5-Point Checklist to Prepare Your Books for 2021

 In Business, Education, Tax Blog

Year-End Business Accounting

2020 may have been of surprising success to some businesses, while others faced heavy losses. Whatever the reality has been for your business, the year-end accounting process is an important step for closing out the year of financial activity and preparing for the year ahead. Accurate and timely accounting processes help support your business success financially— and legally.

Before the year comes to a close, make sure you check these five steps off your year-end checklist. If you need help, we’re here to assist.

Step 1: Get Organized

The difficulty of getting your books in order will depend on how organized you’ve been throughout the year. Hopefully, you have been disciplined to close out the books monthly so come December, you have a solid ground on your business’s financial health. Part of the organization process includes these proactive steps:

  • Record each transaction and ensure you have receipts to validate
  • Reconcile receipts with bank statements
  • Review the Income Statement and Balance Sheet
  • Review the list of Accounts Payable/Accounts Receivable and make and collect all pending/late/due payments
  • Assess any idle inventory

Step 2: Collect Past Due Invoices
Review the list of accounts receivable to calculate past due invoices that need to be reconciled. If you want to wrap up your books for year-end, collect all of the money that customers owe to your business. Send out payment reminders, contact customers with past due invoices, and establish a payment plan with customers.

Step 3:  Gather Financial Statements

To effectively close out your 2020 books, you need to prepare (or have a CPA or business accountant prepare for you) the standard three business financial documents that will be the basis for gauging success or loss this year and how to recalibrate for next year.

The balance sheet is a summary of how your business’s financial position is at any point in time. It shows all your assets, liabilities, and equity. To close out the year, review all the balance sheets for credit lines, leases, and loans, and verify the closing balance on December 31st matches the official statements.

The profit and loss statement itemizes your revenue expenses for a period of time and lets you see at a glance whether your business is profitable. You can use this report to determine the cost of running your business so you can forecast your sales and expenses for the next fiscal year.

The cash flow statement reconciles your opening cash with your closing cash for a particular period, showing the inflows and outflows of your cash. Cash from operating activities, investments, financing, and disclosures of noncash activities are all reported on this statement.

Step 4: Prepare All Tax Documents
Evaluate your current tax strategies that can help you reduce your tax burden. Ensure you are taking advantage of specific tax moves before year-end. Your business tax advisor or CPA can provide guidance on which tax strategies would be best for your personal and business circumstances. The forms you use to file your federal tax return will be different depending on whether your business is structured as a sole proprietor business, limited liability company, or S corporation, or C corporation, partnership. Documents you may need to have on hand include:

  • Financial statement (cash flow, balance sheet, and income statement)
  • Capital-asset activity
  • Vehicle use
  • Summary of home-office expenses
  • Form 1098 for mortgage interest and property taxes

Step 5: Check for Year-End Payroll & Vendor Forms

Your accounting and payroll records go hand in hand. At year-end, make sure all of your payroll records are accurate and up-to-date. If you have employees, make sure your payroll taxes match your quarterly payroll returns. Decide on employee bonuses and withhold taxes for those bonuses. Verify all employee contact information is correct for W-2’s.

Included in these records should be any benefits, like health insurance payments, employee retirement contributions and more.

Be sure to send out 1099s to all of your vendors. If you’ve made payments for the services you need to run your business, you may be required to send out a 1099-MISC. The IRS makes this a requirement so that you remind those you’ve paid for services to include those payments on their tax returns. The IRS requires that you send a Form 1099-MISC to all the vendors to who you’ve paid more than $600. This form must be sent no later than January 31.

Keeping good records all year long, documenting transactions, and compiling the necessary documents needed to file your small business taxes throughout the year can build the foundation for your financial success. If these steps feel overwhelming, you’re not alone. Jeanine Hemingway, CPA is a tax planning, tax preparation, bookkeeping, accounting, and advisory firm located in Austin, Texas. Our goal is to provide each client with professional and personalized service. The firm’s staff are experts in the areas of accounting and tax preparation and planning.

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