Be Prepared with this Accounting Year-End Close Checklist

Some companies close their general ledger earlier in the year and then wait until the end of the calendar year to close payroll, whereas other companies have a combined fiscal year-end close and calendar year close. Regardless of how your business chooses to handle the timing of closing activities, it will need to complete the end of year close accurately to give a complete picture of its financial position and plan for the coming year.

It is vital to prepare for year-end close in advance to ensure a true and timely close. Using a checklist is a helpful way to track which activities have been completed and which are still outstanding, especially if you have multiple employees or teams working together to close the books.  

While this list is by no means inclusive of all activities that go into year-end close, it covers the items that are commonly forgotten or misrepresented.

Cash

Tasks:

• Reconcile cash against bank records and correct any discrepancies
• Account for interest earned
• Resolve negative cash balances
• Adjust fair value investments as needed
• Void outstanding checks
• Confirm restricted cash balances

Explanation:
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Understanding cash flow is vital to maintaining ongoing business health. Many companies view cash reconciliation as a monthly activity. While cash should certainly be accounted for each month it must also be checked and reported at year-end close to remedy any discrepancies from the previous months.

Remember that cash on hand differs from “cash,” which also includes marketable securities and other quick assets like checks. Each element of cash must be reconciled before closing for the year to give a proper picture of liquidity.  

Long-Term Assets

Tasks:
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• Record capital asset outlays, additions, disposals, and deletions
• Include capitalized expenses (such as legal and appraisal fees)
• Update useful life calculations for fixed assets
• Ensure depreciation schedule is being followed for existing assets
• Write-off fully depreciated PP&E (property, plant & equipment)

Explanation:

Capital assets (also known as PP&E) have a useful life of more than a year, which means that they will be referenced on multiple year-end close documents. Buildings, cars, land, and machinery are all considered capital assets because they are used in business operations to produce an economic benefit but are not intended to be resold. These assets are not frequently bought, sold, or exchanged which makes them a strong indication of a company’s future asset holdings.

While long-term assets often do not need to be revisited each month, accounting for them at the end of the year is vital to writing them off correctly, which can affect tax burden and asset ratios for the current year.

Payroll

Tasks:

• Enter accrued payroll values
• Determine compensated vacation time payable
• Complete state-required payroll reports and pay subsequent payroll taxes
• Record material payroll payable
• Report employee benefits such as life insurance, transportation stipends, and educational reimbursements on W-2 forms

Explanation:

Payroll is an expense that seems straight-forward, but the nuances over the course of a year affect its year-end reconciliation. Paid overtime, sick time, vacation time, and other employee-related considerations contribute to payroll costs, which necessitates a yearly examination of expenses to ensure that payments to employees are accurate and taxes are filed correctly.

Goodwill

Tasks:
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• Record goodwill impairment
• Report goodwill gains and losses

Explanation:

Some businesses do not have goodwill on their books, but for companies that do, its value must be tracked, and impairment must be reported. Goodwill arises when one company acquires another company for a value above its fair value. This premium can result from brand name equity, proprietary technology or processes, top industry talent, or a lucrative customer base.

Goodwill impairment arises when the company or assets acquired are unable to generate cash flow at an expected rate, causing the fair market value of these assets to fall below their book value. Impairment typically results from overpaying for an asset, which means that substantial goodwill impairment on a balance sheet may indicate that a company is making poor investment decisions.

Testing for goodwill impairment ensures that a company is properly representing its net worth.  

Tax

Tasks:
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• Adjust property tax accrual to match assessment for the current year
• File sales tax reports
• Prepare, review, and file applicable state and federal tax returns
• Identify opportunities to take advantage of tax incentives

Explanation:

Tax accruals occur for everything from payroll to property, which means that companies must calculate and file applicable state and local taxes. Error-free reporting is the only way to ensure that your business will avoid tax-related fines and penalties.
Reducing your annual state and federal tax burden may be possible depending on your industry and business operations specifics. A seasoned tax professional can advise on how to take advantage of applicable tax incentives.

Budget

Tasks:

• Reconcile total expenditures against yearly budget and resolve overspend
• Forecast revenue and expenses for the coming year to prepare a new budget

Explanation:

Comparing expenses against an annual budget is essential for understanding how your company spent relative to expectations. Budget overspend should be scrutinized to determine where spend can be reduced and whether the budget needs to be altered for the coming year.

Now that you are ready for year-end close, review our monthly accounting close checklist as well to help your company better reconcile accounts on an ongoing basis. Taking the right steps each month will reduce your workload when it is time to close for the year.  

Need help preparing for year-end close?

We assist small businesses across the Pacific Northwest close their books every year. Get our experienced accounting professionals on your side for greater peace of mind.

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