Year-end accounting serves as a crucial checkpoint for business owners regarding their respective business’s financial health. During this time, entrepreneurs can reflect on their business’s financial performance, ensure that they’re up-to-date on their regulatory compliance, and lay the groundwork for the year ahead. Yet, amidst the myriad responsibilities that come with running a business, handling year-end accounting can prove to be among the most formidable challenges of all—especially if, as a business owner, maths isn’t your strongest suit.
Another issue is that year-end accounting typically coincides with other urgent tasks, like fulfilling customer orders and wrapping up major projects. It can be hard for any entrepreneur to find the time to make sense of all the paperwork and focus on their accounting-related tasks.
However difficult and unpleasant year-end accounting may be for you, neglecting it can lead to errors, compliance issues, and missed opportunities for financial planning down the line. It’s a good idea to save yourself the stress of sorting through your ledger and other financial records alone by enlisting the help of accountants Dunedin businesses trust, like the people at Target Accounting. In addition to hiring competent accountants, here’s a to-do list to streamline your year-end business accounting and make the task a lot more manageable:
1. Prepare Financial Statements
You won’t be able to get a comprehensive view of your business's financial health over the past year without your financial statements. These are essential tools for stakeholders—including investors, creditors, and management—to assess the company's financial position and make the best decisions pertaining to its growth. Be sure to secure all of them before it’s time to crunch your year-end numbers.
Begin by double-checking all figures and calculations to ensure the accuracy of your financial statements. You can also try using accounting software or asking your accountant to use their solution to streamline the preparation process and minimise errors you’d make otherwise.
Finally, compare your current financial statements with previous periods. This will help you identify trends in your financial performance as well as areas for improvement in the coming years.
2. Review and Reconcile Your Accounts
The next step on this list is to review and reconcile your accounts, all towards identifying discrepancies and ensuring the accuracy of your financial records. Upon closely comparing your bank statements, accounts receivable, accounts payable, and inventory records with your accounting records, you’ll be in a better position to detect any potential errors, instances of fraud, or missing transactions. In doing this task, you’ll want to work towards maintaining the integrity of your financial data and establishing a clear audit trail for future reference.
To make the process easier, set aside dedicated time each month to reconcile your accounts. Doing so will prevent discrepancies from accumulating and lengthening the time you’ll need to reconcile your accounts by the end of the year.
Investigate any discrepancies between your accounting records and external statements to identify and rectify errors as soon as possible. Lastly, keep detailed records of your reconciliation process, including any adjustments you’ve made, for an easier time at auditing and compliance.
3. Close Temporary Accounts
Closing your temporary accounts, also known as closing the books, is critical in finalising your financial records for the period. Temporary accounts, such as revenue and expense accounts, accumulate transactional data throughout the accounting period. Upon closing these accounts, you transfer their balances to permanent accounts. This will also allow you to start the new accounting period with zero balances in temporary accounts.
Develop a closing checklist for this task to ensure all necessary steps are completed. These should include posting adjusting entries and formally closing your temporary accounts. Next, verify the accuracy of your closing entries to prevent misstatements in your financial statements. Compare your closing entries with previous periods to identify any inconsistencies or errors that may require correction. In addition, keep detailed records of your closing entries and supporting documentation for auditing and reporting purposes.
4. Conduct a Physical Inventory Count
If you own a business that sells a lot of physical goods, you’ll want to do a physical inventory count to verify the accuracy of your inventory records and assess your business's inventory management practices. Physically counting and reconciling your inventory with your accounting records can help you identify discrepancies, such as shrinkage, spoilage, or theft, and adjust inventory values accordingly. Your year-end inventory count will enable you to optimise your inventory levels, reduce your carrying costs, and improve your order fulfilment accuracy—all of which will contribute towards your financial performance.
Before your grand year-end inventory count, plan regular inventory counts during periods of low activity or downtime within the year. This way, you can monitor your inventory better while minimising disruption to business operations and lightening the burden for the very last one you’ll have to do.
To make your job easier, incorporate barcode scanners, RFID technology, or inventory management software to streamline the counting process and improve your overall accuracy. You should also provide training to employees involved in the inventory count process to ensure consistency and adherence to established procedures.
5. Complete All Necessary Regulatory Filings
Whether you’re dealing with your annual reports, tax returns, or regulatory disclosures, timely and accurate filing is crucial for demonstrating transparency, accountability, and good corporate governance on the part of your company. Don’t be remiss in keeping your business compliant with government agency regulations and fulfilling legal obligations, all so that you can avoid penalties or fines.
Include all relevant filing deadlines in your year-end accounting checklist, and consult a qualified accountant, tax advisor, or legal counsel to go through your regulatory requirements and help you mitigate any risks of non-compliance or regulatory scrutiny.
6. Plan a Budget for Next Year
Lastly, take the time to develop a comprehensive budget for the next fiscal year that forecasts your revenues, expenses, and cash flows. Use this as the basis for drafting realistic targets, identifying potential financial challenges you’ll have to weather through, and allocating resources effectively to achieve your business objectives. Your draft budget for next year should also help you monitor your actual performance against the targets you’ve set, point out variances, and take corrective actions to ensure your company’s financial stability and long-term sustainability.
Collaborate with your department heads, managers, and key stakeholders to gather input, determine your financial priorities, and align your budgetary goals with your business’s strategic objectives. You should also review your past performance, your responses to market trends, and your position vis-a-vis economic indicators in your locality so that you can create clearer revenue projections, expense forecasts, and budget assumptions.
Finally, anticipate unforeseen events or changes in market conditions by including contingency reserves or flexibility in your budget. This way, your finances will be able to accommodate any unexpected expenses or opportunities more easily than last year’s budget did.
Your annual business accounting review is essential for practising good financial housekeeping and laying the foundation for a better financial performance in the year ahead. Look to this comprehensive checklist—as well dedicated accounting services from Target Accounting—to get through the complexities of your year-end accounting with confidence and efficiency.
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