How to Button Up Your Year-End Bookkeeping
The year’s coming to a close — which means it’s time to get your 2014 bookkeeping in order. You’ll need to make sure all your accounts are closed at the end of the year, and that you have the proper documentation to verify the state of your business.
Having a clear grasp on your year-end finances will also help you make important decisions for next year. Haven’t had a chance to sit down and go through it all? We talked with small-business accountant Elizabeth Adams to get her top tips on how to tackle everything.
Think of this as “winter cleaning” — now’s the time to tidy up both your physical and electronic bookkeeping files. If you use a file box or accordion file, make sure you have labeled folders for each year with all your important documents. The IRS Small Business & Self-Employed Tax Center is your go-to resource for determining what you need to keep for your records.
Clean up your books.
Close out all those old or inactive accounts for customers, vendors, and employees. Make sure that all your transactions line up, and reclassify the ones that may have been posted to the wrong accounts. And triple-check that gross sales, sales taxes, and merchant fees are properly segregated in the books, as those transactions flow through the bank accounts.
Review your inventory and fixed assets.
If possible, check your physical inventory on 12/31. Then reconcile your physical inventory with what’s on the books and note any missing items. Review the details of all new equipment you’ve purchased during this year and make all asset depreciation entries. Be sure to check your fixed-asset accounts to see if any of those assets are no longer in service or have been sold.
You need to account for all transactions — think bank accounts, credit cards, receipts, and invoices. Get really detail oriented here. Record every expense charged to your business, no matter how insignificant. Don’t forget your online accounts, including fees for transactions processed with Square. Send invoices for all the services you’ve rendered, products you’ve sold, and any task that remains unbilled.
Reconcile your bank and credit card account(s).
If you’ve been putting off this task each month, now’s the time to get caught up. The ending balance on your bank statement minus outstanding checks and plus deposits in transit should match the cash account balance on your balance sheet. If it doesn’t, something hasn’t been accounted for, and you should revisit the step above. Don’t forget about monthly bank fees and canceled or uncleared checks.
Keep track of business taxes.
To avoid penalties come tax time in April, be sure you’ve paid enough estimated taxes for the year. If you need to make an additional installment, do it now. After your taxes are prepared, get the adjusting journal entries for depreciation, amortization, and corrections from your tax preparer and update your books. You can find more information on filing and paying your business taxes on the IRS Small Business & Self-Employed Tax Center.
Ensure payroll taxes are paid.
Work with your payroll provider to make sure employment tax payments and returns are complete. You can find employment tax due dates here. Note that if you want to make a change in your payroll provider, it’s best to do it now. Your taxes are filed based on your pay date, so if you make a switch in providers, you should do it before your first pay date in 2015.
If you handle payroll in-house, be sure to file federal Forms W-2, W-3, 1099, 940, 941, and any state forms as applicable. Check that federal and state income tax withholding elections are correct for 2015. Ask that employees review their name, address, Social Security number, and Form W-4 information to maintain accuracy on Form W-2. Ask contractors to do the same on Form W-9 to ensure accuracy on Form 1099.
Better safe than sorry. Get obsessive about backing up your files regularly, especially now. Print all your financial statements for the year, including your balance sheet, profit and loss statement, check register, tax returns, and general ledger as a double safety net.
Audit your business documents.
Review your forms, documents, employee handbooks, and written policies to ensure everything is current and relevant.
Prepare a budget.
Look back on 2014 and make a plan for next year. You’ll definitely want to take into account tax payments, significant expenditures, and your estimated monthly income. Then prepare a budget that projects a cash balance (not just net income), and use it to inform next year’s wish list. This exercise helps you determine if and when your growth targets are attainable, what improvements are feasible, and whether you can give your employees bonuses.
We understand that this can all be a lot, so if you need additional guidance on accounting principles, check out the Introduction to Accounting course offered by the U.S. Small Business Administration. The class is one in a series of online training courses teaching entrepreneurs the fundamentals of starting and managing a business. Also, to reduce the end-of-the-year accounting headache, make a New Year’s resolution to dedicate at least half an hour a week to go over your finances.