Closing the books: Year-end accounting checklist to finish the year strong

Why is timely year-end close such a big deal?

For many finance teams, the year-end accounting period can be a major undertaking. You're preparing financial statements that give everyone involved in your business a snapshot of your company's financial position at the end of each accounting period.

When you get your final numbers at the end of the year, it's time to start preparing them for your annual report or other external communications. Closing out your books ensures that everything matches up and gives you peace of mind as you move into next year. You'll also get an early jump on next year's plans by identifying areas where you can improve results.

Closing the books is also crucial because it helps ensure that 1) you're always audit-ready and 2) everyone knows where they stand financially. It also allows you to show investors and other stakeholders how the funds are being spent. Furthermore, it helps to prevent any inaccuracies that could carry over to the new year, making it harder for you to measure performance or make future plans based on past results.

Year-end accounting doesn’t have to be complicated

While it does require careful accounting procedures and attention to detail, your year-end close doesn’t have to be a complex or lengthy drawn-out process. You can achieve your end-of-year accounting goals using an all-in-one spend management solution like Payhawk. Our solution features automation-backed finance tools and expense management software to ensure your company’s books are always accurate throughout the year.

Using the right tools, you can make your finance function more efficient, close the month and year faster, and devote time to more valuable work that propels your business to the next level.

The year-end accounting checklist to help you close out the year strong

Your financial statements must be accurate and up-to-date at the end of each year. The year-end close is challenging but essential for many small and large companies. They must each get an accurate picture of their company’s performance over time, but this is especially hard if there has been little digital expense management, no corporate cards, and a lack of automation.

The following checklist covers the end-of-year accounting processes that will help you make sure everything gets done on time.

1. Identify a target closing date

This is when you expect to complete all your year-end accounting activities. On average, companies take about 25-45 days to close their books. And because there’s a lot of pressure to close the fiscal year on time, a good CFO can help set a closing date that works for everyone in the company. The goal is to ensure all dates are realistic so there's no risk of missing important payments or deadlines. This also helps to reduce stress and keep distractions at bay as you work toward this goal.

2. Set up a clear workflow process for all employees involved in closing out financial data

This is where you’ll assign specific tasks and deadlines for everyone involved in the closing process so there’s no confusion about who does what and when. This is where using automated software tools for better spend control comes in handy. With a finance management platform like Payhawk, you can ensure that all documents relevant to each transaction are easily accessible and properly organized during the closing process so there won’t be any hiccups when it comes time to pull up any data from the ledger accounts at the end of each month or year.

3. Organise and prioritize invoice payments

When it comes to ledger accounts, it's not uncommon for invoices to be sent to you right before the end of the month. And during year-end accounting, many smaller and growing businesses will work quickly to approve all invoices quickly so they can be paid within or close to year-end. This might be a different story for bigger companies with longer invoice terms of 3-6 months, but there will likely be a focus on expediency at the end of the year.

Invoicing is one of those tasks that slips through the cracks because it isn't high priority, but it's critical to have accurate financial statements at the end of the year. Some departments may have an approval process in place already, but it's your job as CFO to ensure that everything is done correctly and on time.

4. Double-check your accounts receivable records

Review your accounts receivable list to close out the year with solid financials. Have you received all the payments that customers owe you? Double-check your accounts receivable records and any outstanding invoices that may be due. If any are past due, contact vendors or customers and arrange payment terms if necessary. You can also negotiate discounts if you allow them extra time to make payments.

5. Review and close out all outstanding accounts payable

Look at all open invoices and ensure they're paid or approved for payment. If an invoice needs attention, put it on your list of action items for the next week or two so that it doesn't get lost in the shuffle. Closing out all outstanding accounts payable can also involve the following:

• Reviewing and approving payments requested by the general ledger accountants or bookkeepers
• Approving or disallowing unbilled services that were ordered during the year but not yet invoiced
• Approving or rejecting requests for advances on future contracts
• Checking for any duplicate payments to vendors and suppliers

In addition to reviewing and approving payments from the general ledger, CFOs should also check balance sheet accounts for possible over-accruals in asset values, which might lead to unusually high write-offs (and trigger a potential UK HMRC audit) in future periods.

6. Create an end-of-year balance sheet and income statement

This is an important step in closing out your books and ensuring that they're accurate. You'll want to create a final balance sheet showing the company's assets, liabilities, and equity and any changes that occurred during the month (such as depreciation). These are key documents that your company's management team will use when they review results over the next few months. As well as lenders when they consider lending money to your company if needed. If any significant changes occurred throughout the year — such as new investments or acquisitions — then you can create an interim balance sheet for each quarter or month along with corresponding income statements for each period.

7. Review all your monthly subscriptions

Nothing is worse than closing out the year with a big surprise in your financial statements. One of the most common mistakes that CFOs make is not reviewing all their monthly subscriptions. This is especially important when it comes to subscription services like cloud storage providers, and more.

Larger companies will also leverage three-way matching in order to ensure the accuracy and validity of invoices and purchase orders. It involves comparing three sets of documents: the purchase order, the received goods or services, and the invoice.

But for smaller, mid-size, and growing companies, you need to make sure you review all your monthly subscriptions before the end of the year to ensure they're still providing value to your business. If they are, then keep them. If not, cancel them immediately so you don't get charged for another year. This includes your office supplies and other items like insurance policies, utilities, and software subscriptions. Reviewing these payments helps ensure that you don't miss any due dates or overpay for something unnecessary.

8. Create a budget for the new fiscal year

By the end of the fiscal year, you’ve likely signed off the budget you’ve been planning for the last few months, and now you can review your yearly spend to make any final tweaks to it based on your learnings.

After creating your budget, you can use it as a reference point throughout the year. This will allow you to stay on track with meeting your goals and staying within budgeted expenses.

9. Back up all financial data

You may have heard this advice before, but it's worth repeating. Your accounting system is built on data, and your ability to run your business depends on that data being available when needed. So make sure you back up all of your critical files regularly and use a cloud backup solution. In most cloud systems, your files are continuously backed up by scanning the folders you specify.

Main takeaways

It's crunch time for many CFOs and their finance departments. As the end of the fiscal year approaches, they're busy finalizing year-end accounting procedures and preparing financial statements. The end-of-year accounting period is a time to reflect on what you've done, what you plan to do, and how to improve efficiency. It is also a momentous occasion for many companies since it marks the beginning of the next calendar year. To tie up loose ends and close out your books. The year-end closing is also a critical step in the accounting process to ensure everything is ready for next year's tax season.

Your annual year-end accounting doesn’t have to be a complicated process. Book a demo today to discover how Payhawk can help you ensure a smooth close during this fiscal period.