Overview:
- Learn how to prepare for year-end close.
What is year end?
Closing the accounting books for the previous financial year and starting a new financial year is called year-end. It usually takes a few weeks for most businesses to complete the year-end. You can do some things as an accountant in your business to prepare for a successful year end.
Why do you need to prepare for the year-end close?
By getting ready for the year-end close ahead of time, you can ensure that your financial records are accurate, avoid mistakes and make the audit process easier.
How to prepare for the year-end close?
Here are activities for a smooth year-end close.
- Pre-close activities
- Close income statement accounts
- Close the fiscal year
- Post-close activities.
- Tips for a smooth year end close.
1. Pre-Close Activities
The purpose of pre-close activities for year-end close is to ensure all financial data is accurate, complete, and ready for final reporting
- Finalise Pending Documents: Make sure that any sales and purchase orders, or other documents, that are still open are either completed or moved forward correctly.
- Check and Balance Accounts: Verify that all accounts, such as bank accounts, receivables, payables, and inventory, are checked and balanced. Perform stock takes leading up to year end to ensure accuracy of your remaining inventory.
- Post Adjusting Entries: Record any necessary adjusting entries to correct errors or make year-end adjustments, such as depreciation, accruals, and deferrals.
2. Close the Fiscal Year
The purpose of closing the fiscal year for year-end is to finalise financial records, prepare for the new fiscal year, and ensure accurate and complete financial reporting.
- Create a New Fiscal Year: Before closing the current year, ensure that the new fiscal year is created in the system.
- Run the Close Fiscal Year Batch Job: This process marks the fiscal year as closed, preventing any further posting to that year. It also rolls forward the balances of balance sheet accounts (assets, liabilities, and equity) to the new fiscal year.
- Review and Adjust: After the fiscal year closes, review the financial statements and make any necessary post-closing adjustments.
3. Close Income Statement Accounts
The purpose of closing income statement accounts for year-end close is to transfer the balances to retained earnings, reset the accounts for the new fiscal year, and ensure accurate financial reporting.
- Run the Close Income Statement Batch Job: This process transfers the balances of all income statement accounts (revenue and expense accounts) to the Retained Earnings account. It effectively zeroes out these accounts to prepare for the new fiscal year.
- Verify Entries: After running the batch job, review the resulting entries to ensure they are correct and post your year-end journal.
4. Post-Close Activities
The purpose of post-close activities is to check the accuracy of financial records, fix any issues, finalise all financial reports and update budgets and forecasts for the new fiscal year.
- Print Financial Statements: Generate and print financial statements such as the balance sheet, income statement, and cash flow statement for the closed fiscal year.
- Archive Data: Archive financial data and reports for future reference and compliance purposes.
- Update Budgets and Forecasts: Based on the year-end results, update budgets and forecasts for the new fiscal year.
5. Tips for a Smooth Year-End Close
- Plan: Start planning and preparing for the year-end close well in advance.
- Stay Organised: Keep detailed records and documentation of all adjustments and reconciliations.
- Utilise Checklists: Use checklists to ensure all necessary steps are completed.
- Seek Professional Advice: Consult with tax, compliance professionals or your ERP consultant to address complex issues or questions.
What’s next?
Find out how to close the income statement and post your year-end journal.
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