9 Things to Review at Year End Before Sending Your Financials to Your CPA

financial best practices financial statements Jan 02, 2023
9 Things to Review at Year End Before Sending Your Financials to Your CPA


During the year, you have many opportunities to review your financials, look for discrepancies and correct them.  This typically happens on a monthly basis, but some companies also do a quarterly review as part of their performance assessment to determine if any changes need to be made to meet company goals.

At year end, it’s time to finalize your data and turn it all over to your CPA to prepare your taxes.

You may have a bookkeeper that’s responsible for this, but as the owner, you should be aware of what’s included in this process. After all, if something is missed, it’s going to come out of your pocket, right?


Items included in the year end close process

Reconcile bank and credit card balances

These reconciliations should be done on a monthly basis to catch errors quickly, but year-end is a good time to look at any remaining transactions that have not been reconciled. The transactions could be things like checks that have not cleared, duplicate entries or transactions posted to the wrong account. If you need to void old check payments, don’t forget to process a stop payment at your bank and contact your vendor to make sure you have the correct address to send out a new check.


Reconcile your payroll data

If you have a payroll processor like ADP or Paychex, you’ll see several charges in your bank account every month. For each payroll, you’ll see separate charges for things like net wages, payroll taxes, contractor payments, garnishments and reimbursements depending on your payroll.

Each of these categories should have a separate general ledger account on your Income Statement so that you can easily reconcile the balances at the end of the year.

The tricky part is usually the payroll taxes. Your payroll processor adds employee and employer taxes together when they charge your bank account, so your bookkeeper should split these out when the payroll is recorded.

Once your final payroll is processed and recorded in your financials, the balances should be verified against the annual payroll report to make sure everything matches.


Reconcile your Accounts Receivable

Make sure all payments and credit memos are matched to the correct customer account and research any balance discrepancies. If you have balances that you want to write off like small short payments or bad debt, now is the time to do it.


Reconcile your Accounts Payable

Just like your receivables, you want to make sure all of your payments and credit memos are matched up. If you’re not sure about a balance, request a statement from your vendor so you can make sure you have the right information in your system.


Reconcile your Prepaid Expenses

If you pay for things like insurance or subscriptions in advance to take discounts, then you have prepaid expenses. These expenses get allocated over a period of time from your Balance Sheet to your Income Statement. The allocations should be posted monthly, but it’s a good practice to double check at the end of the year to make sure it’s right. If you don’t think your prepaid expenses were captured correctly during the year, go back and check expense accounts like Dues & Subscriptions and Insurance Expense to see if you have any additional prepaids that need to be updated.


Reconcile loan balances

If you have loans on your Balance Sheet, you’ll need to verify the loan balance at year end matches your final statement. Variances typically come from not recording the interest expense correctly. This is a great way to make sure you’re not missing any deductions on your return!


Reconcile your inventory

If you carry inventory, make sure the quantities for your inventory in your system match your physical inventory. If you need to dispose of inventory due to expiration or obsolescence or adjust the value of your inventory due to market changes, now is the time.  


Reconcile your intercompany accounts

If you have a corporate structure with multiple companies, don’t forget to reconcile your intercompany accounts. The investment balance in one company should match the equity balance in the related company. If they don’t, you may have a missing transaction or one that is not coded correctly.


Reconcile your Fixed Assets

If you purchased things like land, machinery & equipment, vehicles, or furniture or made improvements to these items, those costs should be captured under Fixed Assets on the Balance Sheet. If you’re not sure about a purchase, code it to Ask My Accountant and add related details so your CPA can review and code correctly.


Wrapping Up

Once all these items are reconciled, you can notify your CPA that you are ready to send your data to them. Taking the time up front to review all of these items will help your CPA prepare an accurate tax return, so you only pay the taxes you actually owe. It is your responsibility to make sure your financial data is as accurate as possible, not your CPA’s.


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