In the Accounting Services Department at Stockman Kast Ryan + Co, we take a balance sheet approach when closing a set of books. This means each account on the balance sheet (assets/liabilities and equity) is reconciled to source documents (bank statements, amortization schedules, payroll and sales tax returns, etc.) before closing the net income for the year. We view all the transactions during the year to capture any reclassifications that may need to be reallocated to a different account as well as reconciling expenses such as payroll.
There are many things to take into consideration when finalizing a Year End Closing.
Here are some tips for closing your books:
- Make sure all cash/bank/checking accounts are reconciled. Pay special attention to stale checks or old deposits that have not cleared the bank and investigate the problem.
- Reconcile your Accounts Receivable and Accounts Payable. Make sure all invoicing and bills are posted (especially if you’re on an accrual basis — income/expenses are recognized when they occur rather than when received/paid). Be sure all payments have been applied to open invoices.
- Reconcile all credit card accounts and statements. Expenses charged to a credit card should be dated when charged NOT when the statement is paid. For example, if you charged expenses in December but the statement doesn’t come until January, you can still capture those expenses in the current year.
- Get ALL cash receipts to post. If there were payments paid from the owner that related to business, they would be applied to their “Owner Contribution” account. That would reduce their personal cash payments and increase expenses.
- If you have loans on your balance sheet, request a year-end report with the balance from the bank or lending institution to make sure they match. If they don’t balance each other, it is typically due to interest expenses. You can create a journal entry, posting the interest to your expense account, thus adjusting the amount of your loan amount to the actual balance on the bank records
- Prepare and file 1099s. Hopefully throughout the year you have collected the W9 information on all of the contractors. If you have not, they need to be finalized and postmarked to the contractor no later than January 31st.
- Prepare and file W2s. This may be done by your payroll service provider, but if you prepare your own payroll reports the W2s need to be finalized and postmarked to the employee by January 31st.
- Print out a YTD General Ledger. Go through each account and review everything in it. Make sure that each cash and loan account (checking, receivables, payables, notes, inventory and fixed assets) has backup documentation to prove that their balances are correct. Review your income and expense accounts and verify that all of the transactions are posted to the correct accounts.
Common information we will require from you to prepare your tax return:
- Back-up or portable company file of QuickBooks (Accountant’s Copy if changes are expected to be returned and imported). If the file is not supplied, we need hard copy reports for the current year of the Balance Sheet (Current Year/Prior Year if available), Income Statement, Trial Balance, General Ledger, AP Aging and AR Aging from the accounting system
- Documentation for bank loans/account balances as of year end
- Sales tax liability as of year end
- Year End Payroll Reports (Payroll Summary)
- YTD Payroll Tax Returns (Quarterly 941s, 940, State tax forms)
- Copies of W3/W2s
- Health Insurance Premium total paid for owner or S-corp shareholder
- Inventory balance at year end
- POS Sales Report 1/1–12/31
- Donations (amounts, descriptions and charitable organizations)
- 1099s Received (also, 1099s issued)
- Fixed Assets — Details on any equipment purchased or sold/disposed of, including purchase date, total cost, description, and any financing associated with the asset. Also include date of sale and amount received when disposed of as well as any trade associated with the disposal.
Generally, we will make the final year-end adjustments to the balance sheet to zero out the owners’ distributions/draws for the upcoming year as well as to record depreciation. Occasionally, we have additional tax adjustments that may also affect your books.
We know that closing out your books for the year can be a daunting task. But taking the time to prepare now will likely save you both time and money later. “Clean” books make the tax preparation process that much easier and efficient. If you have questions regarding any of the suggestions listed here, please let us know.