Year-end closing can be a stressful period for finance and accounting teams alike. The manual process of collecting and reconciling transactional data usually takes up to 25 days.
To help you streamline the financial operations and get more work done, we will provide eight important steps for a successful year-end close.
Let’s get right into it.
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Why is Year-End Closing So Challenging?
Year-end closing is the process of reconciling and updating a company’s financial reports at the end of the fiscal year. This includes collecting payments and invoices, matching the employees’ information, and inputting the data into spreadsheets.
With so many tasks at hand, it’s a given that errors might occur during the manual reconciliation process, such as:
- Missing files. Without a centralized system to store and manage data, keeping track of paper receipts and invoices can be challenging.
- Ineffective communication. Finance teams often find themselves asking other departments to submit expense receipts or clarify certain purchases. This can lead to long and inefficient email threads.
- Inaccurate records. Manual data entry is a tiring and error-prone task, potentially resulting in false records.
Step-by-Step Year-End Closing Checklist to Close Books Faster
Fortunately, there are ways to work around year-end accounting issues.
In this section, we’ll go over eight necessary steps to make the financial closing process a breeze.
1. Prepare and Analyze Financial Statements
Financial statements let you understand the company’s overall health based on past and current transactions.
Not only that, but examining historical performance is also helpful when it comes to forecasting your financial future and planning for the upcoming year.
To start the year-end close, prepare and analyze these financial statements:
- Profit and loss. Sum up the total revenue and expenses the business incurred in a year.
- Cash flow. Calculate the amount of cash inflows and outflows. This statement is crucial to see whether your company makes enough money to cover operating expenses.
- Balance sheet. Report the company’s liabilities, assets, and shareholder equity.
2. Collect and Record Invoices and Receipts
Before closing the book, it’s crucial to collect and record data on the company’s incoming and outgoing transactions throughout the year. Start by inspecting the month-end closing books and asking other divisions to submit their financial records.
For instance, the marketing department should submit both sales reports and their expenses for ads, tools, and business trips.
In addition, the HR team must provide cost reports on recruitment, payroll, and taxes. Once collected, input those files into spreadsheets or your accounting software.
The problem is most tools do not provide the ability to scan and convert documents into editable text. You need to manually upload invoices and receipts one by one, which is ineffective and prone to errors.
Some accounting software provide automatic data capture to save time. However, the rate of data mismatch is still above 50%, requiring accountants to still do another check.
For larger companies dealing with data abundance, consider using accounts payable and receivable automation software. Employees can simply scan and upload their invoices and receipts, accelerating the data collection process.
3. Review Inventory and Stocks
The next step involves determining the value of your company’s assets, including inventory and physical stocks.
Collaborate with the warehouse department to know the exact number of materials and supplies left. Also, ask the general affairs team to provide data regarding office supplies.
If the company has expired goods, count the total value and mark them as unplanned expenses in the year-end accounting books.
After collecting the required data, check whether they’re in line with the asset reports on your accounting software. While this manual process might be time-consuming, it helps you identify inventory shrinkage and discrepancies, which will benefit your reconciliation process.
4. Reconcile All Transactions and Accounts
After collecting the required information, verify the accuracy of your balance sheet by reconciling all accounts. It’s also important to match your month-end and year-end payroll expenses before submitting yearly income taxes.
This is crucial to identify any errors, discrepancies, and fraud that can hamper the financial health of your business.
Most finance teams still use spreadsheets to compare their financial records with bank accounts and credit card statements. That means scrolling through tons of rows and columns to make sure everything matches.
If you’re dealing with hundreds of transaction records, errors like incorrect transaction amounts and duplicated bills are more likely to occur. As a solution, you can use accounts receivable and payable software that comes with data accuracy checking and error-flagging features.
5. Compare Accounts Payable and Receivable
If the records don’t follow the bank statements, identify the causes by comparing accounts payable and receivable.
Most accounting tools require finance teams to manually match customer invoices with payments received, and vendor bills with payments made. After finding the error source, they have to adjust the balance sheet accordingly.
To ensure no mistake or fraud has been committed, accountants need to repeat this process over and over again. As such, manual workflows take a huge chunk of your time better spent on other essential tasks, leading to lower productivity. This is where automation can also help.
6. Review Accounts Receivable
Before the year-end closing process, accounts receivable people must check for past-due invoices. If there are any, contact the customers and encourage them to pay as soon as possible.
Without a centralized dashboard, this means chasing payments through long email threads, which are hard to track.
When failing to receive payments, add the owed amounts as credits and debits on your income statement and balance sheet respectively. This will help you start a new accounting book with the correct information.
7. Review Accounts Payable
On the other hand, accounts payable teams need to check whether the company has paid its financial obligations to vendors, employees, and contractors.
The process usually involves tracking all expenses, finding bills as proofs and inputting them on spreadsheets, and chasing other departments for missing documents. For large corporations with a complex organizational structure, this can take quite some time.
Encourage your team to finish all pending tasks faster by setting a clear deadline. When the due date has passed, yet you still have unpaid debts, list them as liabilities on the balance sheet.
8. Account for Taxes or Other Entitlements
The last step in your year-end closing process is checking for any tax deductions, exemptions, or credits the company receives. Also, look for private grants, gifts, and other types of entitlements from vendors, clients, and business partners.
If you’re using spreadsheets, open each month-end document to track all this data and calculate the total value. Then, list them as other income on your income statements.
Kickstart Your Finance for the Next Year with Peakflo
With so many tasks to complete, the year-end closing can prevent your team from finishing other projects.
Thankfully, Peakflo offers several features that will help you streamline year-end closing:
- Accounting software integrations. Sync customers’ contacts, outstanding invoices, taxes, and credit notes seamlessly between Peakflo and other accounting tools. These include Xero, Quickbooks, CSV, and NetSuite.
- Optical Character Recognition. Our OCR technology makes it easy to scan invoices and receipts for easy database entry with high accuracy.
- Automated workflows. Easily send invoice reminders through communication channels like WhatsApp, SMS, and email. Create collection and payment reconciliation rules to speed up tasks and boost productivity by 50%.
- Auto-reconciliation. Peakflo automatically syncs all your data, then matches incoming payments with outstanding invoices and outgoing payments with vendor bills, streamlining the reconciliation process.
- Auto-disbursement. Activate static or dynamic virtual accounts for instant reconciliation. Pay off local and international bills securely using a digital wallet and receive payments straight to your bank account.
- Unique customer portal. Leverage a self-serve portal for customers to view and clear invoice payments quicker
- Cash flow management. By accessing and analyzing real-timem, AI-powered finance reports and predictions, CFOs and finance leads can make strategic decisions and plan better for the future.
So, are you ready to enhance the year-end accounting process? Integrate your accounting software with Peakflo today.