- 1Reconcile every account. Bank, credit cards, loans, payroll, merchant processors. Every line should match a statement.
- 2Clear the suspense and uncategorized accounts. Every transaction needs a home before close.
- 3Review accounts receivable and accounts payable. Write off uncollectible AR, accrue unrecorded AP.
- 4Record depreciation and amortization. Fixed assets, intangibles, prepaid expenses spread over the period.
- 5True up payroll and benefits. Bonuses, commissions, vacation accruals, employer tax liabilities.
- 6Review inventory. Physical count if applicable, write off obsolete stock, confirm cost of goods sold.
- 7Document any one-time or unusual transactions. Restructuring, settlements, gains or losses on disposals.
- 8Generate the year-end financial package. P&L, balance sheet, cash flow, and a trial balance for your CPA.
- 9Hand off to your tax preparer. Clean trial balance, all reconciliations, and supporting documentation.
Reconcile everything
Before anything else, make sure every bank account, credit card, and loan account is reconciled through December 31. This means the balance in your accounting system matches the balance on your statements as of that date, with every discrepancy explained and resolved. Unreconciled accounts at year-end create problems that compound, your opening balances for the new year will be wrong.
Reconciling everything at year-end is non-negotiable. Every bank account, every credit card, every merchant processor account must be reconciled to the December 31 statement balance. Any discrepancy flagged as "we will look at that later" compounds over time and creates problems next January when the gap is even larger.
Start reconciliations early. December statements arrive in early January, so plan to have all reconciliations done by January 15. If you wait until February, you are competing with tax preparation deadlines and everyone is busier. A rushed year-end reconciliation produces errors that show up in the tax return and require amendments later.
Review and clean up transactions
Go through the year's transactions and clean up anything that was miscategorised, duplicated, or posted to the wrong period. Pay particular attention to large or unusual transactions. This is also the time to make sure all payroll is properly recorded, all contractor payments are accounted for, and any loan payments have been correctly split between principal and interest.
Transaction review and cleanup is the second step. Pull the full-year general ledger. Look for: uncategorized transactions, anything in miscellaneous or "Ask My Accountant" accounts, duplicate entries, transactions that look misclassified, and anything in suspense accounts. Each of these needs resolution before year-end close.
Also review the chart of accounts for any accounts that should be consolidated or retired. Accounts with zero activity for 12+ months can usually be removed (archive them, do not delete to preserve history). Accounts that were created for specific projects that ended can be merged or deactivated. The goal is a clean starting chart for the new year.
Accrue what you owe
If you use accrual accounting, make sure all December expenses are accrued, meaning if you received a service in December but the invoice comes in January, the expense should still land in December. Common accruals include payroll (particularly if the last payroll of the year has a cut-off mid-month), professional services, and any subscriptions or retainers covering the December period.
Year-end accruals capture liabilities that exist but have not yet been billed or paid. Bonuses earned in the prior year but paid in the new year. Vacation time accrued but unused. Employer retirement contributions for the prior year. Rent or professional services for the final period. Each of these belongs in the prior year if properly accrued.
Also think about prepaids. Did you pay for annual insurance in December? The portion applicable to the new year should be in a prepaid expense account and amortized over the coverage period. Paying insurance in December and expensing all of it immediately distorts both years. Proper accruals and prepaids spread these correctly.
Prepare for your CPA
Your tax preparer will need a clean trial balance as of December 31, the general ledger for the year, documentation for any large or unusual items, payroll records and 1099 information for contractors, and your prior year tax return. Getting these organised before January makes the tax prep process faster and cheaper.
Preparing for your CPA means packaging everything they need in a single delivery. Reconciled books, supporting documents, 1099 information for contractors, fixed asset purchases with invoices, any equity transactions with documentation, and a summary of anything unusual that happened during the year. The more complete the package, the faster the CPA can work.
Also schedule time with your CPA in January if possible. Even if the return cannot be done immediately, a 30-minute call to review the year's unusual items helps them prepare. Accountants who understand what happened in your business produce faster and more accurate returns than those who are seeing the books for the first time in March.
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