It is important to prepare for year end accounting in advance, because you will have a whole year of business to compress into financial reports that must be accurate because they may be subject to audit. Most businesses have a number of different taxes to consider: corporate tax, sales tax, payroll taxes . . .
Your year end reports are the most important reports of the entire year, and will not only be the basis of your tax returns, but also of your future financial and strategic planning. Here are the steps you should take when preparing for your year end accounting.
1. Prepare Ahead of Time
A well run business should be confident that its reports are accurate, but there are steps you can take in advance of compiling them both to ensure accuracy and to make the whole process easier. The first thing you should do is to prepare a checklist to make sure you miss nothing - nobody is perfect, and checklists help you to cover every eventuality and aspect of your business. Some of the items below can be included in your checklist.
2. Write Off Your Bad Debts
Bad debts or accounts receivables that are now worthless can be written off to clean up your financial report. You cannot just write of the debt for reporting purposes, but must balance expenditure with income in a way that conforms to GAAP.
You should therefore make an adjustment by estimating the total amount of bad debt owed and set up an allowance for bad debt for that sum, then debit the bad debt from accounts receivable and credit it to the allowance.
3. Defer Your Business Income
If you can defer income to the first month of the new financial year, then you can reduce your tax liability. A lot depends on the legal structure of your business, but every cent you defer to the next year will be one cent less you will be taxed on this year - but make sure your cash flow can tolerate it. Also, make any charitable donations now, since these can then be claimed in this year's tax report.
4. Check Your Inventory
Write down any inventory that is overvalued, and also order any supplies or equipment currently required or that may be required early next year. Again, that reduces your tax liability, but you should avoid overstocking because that ties up cash. There is a balance that you can tilt your way.
5. Check Your Statements and Accounts
Review all your financial statements to make sure they are error-free and accurate. Check all your vendor statements, and make sure that you have receipts or bills for every item. Humans can make mistakes, even with computer inputs. For example:
a) Make sure your general ledger bank balance matches your actual bank statement.
b) Check the recorded fixed assets against the actual viewable assets: are they all still owned by your company and has the depreciation been properly calculated and reported.
c) Have all prepaid items such as insurances and service contracts been correctly apportioned.
d) Has everything been recorded correctly: payroll tax liabilities, payables and deductibles?
e) Have all debts been included, and are all debts recorded extant or have any been paid off or transferred to the bad debt allowance?
f) Are all recorded accounts payable or receivable correct or have any been paid by the debtor or by you?
You can likely think of more, but these are simple checks essential when you prepare for year end accounting. While some can be checked regularly throughout the year, others can be carried out just prior to the report being compiled. If you are hiring an accountant to prepare your reports then it is even more important that all this information is correct or you could face additional costly services other than just preparation of your tax returns.
These are just some steps to prepare for year end accounting that can help you to make this process as painless as possible, but if you find yourself running out of time you can always file for an extension.
Benefits of a Bookkeeper
By using a bookkeeper you can save time and money by outsourcing your financial analysis, day to day bookkeeping, paying and recording invoices and bills and generally ensuring that, come the year end, your accounts and reports are all in good order.
It is very important to any business to have clearly understood up-to-date records that measure its performance and financial health. You would surely find it very useful to know how your business is performing on a regular basis and to understand where it is succeeding, and which aspects of the business may be underperforming.
A good bookkeeping service will enable you to identify areas for improvement, to avoid tax penalties and to ensure that you are confident for your books to be audited at any time of the year. All the above steps to prepare for year end accounting can be taken out of your hands by using a professional bookkeeping service that does it all for you.
More tips on how to prepare for year end accounting and other financial topics can be found on B&M Financial Management Services, LLC http://www.bmfms.com where you will find also more information on how to run a business effectively and profitably.