Year-End Closing Procedures

Before starting year-end procedures, ensure December's books are fully closed using your regular monthly process.

• Categorize all December transactionsEnsure every bank and credit card transaction is recorded and categorized.
• Reconcile all bank accountsMatch December statements to your books. Resolve all discrepancies.
• Reconcile all credit cardsMatch December credit card statements to your books.
• Record December payrollInclude final pay period, bonuses, and employer tax contributions.
• Enter all outstanding billsAny bills received in December should be recorded, even if not yet paid.

Adjusting entries ensure your financial statements reflect the true economic activity of the year.

• Record annual depreciationCalculate and book depreciation for all fixed assets. Use Section 179 or MACRS as applicable.
• Amortize prepaid expensesExpense the used portion of annual prepayments (insurance, software licenses, etc.).
• Accrue unpaid expensesRecord expenses incurred but not yet billed (accrual basis): utilities, interest, wages.
• Record deferred revenueIf you received payment for services not yet delivered, defer that revenue to next year.
• Write off bad debtsReview accounts receivable. Write off invoices that are uncollectible.
• Adjust inventoryIf you carry inventory, perform a physical count and adjust for shrinkage, damage, or obsolescence.
• Record owner contributions and drawsEnsure all equity transactions are properly recorded.

• Review Profit & Loss statement for the full yearCompare to prior year. Investigate any significant variances. Ensure all revenue and expenses are in the correct period.
• Review Balance SheetVerify assets = liabilities + equity. Check that all account balances are reasonable and supported.
• Verify accounts receivableConfirm A/R aging matches outstanding invoices. Ensure no phantom balances.
• Verify accounts payableConfirm A/P aging matches unpaid bills. No duplicate or old entries.
• Review loan balancesMatch loan account balances to lender statements. Verify correct principal vs. interest allocation.
• Verify payroll totalsReconcile total payroll expenses to payroll provider reports. Ensure W-2 totals match.
• Run a trial balanceTotal debits must equal total credits. Investigate and correct any imbalance.

• Prepare 1099-NEC formsFor every contractor/vendor paid $600 or more during the year. Due to recipients by January 31.
• Verify W-9s are on fileYou need a W-9 from every contractor before issuing a 1099. Request any missing ones immediately.
• Review and finalize W-2sWork with your payroll provider to ensure W-2s are accurate and distributed by January 31.
• Calculate total deductible expenses by categoryOrganize expenses by Schedule C line item (or applicable form for your entity type).
• Gather supporting documents for deductionsHome office measurements, mileage logs, asset purchase receipts, charitable donations.
• Calculate cost of goods sold (if applicable)Beginning inventory + purchases − ending inventory = COGS.
• Review estimated tax payments madeTotal up quarterly payments for the year to ensure they're applied correctly on your return.
• Assemble tax package for your CPAP&L, Balance Sheet, general ledger, prior year return, 1099s, W-2s, asset list, loan statements.

• Close revenue and expense accountsTransfer net income (or loss) to Retained Earnings. This zeroes out the income statement for the new year.
• Verify opening balances for the new yearBalance sheet accounts carry forward. Income and expense accounts start at zero.
• Lock the prior yearIf your software supports it, lock the closed year to prevent accidental changes.
• Archive year-end reportsSave final P&L, Balance Sheet, Cash Flow, General Ledger, Trial Balance, and all supporting documents.
• Set up recurring entries for the new yearUpdate recurring journal entries, recurring invoices, and automated transactions for the new year.
• Create a new year budgetUse this year's actuals as a baseline. Adjust for expected changes in revenue and expenses.
• Review and update your chart of accountsAdd new accounts if needed. Inactivate accounts no longer in use.
• Update tax rates and thresholdsCheck for changes in sales tax rates, mileage rates, and contribution limits for the new year.