The year-end close is a more thorough version of the month-end close. Its goal is to deliver a set of books your tax preparer can rely on without rework. Starting in December, not April, makes it far easier.

Before December 31

  • Review payroll: confirm owner health insurance and fringe benefits are in W-2 wages, bonuses are processed and employee addresses are current
  • Confirm W-9s for every vendor you may need to issue a 1099 to
  • Plan purchases of equipment with your preparer if timing matters for deductions
  • Pay deductible expenses you intend to claim this year if you use the cash method, after discussing with your preparer
  • Make retirement plan decisions for plans that must be set up before year end

Reconciliations

  1. Bank, credit card and payment processor accounts reconciled to December statements
  2. Loan balances agreed to lender statements; see recording loan payments
  3. Payroll liability accounts agreed to the year's filings
  4. Sales tax payable agreed to returns; see sales tax bookkeeping

Receivables and payables

  • Review the receivables aging and write off balances you will not collect, with documentation
  • Enter all bills dated in the year, even if paid in January, for accrual reporting
  • Record customer deposits and prepayments as liabilities

Inventory

Count inventory at or near year end and adjust the books to the count; see inventory accounting basics.

Fixed assets

Update the fixed asset register with purchases, disposals and trade-ins, and gather invoices for additions.

Equity

  • Record owner contributions and draws, or distributions for S corporations
  • For partnerships, update each partner's capital account
  • Agree opening equity to the prior year's return

Information returns

Prepare 1099 and W-2 data in early January; deadlines are January 31. See e-filing information returns.

The package for your preparer

  • Year-end balance sheet and profit and loss
  • Reconciliation reports for every bank, card and loan account
  • Fixed asset additions and disposals
  • Inventory count summary
  • Payroll and 1099 summaries
  • Notes on unusual items such as new loans, lawsuits or entity changes

Keep a copy of everything; the IRS recordkeeping guidance explains how records support each item on a return. Our accounting services include year-end close and the preparer package.

After the close

Lock the period in your accounting software, save reconciliations and reports, and send your tax preparer a package with the trial balance and supporting schedules.

Note any unresolved items for follow-up early in the new year.

Back up the final year-end reports outside the accounting software as well.

Key terms

Definitions for terms used in this guide, from our small business glossary:

  • Assets: Assets are resources a business owns or controls that are expected to provide future economic benefit.
  • Liabilities: Liabilities are amounts a business owes to others, such as suppliers, lenders, employees and tax authorities.
  • Trial Balance: A trial balance lists every account's ending balance to confirm that total debits equal total credits.
  • Capital Account: A capital account tracks each partner's or member's equity in a partnership or LLC.
  • Fringe Benefits: Fringe benefits are forms of pay other than wages, such as health coverage, vehicles or discounts, which are taxable unless an exclusion applies.
  • Balance Sheet: A balance sheet shows what a business owns, what it owes and the owners' equity at a specific date.