Year-end accounting checklist: How to close the fiscal year
The end of the fiscal year is a critical time for finance teams. Each year, finance professionals bury their heads in the books to prepare their end-of-year accounts, statements, and financial reporting.
It’s estimated that the average accounting team takes 25 days to complete an anual close. This time of year also coincides with month-end closing and quarter-end reporting, which means significantly heavier workloads and seriously overwhelmed accountants.
One of the easiest ways to reduce stress and improve productivity during this period is to prepare and follow a set workflow. To give you a headstart, we’ve laid out all the essential steps to a successful year-end closing cycle in this article.
Let's jump right into the work without missing a beat receipt.
What is the year-end close?
Also known as "closing the books," year-end closing is the process of reviewing, reconciling, and verifying that all financial transactions and aspects of the company ledgers from the past fiscal year add up. This involves calculating the business expenses, income, revenue, assets, investments, equity, and more.
The goal is to prepare a final financial statement for potential external audit, to be stored within the company’s official financial records.
The fiscal year refers to a 12-month period that often follows the calendar year from January to December, but can also start from the day the business was registered.
This means that unlike the calendar tax year, company founders can choose an annual year-end closing date that best fits their industry and business performance.
During year-end closing, accountants check carefully for discrepancies between company spend and budgets, namely accounts payable and accounts receivable. If any are found, they must reach out to the employees involved for missing information or documentation to resolve the discrepancies and adjust the financial ledger accordingly.
As there can be serious legal liabilities involved, preparing an accurate balance sheet, profit and loss statement, and cash flow statement are some of the most important processes for finance and accounting teams to get right.
Given that you need to file an anual report on time and without error every single year, you need this process to be as smooth as possible.
Why is year-end closing so difficult?
Preparation for the end of the fiscal year is laden with challenges. Accountants are often at the mercy of others to reduce their heavy workloads during end-of-year closing. Here are common struggles that accounting teams face throughout the fiscal year which make financial closing a challenge:
Missing receipts and invoices. Employees need to spend to grow the company, but keeping track of paper receipts and supplier invoices is a frequent pain point. When it comes to periodic closing, these missing elements can cause major delays in expense reconciliation and other tasks.
Human error. Juggling piles of paperwork at once is challenging, even for the most organized bookkeeper. When humans process complex documents in large volumes, mistakes are bound to occur. Unfortunately, even a simple incorrect entry or misplaced document can result in costly consequences.
Manual data entry. Entering data by hand into spreadsheets is time-consuming and prone to error, but also one of the most common methods of accounting. With accounting automation software, there are now far more accurate and efficient ways to capture and enter data into financial ledgers.
Inefficient communication. Accountants frequently have to chase employees down for missing documentation or explanations on specific transactions. This often results in unproductive and confusing email chains, filled with redundant back-and-forths to complete what should be a relatively simple task.
How to make the annual close easier
The good news is there is a simple effective solution to make end-of-year accounting less stressful and easier for everyone involved: planning ahead.
The most effective way to cut down time on closing is to stay on top of financials and spend management throughout the entire fiscal year. That ensures much of the laborious reconciliation is done, so accountants can focus on reviewing ledgers, preparing financial reports, and setting budgets and business goals for the next year.
With so much going on, it’s easy to miss the details. We’ve compiled a comprehensive list with all the important tasks, so you don’t have to. Streamline your accounting system workflow and get straight to the work that matters with our official fiscal year-end checklist below.
Your year-end accounting checklist:
These are eight simple steps using double-entry accounting to make sure you close the books on time. Check each one off as you go!
1. Prepare a closing schedule
Identify the important dates and the activities that must be completed by each. These include reporting and data processing deadlines and the fiscal close date.
Create a calendar with target dates to avoid missing any crucial deadlines.
2. Gather outstanding invoices & receipts
You’ll need these to close the books. Ensure employees understand what’s required and give ample time to submit documents. Expect delays.
To speed up this process, consider an automation software that includes digital receipt capture so employees can upload their paper expense receipts instantly.
3. Review asset accounts
Reconcile all cash accounts and record adjusting entries. Compare inventory accounts with physical stock (if appropriate), and review prepaid spend. This step determines the value of all assets that your company currently owns.
4. Reconcile all transactions
Ensure that your recorded transactions match evidence from credit card statements, bank statements, invoices and receipts. Take care to account for every cent to be audit-ready at the end of the year.
5. Close out accounts receivable and payable
Compare amounts received or paid against what has been accrued. You need to ensure that all records of money coming in or going out of the business match what actually occurred.
If there’s a balance outstanding, create adjusting entries to the original journal entries.
6. Accrue accounts receivable
Any receivables owed at the end of the year should be added as credits on the income statement, and debits on the balance sheet. Doing so will ensure you start the next fiscal year with the right financials.
7. Accrue accounts payable
Any unpaid debts should be listed as liabilities or accrual expenses on the balance sheet. Keeping track of all your company debts is crucial to managing your finances effectively.
8. Adjust grants and entitlements
Where appropriate, account for any grants or entitlements received during the fiscal year. These can include government contributions or special tax exemptions, as well as private grants.
Get a head start on accounting for next year
With our above checklist, you’re off to a great start. And it gets even better with smart spend management software. This helps finance teams close faster, save time year-round, and take financial decision-making to the next level.
Tools like Spendesk give finance teams greater control and real-time visibility over company budgets, employee spending, and invoicing within a centralized platform. Features like mobile receipt capture and one-click payments enable employees and the finance team to stay on top of expenses, reimbursements, and approvals, instantly.
In a nutshell, the secret to a smoother finacial close is to be well-prepared, organized, and proactive with accounting practices throughout the fiscal year.
For more tips on optimizing financial processes for the end of the year and preparing for the next, download our complete resource:
