns. Note them as credits on the income statement and debits on the balance sheet.
- Accrue accounts payable. Debts can cross from last fiscal year to the next, too. List unpaid debts as liabilities or accrual expenses on the balance sheet.
- Adjust grants and entitlements. Some companies or organizations benefit from grants and entitlements, such as government funds, special tax exemptions and private donations. Make sure they’re accounted for in your end-of-year financial report.
Set your business up for success
Closing the fiscal year takes persistence, but the gratification that comes from doing the job right is priceless. A balanced close signals a healthy enterprise, and it positions the business to start the new year with a healthy outlook. A few simple steps can position you to minimize the aggravation and maximize the efficiencies of one of your most important duties.
Ready to learn more? Check out the array of offerings from Surgent Income Tax School. Convenient seminars and webinars equip you to hone your skills. Surgent Income Tax School’s continuing education courses, approved by the IRS Return Preparers Office, help tax accountants stay compliant. You can even learn how to start and grow your own tax business, for financial and personal independence.
With help from Surgent and your new checklist, you can make closing the fiscal year an integral part of your yearly calendar and while you prepare your business for prosperity in the coming year.