Closing Out Your Books for the Year

December 13, 2021 by First Federal Bank

BusinessCan you believe 2021 is almost over? This year has practically flown by, and it’s time once again to close out your books and tie up all the loose ends from this fiscal year. To help you prepare for 2022, here are some tips for wrapping up the 2021 fiscal year:

Identify any unsettled accounts

It’s easy for unresolved invoices or unbilled projects to slip through the cracks when you’re assessing your balances, but even a small omission can cause a big headache come tax time. That’s why accounting advisors recommend closing out and invoicing all pending orders. If you have any invoices unpaid from your customers, then send email reminders to get those invoices paid as soon as possible without affecting your customer relationship.

Gauge your financial situation

It can be difficult to accurately assess your financial position during the year, because of the many incomplete orders, pending bills, and asset acquisitions. That’s why the end of the year is the ideal time for you to perform an overall appraisal on the state of your business.

Susan Ward of The Balance Small Business explains you need three important documents on which to base your assessment: the balance sheet, the income statement that itemizes revenue expenses, and the cash flow statement.

“Once you've examined your balance sheet, income statement, and cash flow statement, dig a little deeper by checking your business's current ratio, total debt ratio, and profit margin,” Ward recommends. “This will give you a more focused picture of your financial health.”

Prepare for tax season

Once the year concludes, it’s time to get a jump start on your tax documentation. Retain all of the statements and financial bookkeeping you’ve assembled to begin ascertaining the numbers you need to prepare your income taxes. Also, fill out all W-2s and 1099s for your paid workers.

“There are key records your tax accountant will need to prepare your income tax. Using a cloud-based accounting software will streamline this process by allowing your accountant to directly access your business records online,” says Ward.

Reconcile your financial reports

Now that you’ve gathered all the statements, invoices, and receipts from the year and are resolving any pending issues, it’s time to sit down and balance your financial books. Ideally, you should be balancing your books every month to ensure you don’t face any major discrepancies, but you definitely need to assess everything by the end of the fiscal year.

“All of your book balances need to be equal to your year-end statements,” point out the bookkeeping experts at Back Office Support Solutions. “Especially if you have been entering in all your numbers by hand, you must ensure that all your bank statements, credit cards, and money accounts are reconciled properly.” If you need assistance tackling all of this, you can temporarily hire a bookkeeper or accountant to tally the numbers for you. It never hurts to have an additional set of eyes verify your finances.

Getting your books balanced is an important step in priming your business for success in 2022. The more accurate your records are and the more aware you are of your company’s financial state, the better prepared you’ll be for the coming year.

Categories: Small Business, Financial Education

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