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Mastering Year-End

The Definitive Checklist for Small Businesses

· General Bookkeeping Questions,Bookkeeping Tips

Holy smokes, it’s December!! Where has the time gone?! It feels like just yesterday that we were ringing in 2023. But alas, here we are - year end. It’s one of the busiest times of the year for us personally, with all of the holidays and festivities in full swing. But it’s also a very busy time for business owners as well, wrapping up the year to put a bow on it!

Closing the books at year-end can feel like staring down a complex puzzle, one where every piece needs to fit perfectly to reveal the full financial picture of your business. It's that time of year when the mere mention of 'taxes' or 'year-end' can send shivers down the spine of even the most seasoned business owners.

But take a deep breath. Yes, year-end and tax preparations come with their own set of challenges and intricacies, but they're not insurmountable. In fact, they're an opportunity - an opportunity to not just tick off a checklist but to gain a clear understanding of your business's financial narrative and set the stage for growth.

Picture it as a journey: the year-end close is the checkpoint where you pause, gather your financial insights, and set a confident course for the future. It's not merely about crunching numbers; it's about empowering yourself with the knowledge to steer your business towards success.

The anxiety surrounding year-end closure often stems from the fear of the unknown—the worry of missing a crucial detail or making an error that could lead to financial repercussions. But here's the truth: with the right guidance, tools, and approach, this process can be streamlined, manageable, and even - dare we say it - rewarding.

In this guide, we'll not only delve into the essential checklist for closing your books but also equip you with strategies to navigate the process smoothly and confidently. Let’s demystify year-end closures, soothe those frayed nerves, and transform this annual task into an empowering step toward financial clarity and peace of mind. Here we go!


General Checklist

Reconcile Bank Statements:

Compare your recorded transactions to your bank statements to ensure accuracy and completeness. Look for any discrepancies that need further investigation or adjustments. Clean up all discrepancies to ensure the books are accurate against the bank records. This is a super important step to ensuring the accuracy of you books and your tax reporting. For more information about reconciliations, click here.

Tips for Success:

  • Schedule regular reconciliations throughout the year to catch discrepancies early.
  • Use accounting software that integrates with bank feeds for easier reconciliation.
  • Investigate and resolve discrepancies promptly to avoid confusion and headaches later.

Review Accounts Receivable/Payable:

Confirm outstanding invoices and bills to ensure they match your records. Make adjustments for any discrepancies or unrecorded transactions. Some of this may illuminate itself during the reconciliation process, but it’s good practice to review all outstanding bills and invoices and year-end to make sure nothing needs to be removed from the books or written off as uncollectible bad debt.

Tips for Success:

  • Send reminders to customers with outstanding invoices before year-end.
  • Review aging reports to identify old, uncollectible debts for proper write-offs.
  • Double-check vendor bills and receipts to avoid missing any payables.

Inventory Valuation:

Verify inventory levels and adjust inventory valuation if necessary to reflect the true cost of goods sold (COGS). Physical inventory counts should be done as often as possible, but at least once per year at the end of the business’ fiscal year. Make sure that you value your inventory consistent with your existing valuation method, as changes in the method can have tax and compliance implications.

Tips for Success:

  • Consider using inventory management software for accurate, streamlined tracking.
  • Perform a physical inventory count to reconcile with recorded amounts.
  • Evaluate the most suitable valuation method (FIFO, LIFO, etc.) for your business. If you decide to change the valuation method, be sure to consult with a professional to ensure compliance.


Update fixed asset registers and calculate depreciation expenses to accurately reflect the reduction in value of assets over time. This may not be something that the average business owner understands or feels comfortable handling. We recommend leaving this to the tax professional.

Tips for Success:

  • Keep detailed records of asset purchases and disposals throughout the year.
  • Use software that automates depreciation calculations to reduce errors.
  • Review tax regulations for any changes affecting depreciation methods.

Payroll Reconciliation:

Verify payroll records, tax withholdings, benefits, and employee details to ensure accuracy in year-end reporting. If you find a discrepancy, investigate it immediately. Save all payroll records for the appropriate time length (the amount of time varies depending on the type of payroll record and the state you are located in) so that you have the backups should you ever need them.

Tips for Success:

  • Reconcile payroll records with bank statements and tax filings.
  • Stay updated on changes in tax rates or regulations affecting payroll.
  • Use a payroll provider service, like Gusto, to manage payroll for you. The piece of mind you’ll gain will be well worth the fees.

Expense Review:

Scrutinize expenses to ensure proper categorization, accuracy, and adherence to company policies. If you have company credit cards or you use expense reports for employee spending, verify that you have receipts for all company expenses and that all expense reports have been submitted and paid by year end.

Tips for Success:

  • Implement a robust expense approval process to avoid incorrect entries.
  • Review expense reports for duplicates or non-compliant expenses.
  • Keep receipts and documentation organized for tax deductions and audits.

Loan and Interest Reconciliation:

Confirm loan balances and reconcile accrued interest to accurately reflect liabilities. We recommend reconciling your loans just like you would any bank or credit card account each month. This keeps the loan balances accurate on your balance sheet and your interest expense up to date on your P&L throughout the year. At a minimum, these liability accounts must be reconciled and interest recorded at year end. The interest you report to the IRS should match the interest reported by the financial institution.

Tips for Success:

  • Maintain separate liability accounts for each loan or liability on the books. Don’t lump them into a single “Loans” account.
  • Reconcile loan statements against your records for consistency each month and address any discrepancies promptly.
  • Consult with a financial advisor for complex loan or interest scenarios or to help amortize interest over the year.

Accruals and Deferrals:

A revenue accrual refers to the products or services a company provides but hasn’t received payment for yet. Accrued expenses refer to expenses a company recognizes when they happen, instead of when it pays for them. Deferred expenses, on the other hand, refer to expenses the company pays for in advance before it uses the services or products it purchases. While deferred revenue refers to the money the company receives in advance for the services or products it provides in the future. Both are valuable methods and need to be adjusted for at year end.

Tips for Success:

  • Document any outstanding revenues or expenses to avoid overlooking them.
  • Review contracts or agreements for potential accruals or deferrals.
  • Consider consulting with an accountant to ensure proper accounting treatment.

Review Prepaid Expenses and Deferred Revenue:

Ensure accurate recording of prepaid expenses and deferred revenues for proper recognition in the financial statements. Oftentimes, we make an annual purchase of something that needs to be spread out across each month of the year. For example, if you pay your insurance annually or pay your rent for the year up front. You may also have earned revenue up front that needs to be spread across a contract period. These should be adjusted on the books monthly, but at a minimum at year end to make sure the expense or revenue occurs in the proper accounting period.

Tips for Success:

  • Analyze contracts or agreements to identify prepaid expenses or deferred revenues.
  • Monitor the amortization or recognition schedule for accurate reporting.
  • Keep a schedule of prepaid items and deferred income to track changes.

Review Equity Accounts:

Check for any unusual entries or discrepancies in equity accounts, including capital contributions, distributions, or retained earnings. You want to ensure that any owner contributions have been recorded properly and all shareholder equity is accurately depicted on the balance sheet. If personal funds have been used in the business at all, that should also be accurately reflected on the company’s equity. For more information on co-mingling personal funds, click here.

Tips for Success:

  • Reconcile equity transactions with supporting documents and signed agreements.
  • Ensure proper segregation of business and personal transactions.
  • Seek professional advice for complex equity transactions or changes.

Verify Tax Compliance:

Ensure compliance with tax regulations, including sales tax, payroll tax, and other industry-specific taxes. Tax compliance can be a lot to take on for some small business owners. Educate yourself and stay informed on the various tax regulations and implications that affect your business type, industry, and location.

Tips for Success:

  • Stay updated on tax law changes that may affect your business.
  • Perform a comprehensive review of all tax filings and payments.
  • Seek guidance from a tax professional for complex tax matters or if you feel uncomfortable filing any tax returns on your own.

Prepare Financial Statements:

Generate accurate financial statements (income statement, balance sheet, and statement of cash flows) to assess the business's financial position. These financial statements are about so much more than just tax filing and compliance. They represent the lifeblood of your business’ finances. Learn how to understand these reports so that you make more informed decisions for the business. For more information on financial statements, click here.

Tips for Success:

  • Use accounting software to streamline the preparation of financial statements.
  • Review statements for consistency and accuracy in numbers and disclosures.
  • Consider getting external validation or audit for larger businesses or for transparency.


Tax-Specific Checklist

Gather Tax Documents:

Collect all relevant tax documents such as W-2s, 1099s, Schedule K-1s, receipts, invoices, and financial statements necessary for accurate tax filing. If you work with a tax professional, they typically provide you with a checklist and an organizer for you to return to them. If you’re unsure of what you need, seek professional guidance so that nothing is missed or overlooked.

Tips for Success:

  • Create a checklist of required documents to ensure nothing is missed.
  • Organize documents by category (income, deductions) for easy reference.
  • Use cloud storage or a digital filing system to securely store, organize, and access documents.

Verify Tax ID Numbers:

Confirm the accuracy of all tax identification numbers (EIN, SSN) for the business, employees, contractors, and vendors. Mismatched TINs can create a headache down the road for everyone involved, so it’s best practice to confirm and verify these numbers prior to filing any taxes.

Tips for Success:

  • Cross-verify tax IDs against official documents to prevent errors.
  • Keep a record of updated or new tax IDs obtained during the year.
  • Validate tax IDs using the IRS's TIN Matching system for accuracy.

Estimated Tax Payments:

Review and reconcile estimated tax payments made throughout the year to ensure they align with actual tax liabilities. Review your financials prior to year end to ensure that you have paid enough in estimated taxes to avoid penalties and interest. Make sure that you take into account state taxes and their regulations, as those may differ from the IRS.

Tips for Success:

  • Keep track of estimated tax payment due dates and amounts paid.
  • Use tax software or consult an accountant to estimate and adjust quarterly payments accurately.
  • Analyze any underpayments to avoid penalties and interest.

1099 Reporting:

Confirm contractors or vendors who need to receive a 1099 form and ensure accuracy of information before filing, including TIN, correct address, and amount paid for services. Keep in mind that vendors such as lawyers and landlords are required to receive a 1099 as well. There are many categories on form 1099, be sure to include all vendors who need to be included.

Tips for Success:

  • Maintain up-to-date records of payments made to contractors or vendors.
  • Require signed W-9 forms from new contractors/vendors to collect necessary information prior to paying that contractor/vendor. No W-9, no payment.
  • Use accounting software that generates 1099 forms or work with a tax professional for accurate reporting.

Tax Deductions:

Review deductible expenses and ensure proper documentation to maximize tax deductions and reduce tax liabilities. It’s also helpful to work with a tax professional throughout the year, but especially just prior to year end to maximize your tax savings. There are many things that can mitigate your tax liability and working with a professional can be a real game-changer.

Tips for Success:

  • Keep detailed records of all business-related expenses throughout the year.
  • Categorize expenses according to IRS guidelines for easy deduction identification.
  • Consult a tax professional to ensure eligibility and proper documentation for deductions.

Capital Asset Transactions:

Accurately record the purchase of all capital assets on the books. If you get rid of a capital asset for some reason, record the sale or disposal of it and calculate gains or losses for accurate tax reporting. Make annual adjustments to the books to account for depreciation of the assets in order to maintain an accurate picture of assets on the balance sheet. We tend to recommend consulting with a tax professional in order to ensure all tax regulations and implications are carefully considered.

Tips for Success:

  • Maintain records of purchases, sales, or disposals of capital assets.
  • Calculate the adjusted basis and gain/loss accurately for each transaction.
  • Understand and apply tax rules regarding capital gains/losses and depreciation recapture.

Tax Compliance Review:

Even if you are working with a tax preparer or other tax professional, ultimately, you are responsible for any mistakes on your tax returns and you will be on the hook for any penalties and interest that may be charged. It’s important to educate yourself about tax laws and regulations specific to your business. Always review tax returns prior to signing them. If something looks off, investigate it. Ask a lot of questions, make sure you understand what you are signing.

Tips for Success:

  • Stay updated on industry-specific tax laws and changes.
  • Conduct a comprehensive review of all tax filings and payments.
  • Seek advice from industry experts or tax professionals for specialized tax compliance.

Research Tax Law Changes:

Stay informed about any changes in tax laws or regulations that might impact your business’s tax liabilities or deductions. Many tax collection agencies offer educational tools to keep you apprised of tax laws and changes. There are also industry-specific organizations that can assist in keeping you informed.

Tips for Success:

  • Follow reputable sources or consult with tax professionals to stay updated on tax law changes.
  • Analyze how new laws or regulations affect your business’s tax situation.
  • Adjust tax strategies or plans accordingly to leverage new deductions or comply with new rules.


Additional Considerations

Adjust Journal Entries:

Make necessary adjusting entries to ensure accurate financial statements by transferring account balances and reconciling discrepancies. Your CPA or tax preparer may also make some adjustments on the tax return and these should be reflected on the books as of year-end. If the tax preparer doesn’t make the entries for you, feel free to ask them for their adjusting journal entries and make them yourself or pass them along to your trusted bookkeeper for entry.

Tips for Success:

  • Review trial balances to identify accounts needing adjustments.
  • Document reasons for adjustments and maintain supporting documentation.
  • Double-check entries for accuracy before finalizing adjustments.

Back Up Financial Data:

Create secure backups of all financial records to protect against data loss or corruption. Don’t trust a single record, duplicates are always a good idea. Back-ups should be scheduled with regularity, but at a minimum at year-end to safeguard the integrity of the financials for the year.

Tips for Success:

  • Use reliable cloud-based or external storage for backups.
  • Schedule regular automated backups to ensure data is current.
  • Test data restoration periodically to verify backup integrity.

Communicate with Partners, Shareholders, or Employees:

Engage in clear and consistent communication with the appropriate members of the company to discuss findings, clarify information, and ensure transparency. It’s best to keep the dialog open and flowing and address issues as they arise. Send regular monthly or quarterly reports to the appropriate team members, shareholders, investors, etc to maintain transparency of the company’s financial situation.

Tips for Success:

  • Schedule meetings or calls to discuss year-end findings with the appropriate team members.
  • Provide easy-to-understand summaries or reports to explain financial status.
  • Address any queries or concerns promptly to maintain partner, shareholder, or investor trust.

Document Procedures:

Document all year-end closing procedures for future reference and to streamline subsequent year-end processes. As anxiety-producing as year-end may be, the good news is, if you document your process this year, it will make next year and every year after much easier and streamlined.

Tips for Success:

  • Create a detailed checklist or manual outlining each step of the year-end process. Be specific!
  • Include explanations, deadlines, and responsible parties for each task.
  • Update documentation regularly to incorporate any changes or improvements.

Engage Tax Professionals:

Collaborate with tax professionals for guidance on complex tax matters, ensuring compliance and leveraging tax-saving opportunities. Qualified professionals can bring a lot more to the table than simply getting your taxes filed. They can help you develop a tax plan, unique to you, that can save you money while keeping you compliant. They also provide a great deal of peace of mind during an otherwise stressful time of year. For more information on when to hire a professional, click here.

Tips for Success:

  • Seek recommendations for reputable tax professionals or firms.
  • Provide tax professionals with detailed and organized financial information. If they ask for something, get it to them in a timely manner.
  • Discuss tax planning strategies throughout the year during consultations, rather than wait until the year-end to make a plan.


As we draw the curtains on this year-end guide, remember this: closing your books isn’t just a ritual - it’s your gateway to financial empowerment. Yes, the numbers, regulations, and checklists might seem overwhelming at times, but behind every digit is a story of your business’s resilience, growth, and potential.

Take a moment to acknowledge the dedication you’ve poured into your business this year. Each transaction, each decision has contributed to the tapestry of your success. And while the year-end process may feel like navigating uncharted waters, it’s an opportunity to gain clarity, make informed decisions, and set your sights on a prosperous future.

You’re not alone in this journey. From reconciling bank statements to navigating tax laws, there are resources, professionals, and strategies available to support you every step of the way. Embrace the process, leverage the insights gained, and use them to steer your business toward greater heights.

As you embark on this year-end journey, remember: it’s not just about the numbers; it’s about the story they tell. Your business’s financial health is a testament to your dedication and resilience. So, take a deep breath, trust in your preparations, and know that you have the tools and knowledge to conquer the year-end with confidence.

Here’s to a smooth and successful year-end close, paving the way for a new chapter of growth and prosperity. Now grab a celebratory cocktail and cheers to your business’s success and the exciting possibilities that lie ahead!





Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial advice. Consult with a qualified professional for personalized guidance tailored to your specific situation.