For many, the holiday season approaches fast and refuses to quit until after all the festive lights have been shoved back into their dusty boxes. From the chilly night of Halloween all the way to the energetic parties on New Year’s Eve, people from all walks of life tend to loosen their belts and settle in for a wild ride. It’s not really time to stop and think about balance sheets and closing entries.
So, it’s easy to let the ever-looming task of year-end reconciliation fall to the side as you celebrate the approaching close of another successful year. However, if you take key steps to ensuring you close out the year properly, you’ll be rewarded with a seamless tax season and a comprehensive look at your financial welfare in the early months of the following year.
To give you more insight into how to close the books, we’ve compiled a guide on everything you need to do before you reconcile your books at year’s end. From understanding what is bank reconciliation to actually how to do a bank reconciliation, we’ve given you the inside scoop so you can fearlessly face the upcoming year.
Each year, a small business, independent contractor, or large corporation should perform an end-of-year reconciliation to close the books. But what is bank reconciliation? It’s accounting for all income and expenses so that no additional items get treated as income or affect your accounts after December 31st. It’s usually done as a closing entry, which shifts all data from temporary accounts (like revenue, expenses, and dividends) on your income statement to permanent accounts on your balance sheet.
Closing entries must be recorded at the end of the accounting year on December 31st. Doing so ensures that you or your business remain compliant with laws and regulations. It also significantly helps with filing taxes in the coming months, ensuring you don’t pull your hair out come April 15th. Not only that, but closing entries give you a real look at your financial wellbeing over the year. It helps you run your business smarter and gives you an idea where you’ll be in the future.
Now that you understand more about what is bank reconciliation, let’s cover how to do a bank reconciliation and actually close those books. You can confidently close the books using these steps:
Keep in mind that, by working with an accountant or a bookkeeper, the majority of the above will be handled by a certified financial professional. Doing so ensures you’re closing your books accurately. However, even if you are working with an accountant, it’s still important to know how to do a bank reconciliation so you can provide them with the information they need to close the books.
When you start your year-end planning journey, it can be easy to miss key items that either you or your accountant will be in charge of remedying. While a certified accountant will identify the items missing, you should use the following points as reference as you or your accountant/bookkeeper close the books.
The balance sheet is a summary of the financial balances of you as an independent entity or of your organization. It contains detailed information about your company’s assets and liabilities for the year. It has to be accurate to what actually happened financially with you or your company. Here are some key tips to watch for:
Similar to a balance sheet, an income statement (or profit and loss account) is a financial statement that shows your or your company’s revenue and expenses for the given year. It’s easy for things to get shifted around in an income statement, so refer to the listed items as you reconcile your books:
Last, but certainly not least, is the closing of the books, or year-end data reconciliation. This requires combining the above items (your balance sheet with your income statement) with others to verify that all the financial transactions and ledgers from the previous year are accurate and add up. If you have an issue with your year-end data, it probably lies with the information you’ve already compiled for your income statement and your balance sheet.
Keep these two items in mind as you conduct your year-end reconciliation:
Feel like a master of closing your books, yet? We’ve covered the basics on year-end reconciliation: What is bank reconciliation and how to do a bank reconciliation. Now, you can finish this year knowing exactly what tasks you have to complete to make your life much easier around tax season.
If you’re located in the Colorado area and are looking for an accounting or business services solution to make filing for your 2022 Colorado tax return easier, look no further than 4Corner Business Services.
4Corner's team of experienced accounting and bookkeeping experts provide you with the financial information you need to make critical business decisions. In addition to bookkeeping for small and large businesses, 4Corner offers payroll help, support in choosing and using accounting software, professional Colorado tax return services, and valuable financial advice to guide decision making. Allow us to help you get the most out of your 2022 Colorado tax return so you can focus on growing your business in 2023.
If you have questions about year-end reconciliation or would like to contact us, we’d love to hear from you! You can find information on calling or emailing us on our website. Or, you can set up a meeting with Phil Zavala, founder of 4Corner, to get you on the right track.
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