The end of the year is rapidly approaching. Even though you certainly keep busy with accounting work throughout the year, December can fill up with important responsibilities and accounting tasks.
Sometimes it is helpful to utilize a checklist to help keep organized. We are going to break down some of the essential year-end accounting tasks into manageable steps to help you avoid getting overwhelmed.
Standard year-end financial reports may include income statements, balance sheets, and cash flow statements. These help you assess your current financial standing and evaluate what gains and losses have occurred over the past year.
The income statement is sometimes called a profit and loss statement. It allows you to gain a bird’s eye view of your company’s financial reality. The benefits of running a year-end income report include making informed decisions based on your annual profits.
If your profits are lower than you want them to be, you can implement new strategies for increasing your profit margins. If, however, your profits are higher than you had anticipated, you may consider using some of that money to invest in purchases, which you are able to record for future depreciation purposes.
Your company’s cash flow statement provides information about how money was spent during the previous calendar year. Income is accounted for in the form of cash inflow, whereas expenses are accounted as cash outflows.
Obviously, you want to see more inflows than outflows. That is how you determine profit. However, there may be times during the year when expenses outpace income, especially if there are times when your business makes large purchases or deals with slower business traffic.
Use the month of December to look back over the year and determine any problematic patterns that have emerged. Identifying the root cause of cash flow problems will help you quickly address these issues.
These are the three categories of cash flow that you should be tracking to evaluate them in December:
Accounts receivable, of course, is the running list of invoices that are still outstanding from your customers. Your accounts receivable inventory should include anyone who owes you money for goods or services that they bought with credit.
Collecting accounts receivable is one of the major headaches that companies throughout the U.S. experience. December is when you want to take a look at your accounts receivable and complete a thorough analysis of who still owes money and what your steps are going to be to collect it.
One thing to calculate is your accounts receivable turnover ratio. This ratio provides you with data regarding how long it takes your company to collect owed money. If you have a high ratio, that means that your customers pay quickly. That suggests that your processes are efficient and are working well!
A lower ratio, on the other hand, may indicate a problem with your current collection policies and procedures.
Although you could wait until December to go through this process, we recommend getting started in November if possible. That way, you can notify your customers that they have past due accounts before the end of the year and before the holiday season may slow down their business operations.
Collecting accounts receivable will also help give you a more accurate reflection of your annual cash inflows.
December is a great time to check in with your vendors to see if anything has changed. Do you have the right contact information for each vendor? Have there been any staffing changes that affect who you should be communicating with?
Are there any errors in your records, such as phone numbers, mailing addresses, and email addresses?
You can also delete inactive vendors from your database and eliminate any outdated or inaccurate information. Some companies use the time at the end of the year to determine if their vendor relationships are meeting both parties’ needs. You may even negotiate better contracts in December so that you go into the next year with your eye on increased profits and lowered expenses.
If your workers have taxable fringe benefits, such as sick pay from a third party or a company vehicle, all of that should be accounted for during the current calendar year. You also want to keep track of transportation subsidies, educational reimbursements, tuition assistance, health insurance, and life insurance.
Do not leave payroll mistakes to be discovered in the next year. Remedying mistakes or problems within the year will prevent issues with your annual tax filings. If you have issues related to payroll processing, addressing them before the start of the new year is so important.
Performing these accounting tasks promptly at the end of the year will ensure that you are more informed and more prepared to start another business year on January 1st.