With the new year upon us, the time has come to close the books on 2023. For many companies, January is also the beginning of the new fiscal year, and with that comes making sure your book balances are accurate. The following steps will give you a leg up on ensuring your books are correct going into 2024.
Bank Reconciliations
Reconciling your bank accounts is one of the most important steps of closing the books and should be performed each month, all year long. Put extra scrutiny in your December reconciliation.
Accounts Receivable and Payable
If your company operates on a Cash basis, meaning revenue and expense are only recognized at the point of cash receipt or dispersal, respectively, your books should not have Accounts Receivable nor Accounts Payable. However, if your company operates on an Accrual basis, meaning revenues and expenses are put on the books at the time of earning or owing, respectively, you will have Accounts Receivable and Payable.
Fixed Assets
Making large purchases is common for companies. Large purchases of property, plant and equipment are not expensed immediately and are converted into fixed assets. Fixed assets are depreciated: their expense is spread out over a pre-determined period of time.
Payroll
Odds are high that employee wages, taxes, and benefits are the largest group of expenses on your books each year. Payroll can be tricky at the end of a fiscal year since there are different payroll frequencies and can be paid in arrears. Cash basis companies face fewer issues with end-of-year payroll but can still face common payroll pitfalls.
For companies that use current pay
For companies that pay in arrears and are on Accrual Basis
This article is not meant to be all-inclusive, as there are several topics not covered, such as prepaid expenses, deferred revenue, and other accrued expenses. However, following these steps will set you off on the right foot for the new year and your upcoming tax returns, audits, or reviews.