Year-End Bookkeeping and Accounting Checklist for Small Businesses

Business owners lose more sleep over taxes than the fear of being outperformed by competitors.

That’s not made up. In fact, a 2023 statista report identified taxes as the third biggest problem for business owners.  Here is a quora response of a real business owner:

_“_I don't enjoy it or understand it, it's boring. I have just sacked an accounting firm as they send me pages and pages and pages of really dull stuff. “

However, as much as you don’t like it, taxes need to be done. And for that, first you need to go through your books, organize invoices and reconcile your accounts at the end of the year.

That’s year-end bookkeeping for you.

Do it wrong and you will hinder your progress and screw up tax returns. Do it right and you will have a strong resilient business that can thrive even in unfavorable times of recession.

If you are second guessing your current year-ending bookkeeping practices or want to know how to do it correctly right from the start, here is a step-by-step guide for you.

Make Sure Your Books are Up to Date

Let’s kick off the list with an obvious one: keep your books up to date. Make sure all the transactions for the entire fiscal year have been recorded and organized. Also, review and save all the supporting documents.

When books are updated, it’s way easy to complete your annual bookkeeping. And a closed book helps you to strategize your taxes, have an idea of your business growth trajectory and dodge a long list of questions from your accountant/Bookkeeper.

If you are doing it on your own, then start by ensuring your bank and credit card statements. Check if your invoices and bills are recorded or not. It’s better if you do this on a monthly basis and avoid last minute rush altogether.

This is also a good time for reviewing less frequent/one-time expenses. For example, you might have to pay a legal professional for one time service. Such transactions should also be recorded.

Alternatively, you can use bookkeeping applications like Fincent. Once you connect your bank account to the application, it automatically updates your books based on bank transactions.

Finding your transactions is easy, too.

With that said, you still want to stay vigilant. For instance, sometimes it can take some time before transactions get cleared from the bank side. In such a situation, a temporary mismatch may happen. Also, if you paid using a card/account that hasn't been linked to your bookkeeping application, you might add that manually to your book.

Bank Reconciliation

Once you have all the records, the first thing you want to do is bank reconciliation.

Because chances of missing out on a few transactions, miscalculating your statements and making mistakes in your tax returns due to wrong calculations are never zero and you absolutely don't want such unexplainable transactions creeping into your financial records. Your bank and credit card statements match your bookkeeping software records 100%.

To do bank reconciliation, you need both your bank records and business records. For the first one, use bank statements, online bankinging transaction log or data sent to your bookkeeping platform. For the latter, get your transaction history in your bookkeeping software.

Find the last time where the balance of the book matches your bank account balance. That’s your starting point. At this point, check if income in your book is identical to bank deposits. Do the same for expenses and bank withdrawals.

If there are a few transactions that your bank recorded but bookkeeping software didn’t or vice versa, get bottom of those, review your invoices and take notes.

Review Your Financial Statements

Once you reconcile your bank account, it’s time to take a long hard look at your financial statements. By financial statements, we mostly refer to cash flow statements, balance sheets and income statements.

You create your own financial statements on Excel sheets. Alternatively, you can retrieve your updated financial statements from the Fincent dashboard.

Weeding out any error in your financial statements during your ending bookkeeping, is where your work begins. Here are a few ways to screw up financial reports (and suffer consequences):

• Instead of adjusting account receivable when your customers failed to pay, you kept that knowledge in your head. Now you have to pay taxes on the income that you didn’t make.
• You didn’t pay attention to cash flow statements before. As a result, you are struggling to pay bills, though you are making good income on paper.
• Your reports lack comparative data showing. For example, there is no comparison between two quarters. Or, in some cases, comparative data is present but interpretation is missing. (Think of a report that mentions quarterly revenue of the last few quarters but doesn’t cover how much change has occurred).

This is not an exhaustive list by any means and there could be other errors. Nonetheless, address such matters while reviewing your financial statements.

With Fincent, you can easily spot those hard-to-detect issues. For example, if you go to Directory -> Customers, you can view your invoice history and average invoice process time. With this, you can make an educated guess on when you might get paid (and what your cash flow would look like).

Also, you can get detailed analysis and comparison of your income and expenditure data (Financials tab).

Apart from these, you also want to look for instances where balance is too far off from your expectation. Once spotted, dig into your transactions and invoices to find the root cause.

Review Accounts Receivable

Once you are done reviewing your financial statements,  zoom into the incoming part: accounts receivable. You want a healthy cash flow going for your business and your accounts receivable are responsible for that.

However, there is one more compelling reason for tightening your account receivable review. According to recent reports, 41% of USMCA businesses experienced deteriorating customer payment practices. In simpler words, your chances of encountering uncollectable debts and late payments have gone up in recent times.

So how do you review your accounts receivable?

Start by  reviewing your invoices, deposits and unprocessed accounts receivable. You might consider doing it at least once a month to keep things light during year-ending bookkeeping.

Here a list of things for you to check during your review:

• Money owed: This is no brainer, right? First thing you should check is how much money you owe to your customers.
• Invoices: Currently the punctual payments of invoices has fallen to just 29.1% in the US. That means, chances are some clients might delay the payment. You want to send your invoices at the right time and follow up if needed.
• Supporting documents: During your tax preparation (and if you get audited), you need invoices and other supporting documents. You want to re-organize them during your review.

Sounds like a lot of work, right? Well, Your accounts receivable reviews become 10X easier if you use accounting applications.

For example, if you are on Fincent, you will get all of your customers and associated accounts receivable under the “Get paid” tab. Click on them to see the amount owed and the status of your invoices. And when a customer falls behind the schedule, you can follow up on outstanding invoices (or send new invoices) directly from the Dashboard.

Review Your Accounts Payable

The next is quite similar to the one we just covered. But this time you want to check your accounts payable reports instead.

Why is this a thing?

Because having an accurate picture of your expenses (accounts payable) is a must for any financial planning/decision-making.

However, no matter how vigilant you remain, some errors always find their ways into your books. That applies even when you are using a robust bookkeeping application.

• Due to some technical issue, your transaction gets imported multiple times. If you don’t fix it, your financial statements will not be accurate.
• Bank fees and charges may not be reflected correctly always. You need to fix those manually.
• If your bank makes any error (not mentioning / delaying transactions), your bookkeeping records will reflect that.
• Transactions may appear at different times than what your bookkeeping software has recorded. Such inconsistencies can lead to confusion and erroneous reports.

To review, pull out your outstanding payable data and examine. Then validate the accuracy of expense categorization and cross-reference it with payment status and record-keeping. You could have missed something and you can quickly record it in your books.

Making sure that all of the appropriate expenses are recorded will also help reduce your tax bill. So a really important incentive there as well.

Think About Your Deductions and Tax Planning

Once you complete the previous steps, you are left with a crystal clear knowledge of your business expenses, right? You know how much you paid for employees wages,your total business transport cost, cost of large machinery, skill development courses and so on.

Use this information to plan your taxes and maximize your deductions.

• Take a good look at your expenses and figure out which deductions you can claim. For example, if you use a part of your home as your office, you can go for home office deduction. Do your expenses include an employee 401(k) match? Congratulations, it is deductible on your federal income tax return.

• Sometimes taking one deduction can hinder your eligibility to obtain the other. For instance, consider a self employed individual who makes $100,000. According to IRS rules, he pays SECA tax and is eligible to deduct employer portion while calculating his adjusted gross income (AGI). He can also deduct any amount he paid as health insurance premium while calculating AGI. Now, if he deduct health insurance premium, his net self-employment earning will be lower which will shrink that employer portion tax deduction. In such situations, try to maximize tax benefits based on what insights you find during reviews.

• The IRS explicitly instructs tax payers to save receipts. These are required during audits as well as tax filings. Therefore, you want to take a second look and ensure if your receipts, invoices, bills and canceled checks are properly organized.

Overall, year-ending bookkeeping and tax deductions are closely intertwined. Proper record-keeping throughout the year ensures that you can accurately claim eligible deductions, minimize tax liability, and comply with tax regulations.

Reflect on the Current Year and Plan Your Next Year Goals

Your year-ending bookkeeping is a good time to look at the bigger picture. You want to take a pulse on what is working and what needs some changes. Are you meeting your financial goals? What potential issues might arise later? Who are your biggest customers?

Answers to these questions are often found in your financial statements. If you are a Fincent user, comparative data on the “heads up” tab and “Get paid” can make your job significantly easier.

Once you are done with current year performance, move on to next year goals.

If you want to change your business trajectory, readjust your expectations or go ambitious, this is the right time.

It’s in our nature to start fresh every year. So, capitalize on that human tendency for further growth. Just keep in mind, don’t keep your review and planning pending until the last few weeks of the year. Chances are, it would take longer than you expect and you might have to pay some late fines.

Conclusion

Year-end bookkeeping doesn’t feel like a tour at Disney’s. However, it is extremely important for assessing your business’s financial health, tax planning and future goal setting.

We have already discussed how to do year-end bookkeeping with Fincent as your perfect sidekick, right? Well, if you book a demo, you will find Fincent can do a lot more.

However, what if you realized the importance of year-end bookkeeping a bit late and now don’t know how to clear up your books from past years/quarters?

Fear not.

Fincent offers catch-up bookkeeping service, which is a fancy way of saying actual human bookkeeping experts would venture into the wild west of your untamed books, retrieve missing transactions in Indiana Jones style and put some law and order.

Well, that’s a bit of an exaggeration, but Fincent experts will clean up your books for you.