As a small business owner, closing out your books at the end of the fiscal year is one of the most important financial tasks you’ll tackle. Properly closing out your books helps ensure accuracy in financial reporting, prepares you for tax season, and provides a clearer picture of your business’s financial health. Whether you’re just starting out or have been in business for years, the end-of-year financial close can seem daunting. However, by following a structured approach, you can streamline the process and avoid common pitfalls.
Reconcile Your Accounts
The first step in closing out your books is to reconcile your financial accounts. This includes your bank accounts, credit card accounts, and any loans or lines of credit. Reconciling ensures that the transactions in your accounting software match your bank and financial statements.
Steps to Reconcile:
- Compare your bank statements to your accounting records, ensuring that all transactions are accounted for.
- Identify and correct any discrepancies. This could include duplicate entries, missing transactions, or incorrect amounts.
- Once everything matches, mark the accounts as reconciled in your accounting software.
Reconciling your accounts allows you to confidently move forward with the rest of the year-end process, knowing your financial records are accurate.
Review Accounts Payable and Receivable
As you prepare to close out your books for the fiscal year, it’s essential to ensure that your business has accounted for all outstanding payments and invoices.
For Accounts Payable:
- Review any outstanding bills or payments that are due to suppliers or vendors.
- Make sure all expenses are recorded, including recurring payments like utilities and rent.
For Accounts Receivable:
- Review any outstanding invoices that have not yet been paid by your customers.
- If certain invoices are unlikely to be collected, consider writing them off as bad debts.
Ensuring that both accounts payable and receivable are properly accounted for will help you generate accurate financial reports.
Record Depreciation and Amortization
If your small business has any fixed assets (e.g., equipment, vehicles, or buildings), you’ll need to record depreciation and amortization for the fiscal year.
Steps to Record Depreciation:
- Use your accounting software or consult with an accountant to determine the depreciation amounts for each asset.
- Record the depreciation expense for the year in your books.
Recording depreciation allows you to reflect the gradual loss in value of your assets and helps you prepare for tax season.
Generate Financial Reports
Once your accounts are reconciled and all necessary adjustments have been made, it’s time to generate your year-end financial reports. These reports will provide a comprehensive view of your business’s financial health and will be necessary for tax filing.
Key Reports to Generate:
- Income Statement (Profit and Loss Statement): Shows your business’s revenues, expenses, and net profit or loss for the year.
- Balance Sheet: Displays your business’s assets, liabilities, and equity at the end of the fiscal year.
- Cash Flow Statement: Tracks the inflow and outflow of cash within your business over the year.
Review these reports to identify trends, growth opportunities, or areas that may need improvement in the upcoming fiscal year.
Back Up Your Financial Data
Before officially closing out your books for the fiscal year, it’s essential to back up your financial data. Whether you use cloud-based accounting software or manual spreadsheets, make sure you have multiple copies of your data stored in secure locations.
Backing up your data protects your business from potential data loss and allows you to access important records in case of an audit.
Start Planning for the Next Fiscal Year
Once you’ve successfully closed out your books for the current fiscal year, it’s time to start planning for the next one. Use the insights gained from your year-end reports to set new goals, create budgets, and improve your financial management processes.
Trust the Professionals at the Harding Group
Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for consultations and strive for open communication with our clients.
Are you interested in business advising, tax preparation, bookkeeping and accounting, payroll services, training + support for QuickBooks, or retirement planning? We have the necessary expertise and years of proven results to help.