10: It Is Time To Close Out Your End Of The Year Bookkeeping – Steps To Do It Correctly If You Ar
It's Time To Close Out Your End Of The Year Bookkeeping - Steps To Do It Correctly If You Are A Bookkeeper, Virtual Assistant, VA Or Small Business Owner.
Are you a bookkeeper, virtual assistant, VA or small business owner who needs to close out the end of the year for your bookkeeping? Have you felt intimidated hearing about others closing the books and you wondered if you were missing out on something? Today we are going to walk you through a normal year end close of the books. If you are using a computerized software like QuickBooks it is easier than ever if you follow this step-by-step process. Are you stressing a little since you’ve never closed the books before? Not to worry…we’re here to help. Listen in and get all the details…
If you have questions about closing the books for your business, or if you’re a virtual assistant and you would like to learn more about how you could add an additional income stream to your business by offering bookkeeping as an additional service to small business owners, please feel free to contact me to set up a strategy session. You can email me at Info@FinancialAdventure.com and I will personally respond to any email messages you send.
Grab Your FREE guide: 5 Essential Strategies For Stress-Free Bookkeeping:
Join Our Facebook Community: https://www.facebook.com/groups/womenbusinessownersultimatediybookkeepingboutique
Are you a bookkeeper, virtual assistant, VA or small business owner who needs to close out the end of the year for your bookkeeping? Have you felt intimidated hearing about others closing the books and you wondered if you were missing out on something? Today we are going to walk you through a normal year end close of the books.If you are using a computerized software like QuickBooks it is easier than ever if you follow this step-by-step process.Are you stressing a little since you’ve never closed the books before?Not to worry…we’re here to help. Listen in and get all the details…
Welcome Back…Today we are going to be talking about all the steps you should be taking to close out your year end bookkeeping. So, what exactly does it mean to close out your year end? Simply put, it is the process to make sure that all your financial transactions are entered, up to date and recorded properly. This may sound intimidating, but rest assured, if you follow the simple steps we are going to talk about today, you will feel good about doing it. As a bookkeeper, virtual assistant, VA or small business owner doing your own bookkeeping, it is important to close out your books at year end to make sure that you have everything entered into that year, so that you have an accurate set of financial statements to correctly file your tax return. Your financial statements would include your Balance Sheet and your Profit & Loss Report. I normally recommend to my clients that they close out their end of the year bookkeeping after they have received their last bank statements and credit card statements for the year. This means that many of the final adjustments you make for your business are entered after year end. I know that the majority of small businesses, bookkeepers and virtual assistants are using QuickBooks for their bookkeeping, so you will hear me reference this throughout this episode, but you can use these same steps for whichever bookkeeping solution you are currently using.
The first thing you want to do when closing the books, is to make sure you have all of your invoices recorded for the year. This is also a great time to look over your Accounts Receivable list to see if there are any customers that have accounts that are past due. If you know you have a customer that you have made attempts to collect and they will not pay, you can write off the unpaid balance. Your goal here is to make sure your Accounts Receivable Report is only showing items you know you will be able to collect from your customers.
You will want to do the same for any expenses that you have. If you have any bills that need to be paid or have already been paid but not recorded, make sure to record them as well. Go over your Accounts Payable Report and make sure that all of the bills that are listed are indeed amounts that you intend to pay.
When you receive your last bank statement or statements, make sure you reconcile them. You should have all the bank statements reconciled throughout the year and when you do this last bank reconciliation, make sure you don’t have any outstanding deposits, checks or withdrawals that you have entered that may need to be voided. If you are using QuickBooks, you will simply look at the bank reconciliation screen to see if there are any items that you have not checked off that have not cleared and you will want to look into each item to see if it will actually be clearing in the future, or if you should be voiding the transaction. You want to do this to ensure you don’t have any duplicate deposits which would overstate your income and increase the amount of taxes you may need to pay. Nobody wants this to happen, right? You also want to make sure you don’t have any additional expenses that would cause your Profit & Loss Report to be inaccurate. After you finish reconciling your business checking account, savings account, and credit card account statements, you should feel that you have all your transactions entered for the year.
From here, every business tends to be different, so I’ll do my best to help you through a standard business. I recommend running a Balance Sheet so you have a good idea of all of the different asset, liability and equity accounts you have set up for your unique business. Our goal is to go through each of your Balance Sheet items and make sure that the balance it shows as of the end of the year is the correct balance.
Starting at the top of the report, you have your assets. This will include items such as your checking account, savings account and accounts receivable. You have already reconciled your bank accounts, so these balances should be correct. You have also made sure that you had all of your invoices to your customers entered and any uncollectible amounts have been written off, so your accounts receivable balance should be correct as well.
If your business has any fixed assets, they will also show up in the asset section of your Balance Sheet. Your fixed assets will include long term assets you purchase that have an asset life of a year or longer. These items are normally depreciated over a certain amount of time, but must be listed in your fixed asset account. Make sure if you purchased any new fixed assets during the year that they are correctly recorded here.
Inventory is another asset you may see on your Balance Sheet depending on what type of business you have. You will want to make sure the end of the year inventory amount is accurate. You may need to do a physical inventory to find what this amount should be, but it is important that you have the correct amount reflected on your Balance Sheet at the end of the year.
Next, we will move down to your liability section of your Balance Sheet. These are the items you owe. You will see your Accounts Payable show up here, but again, you should have gone through this account to make sure you had all your bills recorded and made sure all the bills listed on your Accounts Payable report are indeed amounts you need to pay.
Your credit card liabilities will show up under liabilities as well. You should have reconciled each of these accounts when you reconciled your other bank statements and these amounts should be reflecting correct amounts.
If you have any loans, they will also show up under your liabilities. You may have a current liability such as a line of credit that will be paid back within a year, or a long-term liability which could consist of a loan that will be paid back in a term longer than a year. Either way, you want to make sure that all of the loans you have are reflecting the correct year end balances.
If you have employees, you will also see payroll liabilities and you will want to make sure that each of these balances are correct as of the end of the year.
Sales tax will be another liability you may see on your Balance Sheet if you have any sales tax you need to remit. Make sure this balance is the true balance you owe as of the end of the year.
When you know that you have all of your balances correctly stated for your assets and your liabilities, I recommend you then generate a Profit & Loss Report. This will list all of your income and expenses for the year. You can go through each of your accounts and make sure that you have recorded each entry in the correct account. If you see something that needs to be changed, now is the time to make the changes. For example, you might have accidentally recorded your telephone expense under your repair & maintenance account. You would want to make sure you correct this prior to having your tax return prepared so that each account has the correct amount.
One often overlooked expense is the mileage expense. If you are using the standard mileage rate to calculate your mileage expenses for the year, you want to make sure you first have a log of all your business trips made throughout the year. You will want to add all of your miles you have driven for business purposes and multiply that times the standard mileage rate. This rate varies from year to year. Once you have this dollar amount of what your deduction should be, you will want to record this in your books as well. This can add up to be a considerable amount if you do a lot of driving throughout the year for business.
When you have all of your transactions recorded, and you have gone over your reports and everything looks good, I would highly recommend setting a “lock” date, or in QuickBooks they call it “closing the books”. To do this, you simply enter a date that you no longer want any entries to be entered in, past a certain date. At the end of the year, this date will normally be your year end date. If you are using QuickBooks, it will let you set a password, so if in the future there are any adjustments that need to be made, you can record them after entering the password.
Finally, I recommend doing a backup of your data file if you are using a computerized software for your bookkeeping. You should be doing a backup periodically already, but year end is also a good time to do an additional backup. You never know when you might need it. You can keep this backup with your tax return so that you have it if you ever need it to reference in the future.
If after listening to this podcast, you have questions about closing the books for your business, or if you are a virtual assistant and you would like to learn more about how you could add an additional income stream to your business by offering this service to small business owners, please feel free to contact me. You can email Info@FinancialAdventure.com and I will personally respond to any email messages you send.
And, you know I’m going to ask…what’s at least one thing you will take away from this episode that will help your business succeed and grow your bottom line? If you need some accountability, join our PRIVATE Facebook community and post your action item, we’d love to support you.