At the end of the calendar or fiscal year, every business owner has to tackle the one thing that’s been looming over their to-do list: closing their books.
While financial reporting isn’t an activity most owners look forward to, getting your accounting ready for year-end comes with real payoffs:
Faster, cheaper tax filing: Clean, reconciled books mean less time (and cost) spent untangling expenses during tax season.
Lower audit risk: Accurate records and a clear paper trail protect you if the IRS has questions.
Catching issues early: Flagging problems like uncategorized expenses or uncollected invoices before December 31 means you can still act on them early.
A clear picture of how your business performed: You need accurate numbers to make good decisions about next year's budget and spending.
Fewer costly mistakes: Unreconciled accounts, unwritten-off bad debt, or missed depreciation can distort your taxable income if left unresolved.
A clean start to the new year: Accurate books now ensure January starts with good data.
What do I need to do to get my accounting ready for end-of-year?
Whether you work with a CPA, bookkeeper, or opt to do your taxes yourself, you'll need the right information and statements in place to close your books accurately. This year-end accounting checklist should help get your accounting ready for the next year.
Review your profit and loss
The most important thing you should do before and after completing this checklist is review your profit and loss statement (also known as P&L or your income statement). This statement shows your company’s revenue, expenses, and net income (or loss) over a period of time, so it’s a good reminder to see a) how you’re spending your money and b) whether your expenses are categorized properly.
If you use Xero as your online accounting provider, you can also:
Sync directly with your bank statements to help you categorize your expenses
Integrate with Gusto to sync your payroll details to Xero as a Bill or Manual Journal each time you run payroll.
Once you’ve reconciled your bank accounts and receipts, return to review the P&L and make sure there are no other adjustments to make.
Collect W-9s
Did you work with any vendors this year? If so, you’ll have to collect W-9 forms for some of them. A W-9 gives the IRS a paper trail for your expenses and helps the government track vendor income. It’s also a way for the government to keep track of vendors and their income.
For every vendor you’ve paid $600 or more for their services, you’re required by law to issue and complete a 1099 form, which must be filled out and sent to the IRS by January 31. Your accounting software solution will likely flag 1099 vendors and contractors for you — and Gusto will file contractor 1099s on your behalf.
Gather and organize your receipts
A shoebox of receipts is the last thing your CPA wants to see, so it’s important to gather and organize your receipts.
A tool like Xero that syncs with your credit card or bank account can categorize many of your expenses automatically and help you reconcile them against your paper receipts. Also, be sure to copy down your thermal receipts before they fade, as they tend to go quickly.
Reconcile your bank accounts and credit cards
For the year-end, it’s important to do an account reconciliation to make sure what you have in your financial statements matches up with your financial transactions, bank and credit card accounts, and year-end statements. If you are using online accounting software, it’s important that your ledger balance matches as well.
Check your payroll
We covered some payroll related issues in our checklist for end-of-year taxes. 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.
Review your balance sheet
While your P&L tells you how you performed, your balance sheet tells you where you stand. It's a snapshot of your assets, liabilities, and equity as of year-end. Assets should match what you actually own (cash, equipment, inventory), and liabilities should reflect everything you owe (loans, credit cards, unpaid bills).
If you use Xero, your balance sheet is generated automatically from your reconciled accounts. If the numbers don't add up, double-check that everything was recorded in the right period and in the right account.
Review your cash flow statement
Your P&L and balance sheet show profitability and net worth, but neither tells you whether you actually had enough cash on hand throughout the year. Here’s where your cash flow statement comes in. It tracks money moving in and out of your business across operating, investing, and financing activities, and it's often where you'll catch liquidity issues.
Reviewing it at year-end is mostly a matter of pulling together numbers you've already checked elsewhere in this list: cash coming in from the invoices you collected on, cash going out through the bills you paid, and the ending balance you confirmed when you reconciled your bank accounts. If you use Xero, it generates a cash flow statement automatically once your accounts are reconciled.
Check on accounts receivables and invoices
If you don’t use invoicing software, you might forget to collect on your invoices. Start sending out follow-up emails for any unpaid invoices, and make sure you have a good collection system in place so that no checks get “lost in the mail.”
Review accounts payable and any outstanding bills
You should also take stock of what you owe vendors and suppliers. Go through your unpaid bills and make sure they're recorded in the right year. A bill for services performed in December shouldn't show up as a January expense. This will also give you a clear picture of your cash position heading into the new year.
Record any fixed assets and depreciation
Did you buy equipment, furniture, or property this year? You’ll need to record those purchases as fixed assets and depreciate them over their useful life. Update your depreciation schedule before you close the books so that your balance sheet and taxable income are accurate.
Record prepaid expenses and accruals
If you paid for something upfront that covers future months, such as an annual insurance premium or prepaid rent, you only need to include the portion used this year on your P&L as an expense. The rest belongs on your balance sheet as a prepaid asset. On the flip side, record accruals for business expenses you've incurred but haven't been billed for yet. Getting both directions right keeps your year-end numbers accurate.
Reconcile your sales tax
Compare the sales tax you've collected against what you've actually remitted to state and local agencies. If you sell in multiple states, double check that you're accounting for each jurisdiction correctly to make sure you’re audit-ready (Xero automatically tracks sales tax collected by jurisdiction). Sales tax rules vary widely, so any mismatch can turn into a bigger headache later on.
Write off any bad debt
Don't let stale receivables linger on your balance sheet just because closing them out feels like giving up on the money. Take a hard look at old, unpaid invoices you're realistically not going to collect and write them off as bad debt. The upside? This keeps your books accurate and can offer a tax benefit.
Review your chart of accounts
Before you start a new year, clean up your chart of accounts — merge duplicates, remove accounts you no longer use, and make sure expenses are landing in categories that actually make sense. A tidy chart of accounts makes next year's bookkeeping faster and gives your CPA a much clearer picture to work from.
Take physical inventory
For some business owners, there’s no need to take physical inventory. For others, getting an accurate inventory count is important. You’ll want to match it with your end of year balance sheet. It'll also help your bookkeeper see how much you've spent on inventory over the year and what it's currently worth.
In addition to this checklist, you can also get a jump on tax planning by reviewing our guide on how to prepare your taxes for year-end.
FAQs
What's the difference between a profit and loss statement and a balance sheet?
A profit and loss statement shows how your business performed over a period of time, while a balance sheet shows where your business stands at a single point in time. Both are core financial statements, but one measures performance and the other measures net worth.
Do I need to send a 1099 to every vendor I paid this year?
No. You're only required to issue a 1099 to vendors and contractors you paid $600 or more for services during the year, and you'll need a completed W-9 on file for each of them. The form must be filed with the IRS by January 31, and Gusto can file contractor 1099s on your behalf.
How long should I keep business receipts and financial records?
The IRS generally recommends keeping records for at least 3 years from when you file the related tax return, though some situations call for longer (6 years if you underreported income by more than 25%, 7 years for a bad debt or worthless securities claim, and at least 4 years for employment tax records). Digitizing receipts as you gather them at year-end helps keep them legible and organized.
What happens if I don't reconcile my bank accounts before year-end?
Skipping reconciliation means your financial statements may not match what's actually in your accounts, which can throw off your P&L, balance sheet, and cash flow statement alike. It also raises your audit risk, since discrepancies are much harder to explain after the fact than to catch and fix in the moment.
Is a cash flow statement the same as a balance sheet?
No. A balance sheet shows your assets, liabilities, and equity at a single point in time, while a cash flow statement tracks the actual movement of cash in and out of your business over a period, across operating, investing, and financing activities. A business can look profitable on paper yet still run short on cash, which is why a cash flow statement is important to create and review.
