For small enterprise house owners, the top of the 12 months means sealing up free ends financially. This course of is called “closing the books” in accounting. Making certain each greenback attributed to 1 12 months is recorded precisely is essential to keep away from making the brand new 12 months inaccurate.
The perfect accounting software program, like QuickBooks On-line, can simplify this job. Nonetheless, there are a lot of steps to take to make sure a clear slate and a profitable tax season. Let’s analyze this course of intimately.
Why shut the books?
Closing your accounting books on the finish of the 12 months is crucial for a number of causes:
- Accuracy: Ensures that every one monetary transactions are accurately recorded, minimizing errors and discrepancies.
- Compliance: Helps meet tax and regulatory necessities by offering a transparent and correct monetary image.
- Monetary evaluation: Means that you can assess the monetary well being of your enterprise, establish tendencies and make knowledgeable choices.
- Clear begin: Prepares your books for the brand new 12 months, stopping previous transactions from interfering with present accounting.
If you happen to don’t totally account for a 12 months’s funds, it will possibly begin a sequence response of inaccurate figures transferring ahead. This downside can result in inaccurate tax returns, unreimbursed bills and a false conclusion of revenue or loss.
10 steps to shut the books
Hiring an authorized accountant can really feel costly for smaller companies. However even with no skilled accountant on standby, you’ll be able to comply with these steps to shut your books successfully.
1. Reconcile your financial institution accounts
Reconciliation ensures your financial institution statements match your accounting data, highlighting any discrepancies that have to be addressed.
Methods to do it
- Acquire all enterprise financial institution and bank card statements.
- Match every transaction in your accounting data together with your financial institution statements.
- Examine and proper any variations.
- Doc the reconciliation course of for future reference.
2. Evaluate your accounts receivable and payable
Making certain that every one buyer invoices and provider payments are accurately recorded and up-to-date helps keep correct monetary data.
Methods to do it
- Evaluate your open invoices to see that are due earlier than the 12 months ends.
- Ship reminders for overdue invoices and write off any unhealthy money owed.
- Guarantee all payments due earlier than the brand new 12 months are paid and recorded.
3. Replace stock data
Correct stock data are essential to figuring out the price of items offered and the general monetary well being. It additionally helps calculate shrinkage so you’ll be able to take motion to stop theft and waste.
Methods to do it
- Conduct a bodily stock rely to confirm your inventory ranges.
- Determine objects with the best losses and develop methods to scale back these figures.
- Decide if insurance coverage protection or tax methods will help mitigate the results of stock loss.
4. Document depreciation and amortization
Recording depreciation and amortization precisely displays the worth of your property over time and impacts your monetary statements.
Methods to do it
- Seek the advice of together with your accountant or IRS documentation to find out the suitable depreciation technique.
- Log objects, like actual property and stock, which can be topic to depreciation.
- Collect receipts and gross sales data to find out the present worth in comparison with the unique buy value.
SEE: Computer Hardware Depreciation Calculator (TechRepublic Premium)
5. Accrue bills and revenues
Accrual accounting requires that bills and revenues be recorded when they’re incurred, not when money modifications arms. So, you’ll want to trace what prices and invoices have occurred throughout the 12 months, even if in case you have but to obtain or ship funds for them.
Methods to do it
- Determine any bills incurred however not but paid and revenues earned however not but obtained.
- As soon as cost happens, it ought to be retroactively utilized to the present 12 months’s tabs.
- Mistakenly attributing a cost to the brand new 12 months will give the misunderstanding of extra revenue or loss for that 12 months.
6. Generate monetary statements
Monetary statements present a complete view of your enterprise’s monetary efficiency and are important for tax preparation and strategic planning.
Methods to do it
- Software program like QuickBooks On-line can robotically generate reviews in a snap.
- Alternatively, you’ll be able to manually “comply with the cash” and add up every transaction.
- Double-entry accounting is essential to creating reviews that go away a transparent path of the place each cent went.
7. Again up your monetary knowledge
Making certain your monetary knowledge is backed up protects in opposition to knowledge loss and facilitates future reference. This straightforward restoration prevents issues if the IRS requests an examination or when you work with an accountant.
Methods to do it
- Make copies of all paperwork. This course of could get dear with ink and paper, but it surely’s price it within the occasion of an audit or different points.
- Again up digital recordsdata to a cloud storage service like Google Drive.
- Take photographs or scans of receipts and retailer them together with different paperwork.
8. Evaluate tax paperwork
Reviewing and making ready your tax paperwork ensures you adjust to IRS rules and keep away from potential penalties. You also needs to examine new rules that go into impact on January 1.
Methods to do it
- Acquire all vital tax paperwork, together with W-2s, 1099s and receipts for deductible bills.
- Evaluate the IRS web site for bulletins on new legal guidelines and insurance policies.
- Seek the advice of together with your accountant or tax submitting software program to finalize your return.
9. Seek the advice of together with your accountant
An authorized accountant can present skilled recommendation, guarantee compliance with tax legal guidelines and assist establish potential points. If you happen to don’t have already got such an expert, contemplate making a shortlist of candidates to contemplate hiring as your enterprise grows.
Methods to do it
- Schedule a gathering together with your accountant to evaluation your monetary statements and tax paperwork.
- Talk about any discrepancies or considerations you could have.
- Make any advisable changes earlier than finalizing your books.
10. Plan for the following 12 months
Planning for the approaching 12 months helps make clear monetary targets and expectations. This foresight makes it straightforward to forecast how lengthy it is going to take to succeed in your required stage of progress.
Methods to do it
- Evaluate your monetary efficiency and set targets for the approaching 12 months.
- Use insights out of your monetary statements to make knowledgeable enterprise choices.
- Replace your price range and monetary projections through software program like QuickBooks Online.
The takeaway
Closing your accounting books on the finish of the 12 months is a essential job for small enterprise house owners. It ensures accuracy, compliance and a transparent monetary image, particularly as tax season looms. Using accounting software simplifies this course of by eliminating handbook work, like tallying up transactions.
