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Closing Books at Year End

Basic Steps involved in Closing Books at Year End

Whether your business operates on a fiscal year (ends on Dec 31) or calendar year (ends on any other day but Dec 31), the procedures to close out the old year and begin the new one are the same.

Following are the basic steps involved in Closing Books at Year End:

Write Off Outstanding Checks

  • Some checks could get lost or destroyed between payer’s bank and the vendor’s bank. Sometimes even the vendor might lose a check. A check older than 180 days is usually not negotiated with the bank and is considered a “stale check”. These checks should ideally be written-off if the vendor has not contacted you regarding an outstanding check.
  • Outstanding check should be written off by a debit to the Cash in Checking and a credit to the Expenses Account.
  • Update the transaction in Checkbook on vouchers reserved for other entries.
  • Remove the check from the bank reconciliation’s list of outstanding checks.

Run Trial Balance Report

  • Trial Balance report is perhaps the most important step in closing your year-end books.
  • Trial Balance is a General Ledger report that displays all the accounts with their year-to-date balances. So if you add all the debit balances and subtract all the credit balances, the net result should be zero. So, all debits should equal the credits.
  • The Trial Balance combines the Balance Sheet accounts with the Profit & Loss Statement accounts.

Run Year-End Reports

Before closing of the Books, your business must run a report the following reports:

  • Accounts Receivable report showing names of all credit customers and amounts due from them.
  • Accounts Payable report showing names of all vendors and amounts due to them.
  • General Ledger report beginning with the first day of the year end ending with the last day of the year. This report shows every entry posted tot he every account for the year ending.
  • Profit & Loss Statement report shows your company’s Revenue and Expenses during the year
  • Balance Sheet report shows your company’s Assets, Liabilities and Ownership Equity balances.

Close the General Ledger

Once all the reports have been run, the General Ledger can be closed. The Trial Balance report, Bank Reconciliation Report, and the Financial Statements are submitted to the CPA to prepare the tax return.

Keep the Payroll Records

The following Payroll records should be kept securely, so that they are available for inspection by either the Department of Labor (DOL) or the IRS:

  • Copies of W-2, W-3, I-9, and W-4 for all employees
  • Amounts and dates of all wage statements (Paystubs)
  • Amounts of tip reported by employees
  • Names, addresses, and Social Security Numbers of the employees
  • Any copies of W-2 forms that were returned by the post office as undeliverable.
  • Copies of Federal and State Quarterly reports filed
  • Reports of any fringe benefits paid to employees

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