By: Stephanie Berggren, Eide Bailly LLP
Year-end is always a hectic time. Your company is making sure that all required state and federal filings are done and internal documents are completed. Plus, to make things even crazier, you’re also starting to think about and prepare for your annual audit. Can you say overwhelming?
One question that is fairly common: How early is too early to start on year-end procedures? The answer? There’s no such thing as too early. We are in a world where activity happens every day that will affect your year-end and your audit, so paying attention and staying up to date is important.
So what does year-end preparation look like?
To get started, at a minimum, you should have a review process that documents when purchase orders are created, when bills are paid and when cash/checks are reviewed and deposited. This will help lay a solid foundation you can use to make sure you’re on the right track.
Monthly, you should be doing reconciliations for the following common accounts:
- Bank accounts – this helps verify that all revenue and expenditure activity is captured in your records on a monthly basis.
- Accounts receivable – this will help you make sure your customers are paying in a timely manner, and will also help with your collection procedures.
- Accounts payable – this will help verify that amounts showing due are true payables and to make sure your vendors are getting paid timely. This may also help you take advantage of discounts given by your vendors for early payment.
- Capital asset inventory – this will help establish that any capital outlays are added to your software and/or external schedule. This list is an audit necessity.
- Payroll accounts (accruals and expenses) – this will help verify that payroll is being accounted for properly in the correct accounts.
Doing these tasks on a monthly basis establishes good review and control habits. It also gives you, or your accounting and finance team the ability to find and fix errors during the year – and before your auditors find them.
Now that we’ve reviewed what to do on a monthly basis, let’s discuss year-end. Annually, you should:
- Review checks paid after year-end to make sure they are properly included in or excluded from your accounts payable ledger. This not only helps make sure your auditor isn’t finding any adjusting entries during their audit, but also helps ensure you have included all your expenses in the proper year.
- Review old outstanding payables/credits to see if either payment was missed or if payments were misapplied.
- Review your deposits received after year-end to make sure you applied payments to the correct customer and year.
- Review old outstanding accounts receivable to see if an allowance is necessary for accounts that may not be collectible.
- Update your capital asset listing for any disposals/deletions that have happened. This can be done by having each program/department/etc. do physical counts of their assets and submitting that to the finance department or selecting a lucky individual to verify the entire list.
- Review year-end adjustments, usually prepaid, accruals, and current versus long term debt, which are required for the audit. This is the last part that has an impact on your findings if the auditor is the one posting these journal entries. Below are a list of accounts that are usually adjusted:
- Prepaid rents, real estate taxes and insurance
- Accrued payroll and taxes
- Compensated absences
- Long term debt (car and equipment loans)
Because you have accounted for your monthly procedures, your year-end procedures should become less burdensome since those issues were addressed throughout the year (and who doesn’t want an easier year-end?). With the confidence that your company gains from knowing you have reviewed and reconciled your financial information, you are able to concentrate on accurately and confidently preparing your financial statements.
Year-end work can be time consuming and sometimes tricky. If you need to save time or need help figuring out where to begin, let us know. Ours numbers nerds are no stranger to this type of work – and they even enjoy doing it!