End of Year Accounting Checklist

At year-end, it is important to review the current year and plan for the new year.  For the current year, you should ensure that your accounting records are up-to-date, accounts reconciled, and you are ready to issue required informational returns (think W-2s and 1099s).

The following is a year-end bookkeeping checklist designed to assist you in closing out the year, reviewing your accounting records and getting ready for your tax appointment.  Since every business is different, the checklist items may or may not apply to your business.  Please review this list prior to December 31st and take steps as needed.

If you have questions regarding your specific accounting or business entity, please call us to discuss.

  1. Get organized:  Find and file all invoices, receipts, and other documents.  You must have and retain sufficient documentary evidence to support your business income and deductions.  Move prior year records to a long-term storage area.  Prepare for 2017 by creating file folders for the new year.
  2. Update your accounting:  Review your accounting records and ensure that all transactions have been recorded in your accounting system such as payments received, payments made, purchases and invoices.
  3. Reconcile all bank accounts:  Most accounting transactions flow through your bank account.  As such, reconciling the bank account is a crucial step to ensure that transactions have been recorded.  The bank reconciliation may also detect bank errors, posting errors, and unauthorized transactions.
  4. Reconcile all credit card accounts:  Many business transactions flow through the company credit card.  As such, reconciling the credit card account is an important step to verify that transactions have been recorded.  Reconciling the credit card account may also detect posting errors and unauthorized transactions.
  5. Perform physical count/observation of inventory:  Items held for resale are considered inventory and are reported on your balance sheet.  You should perform a physical count of your inventory year-end to verify that the inventory account is properly stated.
  6. Dispose of obsolete inventory prior to year-end:  Inventory on hand at year-end must be counted and included on the balance sheet valued at acquisition cost.  If your inventory contains obsolete items, no expense deduction is allowed unless it is actually disposed of prior to year-end.  Disposed means thrown away / put in garbage.  When disposing of a substantial amount of obsolete items, it is advisable to photograph the items in the dumpster and keep the photo with your records.
  7. Document “Lower of Cost or Market” Valuation:  If your company has elected lower of cost or market (“LCM”) valuation for your inventory, you should document the inventory item’s original cost, the current market value and then adjust your inventory account to the LCM accordingly.  You should keep documentation supporting the LCM valuation.
  8.  Fixed Assets (tools, equipment, furniture, autos, buildings, improvements):  Review these accounts to
    1. Ensure that all asset purchases have been recorded in the financial records
    2. Ensure that all asset disposals have been recorded in the financial records
    3. Review asset purchases to ensure that they comply with company capitalization levels
    4. Record depreciation expense/estimate
  9. Expenses and Accounts Payable:  Verify that all of your expenses and payables have been recorded in the accounting records.  If you purchase items “on account”, reconcile the vendor’s statement to your vendor payable and adjust accordingly.
  10. Income and Accounts Receivable:  Have you invoiced all of your customers for work you’ve done and products you’ve delivered?  If not, get caught up on those invoices.  If you allow customers to charge “on account”, review the customer detail to determine overdue and uncollectable items.  If on the accrual method, you must write-off the receivable to take an expense deduction.
  11. Payroll Taxes:  Verify that your payroll tax liabilities agree to your quarterly payroll tax returns.
  12. Bonuses:  Calculate employee bonuses
    1. If cash basis, pay the bonuses prior to year-end to reduce business income
    2. If accrual basis, you may calculate and accrue bonuses prior to year-end to reduce business income
    3. Owner bonuses must be paid prior to year-end to receive a business deduction
  13. Accountable Plan Reimbursements:  Employees may seek reimbursement from the company if the company has an Accountable Plan.  Typically, employees submit an expense report to claim business mileage, meals, hotels, and other expenses.  Ensure that employees submit their year-end expense reports timely and
    1. If cash basis, reimburse the employee prior to year end to reduce business income
    2. If accrual basis, reimburse the employee or record a payable. Be sure to follow proper documentation requirements
  14. Loan & Notes Payable:  Verify your notes payable with the lender and determine that your accounting records are correct.
  15. Manage Your Income:  If you file your taxes using the cash method of accounting, it is possible for you to manage your business income to achieve certain results.  For instance,
    1. Pay vendors in 2016 to reduce income
    2. Delay vendor payments until 2017 to increase income
    3. Collect receivables in 2016 to increase income
    4. Delay collecting receivables until 2017 to decrease income
  16. Consider Paying Dividends:  If the business entity is a C-Corporation, there may be tax advantages of paying dividends to the shareholder(s) before year-end.
  17. Employee Use of Company Vehicles:  There are specific IRS rules and procedures that must be followed if employees use company vehicles for personal use (including commuting).  In most cases, the personal use amount will be calculated and included on the employee’s W-2 as a taxable benefit.  The calculation most be made before issuing W-2 forms.
  18. Life Insurance:  If the company provides group term life insurance to its employees, the amount of coverage over $50,000 is a taxable benefit and must be included in the employee’s W-2.  If the company pays the personal life insurance policy of its owner or employee, these payments are taxable to the individual as additional compensation.
  19. S-Corporation Owner Health Insurance:  With the implementation of the Affordable Care Act (aka “Obamacare”), there are new rules for company paid health insurance.  S-Corporations with 1-employee can reimburse or pay the employee for his/her individual health insurance premiums as a tax-free benefit.  The amount of premiums must be reported in Box 1 and Box 14 of the W-2 to maximize the tax benefit.  If the S-Corp has more than 1 employee, the company cannot reimburse or pay the employee’s premium.
  20. Order Tax Forms:  You may need to issue certain tax forms such as W-2, 1099-Int, 1099-Div, and 1099-Misc.  Most of these forms are required to be issued prior to January 31st each year.  You will want to purchase the forms by year end.  (We can prepare these forms for you upon request!)
  21. Collect W-9 Forms:  You are required to issue 1099-Misc forms to vendors, contractors, attorneys, landlords, and other payees to whom you paid $600 or more during the year (unless the payment or payee is exempt).  W-9 forms help you determine whether you need to issue 1099s to specific vendors and provide necessary information in case you do need to issue 1099 forms.  If you don't have W-9 forms on file, now is the time to obtain them.  Note: the penalty for each 1099 willfully not filed is $1,000.
  22. Review the Financial Statements:  After updating your accounting records, double check your Balance Sheet and Income Statement to determine if the balances make sense.  Compare your current year results to prior year and/or your annual budget.  Do the figures appear reasonable?  Could there be any other income or expenses that need to be recorded?
  23. Review Business Documentation:  Corporations, partnerships, and LLCs may have certain organizational documents that need to be updated yearly.  For instance, corporations must hold annual board meetings and document them with Minutes.  If the business has had ownership changes or adopted new policies, procedures or rules, the changes may need to be documented -- issuing stock certificates or amending partnership agreements and operating agreements, etc.
  24. Protect Your Data:  Make sure to back up your accounting records/software file to protect from loss of data.  If your accounting program allows you to “lock” your current year data, set the lock to prevent prior year data from being entered into your current year by mistake.
  25. Plan for Next Year:  Now that this year is drawing to a close, it is time to start thinking about the future.  A good way to start planning for the new year is to create a budget and business plan to outline how you will achieve financial success in the new year.  Document specific ways to grow revenue and manage or reduce expenses and then who will be responsible and how you will ensure goals will be met.