Editor's Note: December is "Managing Your Year-end Month'"at Insightful Accountant, including a series of features to help you prepare for year-end. Look for both payroll and non-payroll topics.
Review your fiscal year starting month
Review the starting month of your fiscal year to ensure that QuickBooks can clear your ledgers (behind the scenes) while you work on other year-end activities.
To review or change the first month of your fiscal year:
- Start at the Menu Bar, either on the left side or at the top, and find Company.
- Select My Company.
- Select the Pencil icon.
- Choose Report Information. Ensure the first month of your fiscal year is correct (this will ensure your financial reports use the correct dates).
Review customer account balances, send statements, clear outstanding deposits and make any required accrual to cash adjustments (as needed)
As the year ends, make sure your clients have up to date balances, billings and payments. You also may need to make adjustments if you report financials on a cash basis rather than accrual.
- Run an Accounts Receivable Aging Summary or Detail report.
- Review the report to find any customers with outstanding balances.
- Once you find outstanding balances, send statements to your customers.
- Make sure you don't have any outstanding customer deposits.
- If you're on a "cash basis," you may need to make journal entries to ensure you properly reflect account balances for accounts receivable, which typically are not reported on the balance sheet at year-end. Consult your accountant to determine whether these types of entries apply to your business and seek assistance with the required entries.
Review vendor/vendor account balances and pay bills or write checks, reconcile credits, discounts and returns, and make any required accrual to cash adjustments (as needed)
The end of the year is the perfect time to take care of Accounts Payable issues, including:
- Run an Accounts Payable Aging Summary or Details report. Check the report for outstanding bills to pay before the year ends.
- Outstanding credits, discounts or products you owe from your vendors
- If you're on a "cash basis," you may need to make journal entries to ensure you correctly reflect account balances for accounts payable, which typically are not reported on the balance sheet at year-end. Consult your accountant to determine whether these types of entries apply to your business and seek assistance with the required entries.
Review all new equipment purchases and make asset depreciation entries and adjustments
The end of the year is when you review each major equipment purchase and make sure you have recorded it correctly. This also will be when you make depreciation entries if you have not previously done so. You also may make adjustments for your other assets.
- Typically, you expense fixed assets over the useful life of those assets, not just the year in which you make the purchase. Therefore, keeping track of the details of major equipment purchases such as date of purchase, purchase price, asset type, make/model/year, and new/used status all provides the basis for the proper recording of value and depreciation.
- Consult your accountant to determine how to record depreciation for fixed assets like vehicles, furnishings, office equipment, buildings and building improvements. The long-term value of each type of asset may be treated differently, and assets may be depreciated differently on a "book basis" in contrast to "tax basis."
Take and reconcile inventory (if appropriate)
The end of the year is when you reconcile your actual inventory against the inventory recorded in QuickBooks if your company maintains inventory. Depending on the version of QuickBooks you're using, you will be able to use various QuickBooks tools to create a record of physical inventory so you can perform a physical count and compare the information.
- Run a Physical Inventory Worksheet if you intend to perform a manual count of your inventory. This report reflects every item, the current quantity on hand and provides a workspace to record the physical count results for each item. You will then need to enter manual inventory adjustments to update your inventory to the correct values.
- If you're using QuickBooks Enterprise with Advanced Inventory, you have the option of performing a Cycle Count, which allows you to create an exportable Excel version of the same information within the Physical Inventory Worksheet. Once you have updated the manual counts in the Excel worksheet, you can import the worksheet back into QuickBooks Enterprise to update your inventory, rather than make each inventory adjustment manually.
Reconcile all accounts (bank, credit cards, and petty cash)
It is a good practice to match your QuickBooks data to your bank accounts. This makes sure all transactions are correct, and your year-end reports display the correct financial info.
- Enter all uncleared or missing transactions for the statement period.
- Review outstanding checks more than a year old, and verify or void checks as needed.
- Have a copy of your year-end bank or credit card statements.
- Don't forget to post interest on bank and credit card accounts.
- Make sure all petty cash entries are up to date and balance your petty cash account. Record any missing petty cash transactions.
Run year-end reports
Run year-end reports to review the info, identify and resolve any possible issues. It is important to understand that QuickBooks makes automatic adjustments at year-end in preparation for the upcoming fiscal year. These adjustments should be reflected in your year-end reports.
- Run a Trial Balance Report for the day after the year-end. This enables you to ensure all income and expense accounts have a zero balance and are closed out to Retained Earnings.
- Run a year-end Profit and Loss Report set to the appropriate accounting method (cash or accrual).
- Run a year-end Balance Sheet Standard Report set to the appropriate accounting method (cash or accrual). If you're using cash basis, make sure all necessary adjustments from accrual postings to cash have been made. In addition, verify that the year's beginning Retained Earnings match last year's ending Retained Earnings.
- Run any additional customized reports needed.
It is important to understand that QuickBooks makes automatic adjustments at year-end in preparation for the upcoming fiscal year. Therefore, these adjustments will be reflected in your year-end reports.
- QuickBooks adjusts your income and expense accounts at year-end to zero them out. Therefore, you start your new fiscal year with a zero net income.
- QuickBooks makes an adjusting entry to your net income. For example, if your profit for the year was $30,000 on the last day of your fiscal year, the equity section of your Balance Sheet would show a line for net income of $30,000.
- On the first day of the new fiscal year, QuickBooks increases your Retained Earnings equity account by the previous year's net income (in this example, $30,000) and decreases your net income by the same amount. This way, you start each new fiscal year with a net gain of zero.
Invite your Accountant to collaborate and consult
As a trusted advisor, your accountant can provide expert advice on your financial data and assist you with your year-end process. In addition, your accountant also can help forecast your company's financial future.
One easy way to work with your accountant is by using an Accountant's Copy, which QuickBooks Desktop will produce for you. You can save the accountant's file locally and share it electronically using a file transfer service. Then, your accountant can review and make changes directly to the accountant copy data, which then can be incorporated into your company file. As an alternative, your accountant can use the Send Journal Entries feature if they're using an accountant's version of QuickBooks. You can easily import those journal entries.
Prepare year-end tax return (with your Accountant's assistance)
The company's accountant typically prepares taxes. Sending the Accountant's Copy of your QuickBooks data to your accountant gives them access to all the financial information they need to prepare your company taxes for review and filing.
Close your books
QuickBooks Desktop does not require you to close the books as part of year-end, but it offers you the ability to restrict access by setting a closing date and password to limit access to the closed accounting period.
You can set a password to restrict access to data from the prior accounting period, including the details of every transaction. Transactions cannot be changed without your knowledge. To modify or delete a transaction in a closed period, a user must know the closing date password and have the appropriate permissions.
Any changes made after the closing date to transactions dated on or before the closing date will appear in the closing date exception report.
Archive a copy of your QuickBooks Desktop data file
You should back up and archive a copy of your company data file as part of your year-end. Saving a copy of the data just the way you had it when you finalized your reporting and closed your books is a safety precaution that can help in case of disaster, audit or other financial investigation. Ensure your archived copy is put in a safe location where it is protected from fire, theft or other forms of disaster.
Acknowledgments and Disclosures
Content used within this feature was derived or adapted by the author in part from Intuit and/or QuickBooks source materials, including (but not limited to), QuickBooks Pro/Premier Help Year-end Guide; QuickBooks Enterprise Help Year-end Guide; Intuit QuickBooks Support Website Help Document: Year-end guide for QuickBooks Desktop; and other related content.
Adapted source materials published within this feature by Insightful Accountant are for educational purposes only.
QuickBooks, QuickBooks Desktop, and QuickBooks Enterprise, as used herein, refers to one or more registered trademarked products of Intuit Inc., a publicly-traded corporation headquartered in Mountain View, California.