The Ultimate Year-End Accounting Checklist: How To Close The Books At The End Of The Fiscal Year

It’s the most wonderful time of the year… until you realize you have accounting year-end tasks to take care of. Closing the books can be an intimidating process, especially for new business owners.

That’s why we’ve broken down the process into 17 manageable steps.

It sounds like a lot now, but these key steps will help you gain control of your accounting and get you ready to ring in the new year. To make things even easier for you, we’ve also created a printable end-of-year accounting checklist so that you can mark your progress.

You can print the Year-End Checklist now and use it to follow along, or you can jump right in. You’ll be closing out the accounting year with confidence in no time.

What Is Year-End Accounting?

Year-end accounting is a series of steps performed to ensure that your financial transactions are up to date and recorded correctly. Year-end accounting is performed to balance — then close — your books for a 12-month period. This allows you to run accurate annual reports and financial statements for your business. Year-end accounting also helps you spot and correct any errors in your books.

With your books balanced and closed at year-end, you can be adequately prepared for tax time. You can also start the new year fresh knowing that your financial records are in order.

When Does The Accounting Fiscal Year End?

The term “year-end” can be a little confusing for some because it doesn’t always pertain to the calendar year running from January 1 to December 31. Many businesses opt to use a different 12-month period to best fit the needs of their business.

A fiscal year-end is any period of 12 consecutive months. Some businesses choose a fiscal year that lines up with the calendar year — January 1 to December 31. Others, however, may choose a different 12-month period. Some retailers, for example, may find it difficult to juggle the rush of the holiday season with balancing and closing the books. These businesses may choose a different schedule — e.g., a fiscal year that runs from February 1 to January 31.

You should choose the option that works best for your business. For some, the traditional calendar year works perfectly fine. For others, a period that better aligns with business operations — such as ending the year after a period of heavy sales — may be more appropriate.

How To Close The Books: A Year-End Accounting Checklist

Ready to learn how to close the books at year-end? Start with these 17 easy steps for closing the books. These accounting year-end procedures help you prepare for running year-end financial statements and let you start the new year fresh with perfectly balanced books.

Step 1: Create Invoices

One of the most important aspects of closing out your business’s financial year is making sure all income and expenses are recorded and up to date. If you have any unbilled invoices, don’t wait any longer to send them. Get all unbilled projects and orders invoiced immediately.

Step 2: Send Invoice Reminders

On that same note, if you have customers who haven’t paid their invoices yet, follow up with them right away. Most accounting software allows you to email invoice reminders. Take advantage of this feature and get those invoices paid as soon as possible.

If there is a client who will not or cannot pay you, then you can write off unpaid invoices as bad debt as a last resort (so long as you’ve made sufficient efforts to collect payment). Before you do this, talk to your accountant and read what the Journal of Accountancy says about bad debt to learn if this course of action is right for your small business.

Step 3: Record Expenses

If you’ve fallen behind on recording and categorizing your expenses, now is the time to catch up. Make sure all expenses are entered into your accounting software. Not only is this crucial for accurate record-keeping, but it will also help your accountant find all of the tax-deductible expenses your business qualifies for.

Recording your expenses throughout the year can simplify this process.

Step 4: Separate Personal & Business Expenses

Ideally, small businesses should have a separate bank account for business expenses. However, we know this isn’t the reality for many smaller businesses and freelancers. That means you must separate your personal and business expenses.

If the IRS suspects that your small business deductions are actually personal expenses, then you are in great danger of an IRS audit. That’s why it’s essential to keep your business expenses and personal expenses distinct. Some accounting programs, such as QuickBooks Self-Employed, allow you to separate expenses easily.

Step 5: Update Mileage Log

With tax season right around the corner, you’ll want to make sure your mileage log is up to date so that you can maximize your small business tax deductions.

Some programs, such as QuickBooks Self-Employed, allow you to track mileage in their app. But a good ol’ pen and paper log with your start and end odometer readings and the date and reason for your travel will also do the trick.

Step 6: Pay Bills From Vendors

In addition to making sure all of your customers pay you, you need to square away any unpaid vendor debts your small business has accrued.

Step 7: Pay Contractors

Be sure to pay your contractors in full before you close your books and go through a payroll year-end checklist as well.

If you’re looking for an easier way to pay your contractors and employees, check out our picks for the best payroll software for small businesses.

Step 8: Reconcile Your Bank Accounts

Once all of your income and expenses are properly recorded, be sure to reconcile all of the bank and credit card accounts for your small business. Make sure that the income and expenses recorded in your accounting software match the totals from your official bank statements. If they don’t, there’s a discrepancy or mistake somewhere that you’ll need to address.

Reconciling your accounts once a month can help this process run smoother and take less time.

Need help reconciling your monthly and/or year-end accounts? Contact your accounting program’s help center or ask your accountant for assistance.

Step 9: Update Fixed Assets

Before you close the books, make sure all of your fixed assets are up to date. Add any new fixed assets that you may have forgotten.

For example, if your company purchased new computers, these would be considered fixed assets rather than expenses. Even though you paid for them as an expense, a computer’s life lasts longer than a single year, making it a fixed asset.

Step 10: Run Depreciation

For all of your fixed assets, you’ll need to run depreciation for the year. Remember how fixed assets last longer than a year? Well, depreciation is how the IRS determines how much of that asset’s life was used up in a year. You can write off the amount that has been used as a tax deduction.

If you need help understanding these concepts, check out The Quick Guide to Accounting Terms & Abbreviations or talk to your accountant for more details. Your accountant can also assist you with running depreciation, or you can run depreciation yourself using accounting software programs, such as Xero and QuickBooks.

Step 11: Decide On Employee Bonuses

Before the end of your financial year, decide whether or not your company will be offering employee bonuses. If so, you’ll need to set aside the proper withholding tax.

Step 12: Double-Check Payroll Taxes

According to CPA Michelle Edward, you’ll want to ensure that your payroll tax liabilities match your quarterly payroll returns.

If there are any discrepancies, talk to your accountant to get everything squared away before closing the books.

Step 13: Verify Employee Information

Go over all current and past employee and contractor information for the year and verify that the information you have on file is 100% accurate. It might be worth sending an email to your team to check if there have been changes. Employee contact information must be correct in order to send out W-2s and 1099s before tax season.

Step 14: Count Your Inventory

Next, you’ll need to do a final inventory count. Do this count on the day you close your books (for many businesses, this will be December 31). Small businesses are expected to record their inventory at the beginning and end of each year, as these totals are used on several tax forms.

Step 15: Run Reports

Use your accounting software to run a Profit & Loss report (or Income Statement) and Balance Sheet report. Analyze both reports and verify that the information you see is correct.

You may also want to run your Statement of Cashflows report and get ahead of the game by running the key reports your accountant will need for taxes.

Step 16: Create A Company File

I can’t emphasize how important this step is. Once you’ve completed steps 1-15, create a company file of the year’s data. The last thing you want is to lose access to important accounting data from the year. Your accountant will also need access to your company file to make necessary year-end adjustments and file taxes.

If your software doesn’t have a company file feature, export the important data into separate files and store them securely.

Step 17: Close Your Books

Once you’ve completed every step and checked off each part of your Year-End Checklist, you can officially close your books! Luckily, accounting software makes this process easy.

When you close your books or set a lock date, users won’t be able to edit or add transactions that occurred before the closing date. Most often, the business owner will set a password so that only the admin and accountants can access previous transactions. Doing so helps your accountant double-check that everything is up to date and make adjustments if needed.

Most accounting programs, such as QuickBooks and Xero, let you close the books and even set a lock on closed periods. You can search your software’s help center for instructions, or you can talk to your accountant and have them do this for you.

Get Started With Our Year-End Accounting Checklist

Ready to get a jump-start on your year-end accounting software? Check out our accounting year-end checklist to ensure you don’t overlook a single step.

Then, once you’ve closed your books, keep the momentum going and start preparing for tax season. Don’t let April 15 sneak up on you!

Year-End Accounting FAQs