Year-End Bookkeeping Checklist for Small Businesses

A year-end bookkeeping checklist is a tool for small business owners to ensure their financial records are complete and accurate before the year concludes. 

In this article, we’re going to walk you through each step of the year-end bookkeeping process. 

This guide is also related to our articles on common accounting errors and how to avoid them, how to read a balance sheet, and how to hire a virtual bookkeeper.

Here’s what we’ll cover:

• year end bookkeeping tasks
• year end closing process
• year-end accounting entries
• year end closing entries

Ready to dive in and get your finances in tip-top shape? Let’s get to it.

Year-end bookkeeping

The year-end bookkeeping checklist includes these steps. 

1. Collect and organize financial documents
2. Reconcile all accounts
3. Make inventory adjustments
4. Check fixed assets and depreciation
5. Review year-end payroll
6. Prepare financial statements

We’ll go through each one step by step. 

1: Collect and organize financial documents

Your financial documents are the backbone of your business’s financial health. Make a checklist of all the documents you need and tick them off as you collect them. 

Bank statements, invoices, receipts, payroll records

Each of these documents serves a different purpose and needs a spot in your organization system.

• You’ll need bank and credit card statements to reconcile your accounts
• Invoices and receipts are proof of your income and expense
• Payroll records are crucial for tax purposes and verifying that your team is paid accurately and on time.

Organize them by month or by category whatever makes sense for your business. Just keep it consistent.

2. Reconcile all accounts

Reconciliation makes sure the numbers in your books match the numbers according to your bank or credit card statements. It’s double-checking your work to catch any mistakes or oddities, like unauthorized charges or deposits that haven’t gone through yet.

Here’s the simple way to do it

Compare your bank statements to your records for each month. Look at every transaction. If something doesn’t match, figure out why. Sometimes, it’s just a timing issue. Other times, you might uncover mistakes that need fixing.

Loan balances and interest

If you’ve taken out a loan for your business, keeping tabs on how much you owe and the interest you’re being charged is crucial. When you reconcile your loan accounts, you’re double-checking that the loan balances and interest payments recorded in your books match what your lender says you owe.

Record each loan payment you make, splitting it into principal and interest. This split is important because it affects your financial statements and taxes differently.

Check accounts receivable and payable

You want to make sure that your Accounts Receivable and Accounts Payable are accurate at the end of the year. 

• Accounts receivable: This is money that customers owe you for products or services. Go through your AR reports and make sure there’s no negative customer balances. Maybe a customer payment is missing, or perhaps you recorded a sale twice by mistake.
• Accounts payable: These are bills you need to pay. Match up your records of what you’ve paid with the statements from your suppliers. Make sure none of your vendor accounts have negative balances.

Once you’re sure that all your bank account, credit card, loan, AR and AP accounts are accurate, let’s tackle inventory management, another key piece of the puzzle for keeping your business running smoothly.

3. Make inventory adjustments

Inventory management starts with knowing exactly what’s on your shelves. A year-end physical inventory count is just that, counting every item you have in stock. 

Grab a clipboard, or better yet, use a digital tool or app, and count every item. Yes, every single one. It’s a good idea to do this when your business is closed, or during a slow period, so you can focus without interruptions.

Reconciling inventory records with physical count

Once you’ve got your count, it’s time to match it up with your records. This step spots the differences between what you thought you had (according to your records) and what you actually have on hand.

Find discrepancies?

Don’t panic. It’s normal to have a few. Maybe some items were damaged, lost, or stolen. Or perhaps sales were recorded incorrectly. The important thing is to figure out why there’s a difference and make notes of any reasons you discover.

Adjusting for any discrepancies

After identifying discrepancies, you’ll need to adjust your records to reflect the actual count. This means updating your inventory system with the correct quantities.

If you find you have less inventory than your records showed, you might need to write off the missing items to an expense called Inventory Shrinkage. If you have more, you’ll need to investigate further. Maybe some items weren’t recorded properly when they came in.

With your inventory accurately counted and records adjusted, let’s move on into how to manage your fixed assets and depreciation..

4. Check fixed assets and depreciation

Fixed assets are the big-ticket items your business owns and uses over more than a year for things like computers, equipment, and vehicles. Keeping track starts with reviewing what you’ve bought and what you’ve gotten rid of during the year.

Take a look at your purchases. Did you buy any new equipment? Move equipment purchases off the Profit and Loss and move to the Balance Sheet. Sold or got rid of old items? Those need to come off your fixed asset register. 

Recording depreciation expenses

Depreciation is how you account for the fact that the stuff you buy for your business doesn’t stay new forever; it loses value over time. Recording depreciation spreads the cost of your fixed assets over their useful life, giving you a more accurate picture of your business’s finances.

Your CPA will have a list of your assets, the prior depreciation taken already, and the depreciation method. Log the annual depreciation for each asset if you haven’t been logging it monthly all year.

Updating the fixed assets register

Your fixed assets register is like a detailed inventory of your big purchases, but it also tracks depreciation and disposals. After you’ve reviewed purchases and disposals, and calculated depreciation, you need to update this register.

Next, we’ll dive into how reviewing and adjusting journal entries can further refine your financial processes.

5. Review year-end payroll

Double-check your payroll records against bank statements and employee records to ensure every payment is accounted for and correct. Mistakes here can lead to unhappy employees or issues with tax authorities.

Check your payroll tax payments

When you run payroll for your employees, you hang onto the employee portion of their withholding taxes and remit those taxes to the IRS and state agencies. At year-end, look through your tax payments and make sure you haven’t missed any payments. 

You should also make sure that you’ve submitted all your payroll tax reports such as your quarterly or monthly 941s to the IRS. 

This should be done every month, but it’s especially important to get everything accurate at year end. 

Reviewing employee benefits and contributions

Employee benefits (like health insurance, retirement plans, etc.) need a review too. Check that contributions and benefits are correctly recorded and match what’s actually been provided or deducted from paychecks.

This step is crucial for compliance with regulations, accurate financial reporting, and ensuring fairness and transparency for your employees.

Once you’ve followed these steps, preparing your financial statements will be much more straightforward.

6. Prepare financial statements

Your year-end financial statements tell you how your business did that year, and they’re the basis of the preparation of your tax returns. Now that you’ve verified all your information is correct, you can pull these statements together.

Income statement (profit and loss)

Think of the income statement as your business’s report card. It shows your revenues (money coming in from sales) and your expenses (money going out). It tells you if you made a profit or took a loss over the year.

Balance sheet

The balance sheet is a snapshot of your business’s financial condition at the end of the year. It’s divided into three parts: assets (what you own), liabilities (what you owe), and equity (the owner’s share in the business).

Your balance sheet tells you how much cash, equipment, and other assets compare to your liabilities and equity (what you’ve put into and taken out of your business)

Cash flow statement

This statement shows how changes in your balance sheet and income affect your cash and cash equivalents. It breaks down into three activities: operating (daily business activities), investing (buying or selling assets), and financing (loans or investments).

Your year-end cash flow statement will show you how much cash you started with, all of your inflows and outflows, and how much cash you’re left with.

Now that your financial statements are complete, you should have an accurate picture of how successful your business was. You should also be well-prepared for tax time, with clean, accurate books to pass to your CPA for your tax returns.

Conclusion

Wrapping up the year with a thorough bookkeeping review sets your business up for success – it’s a chance to take a deep dive into your business’s financial health and get ready for the year ahead.

Taking these steps seriously not only helps you close out the current year on a strong note but also lays the groundwork for a more prosperous and efficient year ahead. 

Next, check out our articles on understanding retained earnings, understanding gross vs. net profit, and how to read a cash flow statement.

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