Year End Closing is the process of reviewing, reconciling, and verifying that all financial transactions and aspects of the company ledgers from the past fiscal year add up. This involves calculating the business expenses, income, revenue, assets, investments, equity, and more. The goal is to prepare a final financial statement for potential external audit, to be stored within the company’s official financial records and to be used to file statutory records required by Companies House.
During year-end closing, accountants check carefully for discrepancies between money received and money spent, namely accounts payable and accounts receivable. If any are found, they must reach out to the employees involved for missing information or documentation to resolve these discrepancies and adjust the financial ledger accordingly.
This means that unlike the calendar tax year, company founders can choose an annual year-end closing date that best fits their industry and business performance. Given that you need to file annual accounts on time and without error every single year, you need this process to be as smooth as possible. This Guide will help you to do that.
Why can year-end closing be so difficult?
Given that you need to file Year End Accounts on time and without error each year, you need this process to be as smooth as possible. Here are the main areas to look out for, by ensuring you limit any problems with these your accountants bill will be lower and there won’t be any lengthy delays in producing your accounts.
- Missing receipts and invoices - Employees need to spend to grow the company, but keeping track of paper receipts and supplier invoices is a frequent pain point. When it comes to periodic closing, these missing elements can cause major delays in expense reconciliation and other tasks.
- Human error - Juggling piles of paperwork at once is challenging, even for the most organised bookkeeper. When humans process complex documents in large volumes, mistakes are bound to occur. Unfortunately, even a simple incorrect entry or misplaced document can result in costly consequences.
- Manual data entry - Entering data by hand into spreadsheets is time-consuming and prone to error, but also one of the most common methods of accounting. With accounting software, there are now far more accurate and efficient ways to capture and enter data into financial ledgers.
- Inefficient communication - Accountants frequently have to chase employees down for missing documentation or explanations on specific transactions. This often results in unproductive and confusing email chains, filled with redundant back-and-forths to complete what should be a relatively simple task.
How to make the annual close easier
The good news is there is a simple effective solution to make end-of-year accounting less stressful and easier for everyone involved, and that’s by planning ahead. The most effective way to cut down time on closing the year end is to stay on top of all your financial transactions throughout the entire fiscal year. This ensures much of the laborious reconciliation is done, so accountants can focus on reviewing ledgers and preparing financial reports.
Your year-end accounting checklist
With so much going on, it’s easy to miss the details. We’ve compiled a comprehensive list with all the important tasks,
- Prepare a closing schedule - Identify the important dates and the activities that must be completed. These include reporting and data processing deadlines and the fiscal close date. Create a calendar with target dates to avoid missing any crucial deadlines.
- Gather outstanding invoices & receipts - to speed up this process, consider an automation software that includes digital receipt capture so employees can upload their paper expense receipts instantly.
- Review asset accounts - reconcile all cash accounts and record adjusting entries. Compare inventory accounts with physical stock (if appropriate), and review prepaid spend. This step determines the value of all assets that your company currently owns.
- Reconcile all transactions - ensure that your recorded transactions match evidence from credit card statements, bank statements, invoices and receipts. Take care to account for every penny to be audit-ready at the end of the year.
- Accrue accounts receivable - If there’s a balance outstanding, create adjusting entries to the original journal entries.
- Accrue accounts payable - any unpaid debts should be listed as liabilities or accrual expenses on the balance sheet. Keeping track of all your company debts is crucial to managing your finances effectively.
With this checklist, you’re off to a great start and your year end should be much easier and less hassle. The secret to a smoother financial year end is to be well-prepared, organised, and proactive with accounting practices throughout the fiscal year.
If you need help with any aspect of your financial year end, please do not hesitate to call us on 01482 772261 or email us at info@kaizengroup.uk. We will be very happy to help you with any query you may have.
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