The title alone sounds a little daunting doesn’t it? Many business owners hear this phrase but don’t really know what it means. They hope the income & expenses are all accounted for and posted correctly. And then they leave the rest to their CPA or other tax preparer. Finalizing and closing your books for the year is a process and can get expensive if you leave it for the CPA. The more you do yourself, the more money you save and the more you actually know about the financial status of your business.
Did you reconcile your bank account(s) during the year? Your credit card accounts? Did you purchase any large pieces of equipment, an office building or a vehicle? Do you have outstanding loans? Sometimes you might be able to answer these questions right off the top of your head. Sometimes you might not be able to. Hopefully you are using QuickBooks to help to track it all. Or you’ve hired someone like me!
Here are some tips to Close Your Books:
1. Reconcile your accounts – checking, savings, petty cash (make sure you have the receipts), credit cards, loans. Use the “Reconcile” feature in QuickBooks.
2. Accrual vs. Cash – Are your financial books kept on a cash basis or an accrual basis? If you run your books on an accrual basis, be sure you have accounted for all bills that are dated in December. It gives you more expenses.
3. Inventory – Do you sell a product? Then you probably have an inventory. Perform a physical inventory count. Adjust your items and quantities accordingly. Be sure you account for waste, damage, returns and possibly even theft.
4. Equipment and/or Vehicles – Review your books for equipment purchases or new leases. Be sure to enter the new items on your Fixed Assets list.
5. Depreciation – Equipment and other Fixed Assets will require depreciation at the end of each year. You should have either subaccounts in QuickBooks or a separate document where you track these items with as much detail as possible. Be sure to calculate and post your depreciation entries. If you have a CPA who does your tax returns, get the final depreciation entries from them.
6. Financial Reports – Print out your financial reports. The P & L (Profit & Loss) which covers your income & expenses and a Balance Sheet which covers your assets & liabilities. If any of the numbers don’t look right, dig in and find out why. When you are finished you will have something to use to prepare your taxes or to give to your CPA for the same purpose.
7. Closing the Books – Once all final entries have been and the reconciliations complete, set a closing password. This will keep you (or anyone else) from accidentally changing something after you think your books are finalized for the year.
8. Back Up Your Data – Finally, back up your data so you have a FINAL file archived. Be sure you name it something like YEAR END 201X.
For those of you who use QuickBooks yourself, the program includes a handy “Year-End Guide/Checklist” built right in. Go to the Help Menu and select Year End Guide.
I hope this helps you finish up your tasks and close your books for another year.
Have a great week!
