Accounting Year End Preparation
It is vital to prepare for year-end close in advance to ensure an accurate and timely close. Using a checklist is a helpful way to track which activities have been completed and which are still outstanding, especially if you have multiple employees or teams working together to close the books. Turning month-end close activities into “pre-close” activities that are performed during the course of the month also helps to expedite the close process.
Regardless of how your dealership chooses to handle the timing of closing activities, it will need to complete the end of year close accurately to give a complete picture of its financial position, asset base and plan for the coming year.
End of Year Accounting Checklist
At year-end, it is important to review the current year and plan for the new year. For the current year, you should ensure that your accounting records are up-to-date, accounts reconciled, and you are ready to issue required informational returns (i.e. W-2s and 1099s).
The following is a year-end Accounting checklist designed to assist you in closing out the year, reviewing your accounting records and getting ready to compute the tax side of the business operations. Since all commercial truck/bus dealerships are not based on exactly the same business model, the checklist items may or may not apply to your business. Please review this list prior to your year end and take any necessary steps as needed to perform the tasks at hand.
If you have questions regarding your specific accounting or business entity, reach out to your external Accounting/Tax partners for their assistance.
1.Getting organized:
Whether electronically or manually, you must keep track of all transactions, invoices, receipts, and other documents during the course of the year that affect your financial statements and balance sheet. You must have and retain sufficient documentary evidence to support your business income and deductions. Archive and or move prior year records to a long-term storage area. Prepare for the new fiscal year 2020 by creating a complete strategic planning package that is geared at the goals and mission statement of the company.
2.Update your accounting:
On a monthly basis you should be reviewing all your accounting reports and ensure that all transactions have been recorded properly such as payments received, payments made, purchases and invoices. That way looking at a “pre-close” fashion expedites the year end process.
3.Reconcile all bank accounts:
Most accounting transactions flow through your bank accounts. Therefore, reconciling the bank accounts is a crucial step to ensure that transactions have been recorded. The bank reconciliation may also detect bank errors, posting errors, and unauthorized transactions. It also is a process to verify cash balance on your balance sheet.
4.Reconcile all credit card accounts:
In addition, there are operating transactions that flow through the company credit cards. Reconciling the credit card accounts is an important step to verify that transactions have been recorded and may also detect posting errors keep these schedules clean.
5.Perform physical count/observation of inventory:
Items held for resale or use in the repair process are considered inventory and are reported on your balance sheet. You should perform a physical count of your inventory year-end to verify that the inventory account is properly stated. Also, during the course of the year, you should have a documented cycle count procedure in place to put integrity into the physical inventories.
6.Dispose of obsolete inventory prior to year-end:
Inventory on hand at year-end must be counted and included on the balance sheet valued at cost. If your inventory contains obsolete items, no expense deduction is allowed unless it is disposed of prior to year-end. Before disposing of any inventory check your OEM and vendor return policies to see if items can be returned for credit.
7.Fixed Assets (tools, equipment, furniture, trucks, buildings, improvements etc.)
: Review these accounts to
- Ensure that all asset purchases have been recorded on the books properly.
- Ensure that all asset disposals have been recorded properly.
- Review asset purchases to ensure that they comply with company capitalization policies and procedures.
- Record any final depreciation expense entries and or adjustments.
8.Expenses and Accounts Payable:
Verify that all your expenses and payables have been recorded in the accounting records. If you purchase items “on account”, reconcile the vendor’s statement to your vendor payable and adjust accordingly.
9.Accounts Receivable:
Make sure that you invoiced all of your customers for work you’ve done and products you’ve delivered. Review the aged reports to make sure we are collecting cash timely and set up a year-end bad debt accrual if necessary. If you allow customers to charge “on account”, review the customer detail to determine overdue and uncollectable items.
10.Payroll Taxes:
Verify that your payroll tax liabilities on the balance sheet agree to your quarterly payroll tax returns.
11.Bonuses:
Calculate year end employee bonuses
- If cash basis, pay the bonuses prior to year-end to reduce business income.
- If accrual basis, you may calculate and accrue bonuses prior to year-end to reduce business income if so desired.
- Owner bonuses and or distributions must be paid prior to year-end to receive a business deduction
12.Loan & Notes Payable:
Verify your notes payable with all lenders and determine that your accounting records are correct.
13.Consider Paying Dividends:
If the business entity is a C-Corporation, there may be tax advantages of paying dividends to the shareholder(s) before year-end. Consult your Tax group for advice in this area.
14.Employee Use of Company Vehicles:
There are specific IRS rules and procedures that must be followed if employees use company vehicles for personal use (including commuting). In most cases, the personal use amount will be calculated and included on the employee’s W-2 as a taxable benefit. The calculation must be made before issuing W-2 forms.
15.Order your tax forms:
You may need to issue certain tax forms such as W-2, 1099-Int, 1099-Div, and 1099-Misc. Most of these forms are required to be issued prior to January 31st each year. You will want to purchase the forms by year end. Your outside tax group may handle this for you.
16.Collect W-9 Forms:
You are required to issue 1099-Misc forms to vendors, contractors, attorneys, landlords, and other payees to whom you paid during the year unless the payment or payee is exempt. W-9 forms help you determine whether you need to issue 1099s to specific vendors and provide necessary information in case you do need to issue 1099 forms.
17.Review the Financial Statements:
After updating your accounting records, double check your Balance Sheet and Income Statement to determine that the accounts are now cleaned and are a fair representation of the company’s financial health. Compare your current year results to prior year and/or your annual budget. How did you perform? Where do you need to make adjustments in your 2020 planning? Could there be any other income or expenses that need to be recorded?
18.Review Business Documentation:
Corporations, partnerships, and LLCs may have certain organizational documents that need to be recorded annually. For example, corporations must hold annual board meetings and document them with minutes. If the business has had ownership changes or adopted new policies, procedures or rules, the changes may need to be documented. Examples would be issuing stock certificates or amending partnership agreements and operating agreements, etc.
19.Protect Your Data:
Make sure to back up your accounting records and files file on both your internal servers and eternal storage to the cloud to protect from loss of data. If your accounting DMS allows you to archive your current year data, set the parameters to prevent prior year data from being entered into your current year by mistake.
20.Plan for Next Year:
Wrap up your budget and business plan to outline how you will achieve financial success in the new year. Document specific ways to grow revenue, manage and reduce expenses while determining who will be responsible and own these processes to ensure goals will be met.
Taking steps now to “pre-close” will speed up and smooth your year end close process. If you would like to discuss any of these items, feel free to drop me a line at
bob@keaadvisors.com
. Additionally, I’ll host a webinar on October 3rd covering End Of Year prep for the accounting department.
Please join us for a FREE webinar to learn more about the steps you should be taking for your end of year prep in your
Accounting department.
