Year-end Accounting Checklist: Close the Fiscal Year Early

Introduction

For most teams at a company, the end of the year is a time to relax and wrap up any pending work. However, this is not the case for finance teams and business owners. For them, fiscal year-end means managing multiple accounting processes to ensure a smooth financial transition into the next year. 

There are a lot of tasks involved in year-end accounting, which inherently makes the entire process time-consuming and strenuous. So, what should businesses do to avoid the stress of year-end accounting? The ideal solution is to prepare ahead of time. 

One way to do this is to create a year-end accounting checklist for your business to streamline the closing process. In this blog, we will understand the eight things to keep in mind while creating a year-end close checklist and how businesses can expedite the year-end close process.

What is Year-End Closing for Accounting?

Year-end close is the process of finalizing a company’s financial records at the end of the fiscal year. It involves reconciling accounts, identifying discrepancies, making adjustments, and preparing financial statements for the fiscal year. It enables the accurate reporting of financial information to investors, regulators, and tax authorities.

The process involves taking an in-depth look at a company’s financial transactions and ledgers over the past fiscal year, with the ultimate goal of creating a finalized financial record.Year-end closing is often a complex and time-consuming process that requires coordination between different departments, like finance, operations, accounting, and IT, within an organization.

Why is Year-End Closing Difficult? 

Year-end closing can be a challenging process due to the complexity of managing financial transactions between multiple legal entities, complex transactions, lack of standardization, manual processes, and compliance requirements. Some of the challenges are: 

1. Inaccurate or missing documentation: A lack of proper documentation of financial transactions can pose great difficulty at the end of the year. Furthermore, as companies grow, the sheer volume of financial documentation they need to maintain makes it extremely difficult to track them, which can result in a few missing invoices and receipts. This results in delays during reconciliations, which impact the closing timelines.
2. Manual processes: Maintaining the finances of a company is no small task and requires meticulous attention to detail. Relying heavily on manual processes for year-end accounting, leads to slower processes as well as increases the probability of errors. 
3. Audit and compliance: A lot of companies also go through audits at the end of the year, which may make things more complicated. When companies need to ensure that their financial records are audit-ready within tight timeframes, the accounting teams face considerable challenges. Additionally, the requirement to ensure compliance with accounting standards adds another layer of pressure for accounting teams, impacting their efficiency and productivity during the year-end close.

Why is a Year-End Accounting Checklist Important?

The difficulties associated with the year-end accounting makes it necessary to follow a streamlined process to achieve faster financial close. The finance and accounting teams face tremendous pressure during this time of year as they have a mountain of tasks to get through in a considerably small amount of time. 

In such a scenario, listing down everything and going through each task accordingly can help make the process simpler and more efficient. 

A year-end checklist in accounting is important because of the following reasons:

1. Standardizes process: You can outline timelines for each specific task and assign tasks to each individual to increase the efficiency of the entire process. You can further track the progress of each task in this manner and avoid any potential delays. 
2. Increases accuracy: A large number of tasks need to be performed at the end of the year, which increases the number of potential errors as well. But with a checklist, you can closely monitor and review each task to ensure they are being completed accurately. 
3. Ensures compliance and audit readiness: By following a checklist, you are essentially making sure that the financial close is accurate as it can be. This, in turn, helps you be ready for any audits that might occur and also ensures you stay compliant with accounting standards. 

To put it succinctly, a year-end checklist is important because it allows you to organize the financial close process and ensure that you complete each and every task to close the books. 

Year-End Accounting Checklist for Accountants

Preparing for the end of the year in your accounting department is a crucial task to ensure your financial affairs are in order. Here’s a simplified year-end accounting checklist to help you streamline the process:

8 things to keep in mind for year-end closing in accounting

1. Get the documents ready for your accountant

   If you work with third-party finance and accounting consultants or use accounting software, you need to prepare all the required documents before year-end. Here are some of the documents you need to gather:

   • Cash records
   • Bank and credit card statements
   • Loan information
   • Sales records
   • Payroll information

   Using financial software makes this process easier by allowing you to extract all the information with just a click of a button. 

2. Review accounts payable and receivable

   Before the year comes to a close, you need to check your accounts receivable and payable. This will ensure that you settle all collections and debts without any penalty.

   When it comes to accounts receivable, you need to check for all the past-due invoices. If any customer has unpaid invoices in their account, contact them as soon as possible and ask them to settle them before the deadline. You can also take a look at your accounts receivable aging report to verify if there are any unpaid invoices or not. 

3. Collect past-due invoices

   You must collect the owed money from the customers before the new year. This will ensure that you are able to report strong earnings at the end of the fiscal year.

   You can also send a gentle reminder to all those customers who are yet to clear the unpaid invoices. In case a customer hesitates or refuses to clear the bill, you can:

   • Set a due date for invoice payment
   • Create a payment plan with customers
   • Keep proof of the payment process communications

   It’s important to handle things professionally while reaching out to customers about past-due invoices. If the collection process becomes difficult, offer them a payment plan incentivizing them to clear out the invoice at once. It will show the customers that you care about their needs and understand their situation as well.

4. Plan your taxes properly

   Tax planning is the process of analyzing and planning the financial position of your business to minimize tax liability while complying with the laws.

   It’s no secret that taxes can reduce your annual earnings, and tax planning is a great way to counter the liabilities in a financial year. Effective tax planning will help you maximize tax deductions and exemptions that will benefit your company’s interests.

5. Analyze the financial statements

   Preparing and analyzing financial statements is important not just for enterprises but also for small and midsize businesses. They let you analyze past and present transactions and help you predict the business’s financial future. This allows you to plan for the new fiscal year effectively. 

   Financial statements such as income statements, balance sheets, and cash flow statements help the management team as well as shareholders and investors in assessing the year-end performance. 

6. Take backups of important information

   Keeping a record of all accounting data for future reference is critical for all businesses. Hence, don’t forget to add ‘backing up of important information’ to your year-end checklist. 

   Adopt a reliable backup system that will protect your important accounting information on your devices. Utilize cloud backup to store data, which will help you protect against cyber attacks or other such IT crises. . 

7. Reconcile bank accounts and credit cards

   Reconciling bank accounts and credit cards is an important part of the year-end procedures. You can compare your bank account statement with accounting records to verify the spending, ensuring it matches with the balance recorded in the log books. In case of any discrepancies, you must make the necessary adjustments to settle the records. 

8. Set SMART business goals

   Before the new year starts, setting goals is extremely important for a finance team because it lets them plan for the targets accordingly. It also helps the team stay motivated and focus on the set goals. Goals should be specific, measurable, attainable, relevant and time-bound (SMART).. The goals should focus on improving the areas of weakness in your business. 

   They should be planned on a monthly or quarterly basis, giving you room to achieve success on future projects. 

How to Speed Up Year-End Accounting? 

According to American Productivity & Quality Center (APQC), only about 25 out of 100 businesses are able to close up their books in 10 days at the end of the year. 75 out of 100, approximately, companies take about 35 days for year-end closing. 

The year-end closing process is essential groundwork for next year’s financial and strategic planning. Therefore, organizations need to streamline the process as much as they can. Here are a few measures business owners and finance professionals can take to ensure a smooth year-end closing: 

1. Plan ahead: Companies need to have a plan in place for closing the books at the end of the year. Leaving everything for the last month of the year burdens the finance team, which also increases the chances of errors. 
2. Perform regular account reconciliations: Performing monthly or quarterly account reconciliations throughout the year will ease the year-end stress. You can keep a record of all the reconciliations performed during the year, which will reduce the workload at year end.
3. Use accounting software: The finance and accounting industry have to deal with huge volumes of data. s Accounting software, however, can automate a lot of accounting tasks. This will help reduce the manual efforts and the risk of errors. 
4. Create a year-end close checklist: Once you list down all the tasks needed to complete the year-end closing, you can easily assign each task to the right point of contact and follow up with them whenever required. With a checklist, it is easier to track tasks and it would be unlikely that you overlook important tasks. 

Conclusion

Despite the fact that closing the books at the end of the year is a challenging and complex task, a well-organized plan can streamline the entire process. To sum up, the combination of a good strategy, a comprehensive year-end checklist, and robust accounting software can significantly reduce the burden of year-end accounting stress. By following these steps you can close the financial books on time and have a solid base for strategic planning for the coming year. 

How HighRadius’ Accounting software can help you

HighRadius’ Financial Close Product is designed to create detailed month-end close plans with specific close tasks that can be assigned to various accountants, reducing the month-end close time by 30%. The product allows users to assign and track tasks for each close task category for input, review, and approval with the stakeholders. 

Here are some of the key functionalities of the product:

1. LiveCube Task Automation: HighRadius’ LiveCube feature is a spreadsheet-like platform that allows users to automate business computations backed by big data. You can seamlessly retrieve data and send it back into your ERP. The feature helps you reduce manual work, increase close efficiency, and reduce manual errors. 
2. Journal Entry Management: This feature allows users to achieve faster month-end close. You can post entries to your ERP automatically for adjusting the final general ledger account balance. Additionally, you can automate data preparation on LiveCube to streamline your year-end process. 
3. Close Progress Dashboard: HighRadius provides users with customizable dashboards and reports to track custom metrics to help you analyze the efficiency of your processes. You can identify potential delays and track close progress to close the books efficiently. 
4. Maker Checker Workflow: HighRadius’ Maker Checker Workflow provides users with a hierarchical, multi-level review and customizable approval workflow. You can monitor priority tasks and segregate task responsibilities to ensure the year-end close process is running smoothly. 
5. Close Checklists: This feature enables quick and efficient close for users. HighRadius provides close checklists, templates, collaterals, and dashboards for your R2R teams so they can close the year efficiently.

FAQs

Q1. Why is a checklist important?

A year-end close checklist is important because it provides a detailed step-by-step process that you need to follow. It helps you prioritize tasks and plan better so that the deadlines are not missed. Moreover, the tasks on the checklist can be assigned to specific people, making it easier to track progress. 

Q2. What is the year-end closing process in accounting?

The year-end closing process in accounting is the time when companies do an audit and update their books at the end of the financial year. This is a very important step in every business’s financial reporting process, as it lays the foundation for next year’s financial and strategic planning. 

Q3. What should be included in year-end accounts?

Year-end accounts basically provide a summary of how a company performed financially in the fiscal year. Some items that should be included in year-end accounts are the performance summary, balance sheet, income statement, cash flow statement, closing entries, and reconciliations.

Q4. What reports does an accountant need for year-end?

Some reports that an accountant needs for year-end closing are payroll reports, account receivables aging reports, accounts payable aging reports, bank reconciliation reports,management reports, trial balances, inventory reports, depreciation schedules, notes and disclosures, and tax reports.

Q5. What do you do with accruals at year-end?

Accruals are accounting entries that record revenue or expenses before the cash is received or paid. At year-end, just like other accounts, accrual accounts need to be reviewed and adjusted in case there are any errors or missed entries to ensure your financial statements accurately reflect your company’s financial position. 

Q6. What are the year-end accounts?

Year-end accounts are the financial statements and reports prepared at the end of the fiscal year. These reports are created by closing the books and provide a summary of the company’s financial position. Year-end accounts include financial statements like balance sheets, income statements, and cash flow statements. 

Q7. What are year-end entries in accounting?

Year-end entries are accounting entries made in the company’s financial books at the end of the fiscal year. The entries are made to balance the accounts and ensure their accuracy. The information is then used to prepare financial statements to show where the company stands in financial terms. 

Q8. How to do year-end close in accounting?

In order to do year-end financial close properly, you need to gather all the relevant documents, review accounts receivable and payable, plan your taxes, reconcile all the bank accounts and credit card accounts, review financial reports, and set business goals for the next year.