How to Get Ahead of the Game in 12 Easy Steps – Rea CPA

How to Get Ahead of the Game in 12 Easy Steps

Are you a new business owner having your financial statements reviewed or audited for the first time? Or maybe you just need a refresher on good year-end closing procedures. Regardless, it’s incredibly important to issue financial statements that accurately reflect the performance of your business to lenders and investors.

As you close out the year, consider this:

  1. Ensure you have a good revenue cut-off, so all shipments and services before year-end are invoiced in the current year.
  2. Physically count your inventory and compare those numbers to quantities on hand in your accounting system, or adjust your general ledger to the amount counted if no perpetual system is used. Match up inventory receipts with accounts payable (AP).
  3. Review the priced out inventory list for obvious errors in unit costs or quantities that don’t make sense. Determine that an accurate priced out listing agrees to the general ledger.
  4. Consider the inventory from a valuation sense and set up an allowance to reserve for the questionable items.
  5. Reconcile your cash accounts to bank statements. This should always be done monthly to catch any problems as soon as possible. Review your online bank transactions daily.
  6. Compare and reconcile accounts receivable (AR) and AP registers to the general ledger account. Ensure that AP includes all invoices for products and services received before year end.
  7. Review outstanding customer AR and consider how collectable those accounts are. Create or adjust your allowance for doubtful accounts based on this analysis and document the process on a schedule.
  8. Maintain schedules of prepaid expenses, deposits and other assets. Review the schedule and update for any expenditures during the year that carry benefits into the following year (like insurance premiums). Reconcile the schedule to the general ledger.
  9. Determine what kind of expenses you incur during the month not paid until the following month. Calculate the liability for such expenditures and update a schedule for those accruals. This might include commissions, bonuses, certain tax payments, wages and pension contributions relating to the reporting year.
  10. Prepare a schedule of all loans showing the balance at the beginning of the year, any new borrowings, all principal payments and the balance at the end of the year. Reconcile this schedule with the general ledger, and make sure the payments are properly amortized and additional principal payments are captured. Review the interest expense in the general ledger and determine if any interest due from the date of the last payment up until the year-end should be accrued.
  11. Review equity accounts for any transactions and create a schedule documenting any transactions during the year, such as dividend payments, newly paid in capital and earnings from the prior year closed into equity.
  12. Review your fixed asset accounts and prepare a schedule of all new purchases and disposals, including the sales price received for anything disposed. Review your repairs and maintenance accounts for anything that should be capitalized under appropriate guidelines (this has tax implications).

These are the basics, so other more complicated situations should be reviewed with your trusted financial advisor to help get your financial statements in tip-top shape.

This article was originally published in Illuminations: Facts & Figures from people with a brighter way, a Rea & Associates enewsletter, 12/18/2013.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.