- 1Reconcile every account. Bank, credit cards, loans, merchant processors, payroll liabilities. Every line ties to a statement.
- 2Clear suspense and uncategorized accounts. Every transaction has a final home before close.
- 3Review and adjust accruals. Wages, bonuses, vacation, interest, utilities, professional fees.
- 4Record depreciation, amortization, and prepaid amortization. For the full year.
- 5Inventory count and adjustment. Physical count if applicable, write off obsolete, confirm COGS.
- 6Fixed asset review. Additions, disposals, impairments documented.
- 7AR aging and bad debt review. Write off uncollectible amounts, document the rationale.
- 8Deferred revenue and prepaid expenses true-up. Both sides match cash basis to accrual basis correctly.
- 9Generate the year-end financial package. P&L, balance sheet, cash flow, trial balance, GL detail.
- 10Document one-time / unusual items. Restructuring, litigation, settlements, gains or losses.
- 11Hand off to tax preparer. Clean trial balance plus all supporting documentation.
- 12Close the period in the system. Lock historical periods to prevent edits.
Before December ends
Review of fixed asset register. Any disposals not yet recorded. Any purchases not yet added. Any impairments to be recognized. Physical verification if material. This should happen before year-end so disposals and impairments can be recorded in the correct period.
Review of accruals needed. Bonuses earned but not paid. Vacation accruals. Employer retirement contributions for the year. Professional services delivered but not billed. These accrual reviews should start in mid-December so the entries are ready for early January.
Inventory count (if applicable) scheduled for December 31 or as close as possible. Count procedures documented. Discrepancies between count and recorded inventory investigated and resolved before the books are closed.
Early January: the books
Bank reconciliations for all accounts through December 31. Credit card reconciliations. Merchant processor reconciliations. These should be done first because they are the foundation for everything else. Any discrepancies need to be resolved before proceeding.
Post year-end journal entries: final accruals, prepaid amortization, deferred revenue recognition, depreciation, amortization of intangibles, fixed asset adjustments. Each entry should have documentation supporting the amount and the reason.
Review of every account with material balance. Trial balance review to catch any unusual items. Any account that has activity inconsistent with expected pattern gets investigated. This scrubbing catches errors that would otherwise flow through to financial statements.
Mid January: financial statements
Produce draft financial statements: P&L, balance sheet, cash flow statement. Review for internal consistency and reasonableness. Compare to budget and prior year. Any unexpected variances investigated and documented.
Tax provision calculation if company pays income tax. Estimate tax liability based on book income. Adjust for permanent and temporary differences. Post the tax accrual. This is where companies often need CPA support.
Review of equity accounts. Option grants during the year documented. Share issuances recorded. Cap table reconciled to general ledger. Any transactions affecting retained earnings or additional paid-in capital verified against supporting documents.
Late January: handoff and reporting
Tax package for the CPA. Complete trial balance, full general ledger, bank statements, supporting documents, equity transactions, 1099 information, fixed asset additions. Delivered by January 31 for best CPA scheduling.
Annual financial statements to leadership and board. Full P&L with variance to plan and prior year. Balance sheet with commentary on material items. Cash flow statement. Commentary explaining the year's results and positioning for next year.
Audit preparation if applicable. Reconciliations complete, documentation gathered, schedules prepared. Audit firm typically wants most materials in early February if audit starts then. Work ahead to have everything ready when the engagement begins.