One thing that is important to do at the end of the year is to close your books. That’s why we put together a check-list of the most common accounting to-dos for the year-end.
Whether you work with a CPA, bookkeeper, or just DIY, this checklist should help get your accounting ready for 2021.
Profit and loss review
The first thing you should do before and after this checklist is review your profit and loss statement. It’s a good reminder to see how you’re spending your money but also if your expenses are categorized.
Fortunately, if you use an online accounting provider like Xero, they can sync directly with your bank account or credit card statement and help you categorize your expenses.
Return to the P&L Review after you reconcile your bank accounts, receipts, and other potential concerns.
Did you use vendors this year? If so, you’ll have to collect W-9 forms for some of them. The W-9 form can be used as a paper trail for the IRS to track your expenses. It’s also a way for the government to keep track of vendors and their income.
For every vendor you’ve spent $600 or more for services, you’re required by law to issue and complete a 1099 form. The 1099 must be filled out and sent to the IRS by January 31. Fortunately, your accounting software solution will likely have a line item for all 1099 vendors and contractors. In addition, Gusto will file contractor 1099s on your behalf.
Gather and organize your receipts
As we mentioned in our prior checklist, it’s important to gather and organize your receipts. A shoebox of receipts is the last thing your CPA wants to see.
An easy way to organize your receipts is to use a software solution, which syncs with your credit card or bank account. That should help you account and categorize many of your expenses, which helps you reconcile your paper receipts. Be sure to copy down your thermal receipts because they have a tendency to fade too.
Reconcile your bank accounts and credit cards
For the year-end, it’s important to make sure what you have in your financial statements matches up with your bank and credit card accounts and your year-end statements. If you are using online accounting software, it’s important your ledger balance matches as well.
Check your payroll
We covered many payroll related issues in our previous checklists for end-of-year taxes and end of year employee-related issues. A few common areas to watch out for if you’re worried about end of year accounting are withholding taxes for fringe benefits, deferred compensation, and end-of-year bonuses.
Accounts receivables and invoices
There’s a tendency to forget to collect on your invoices if you don’t use invoicing software. Without a good collection system, you may have checks “lost in the mail.”
Take physical inventory
For some business owners, there’s no need to take physical inventory. For others, getting an accurate account of your inventory is important. You’ll want to match it with your end of year balance sheet. It’ll also be helpful for your bookkeeper, especially to know how much you’ve spent on inventory throughout the year and its current value.