December hits and suddenly everyone is talking about year end close. If you are a small business owner, this is the one time of year when your bookkeeping actually cannot wait. What you do (or do not do) before December 31 directly affects your tax return, your financial reports, and your ability to make smart decisions in the new year.
Here is a straightforward checklist to work through before the calendar flips.
Reconcile Every Bank and Credit Card Account
This is the foundation. If your accounts are not reconciled through November (and ideally through December once your statements close), nothing else on this list will be accurate.
Pull up each bank account and credit card in your accounting software. Compare the balance in your software to the balance on your bank statement. If they do not match, you have transactions that need to be categorized, deleted, or added.
If you are more than a month or two behind on reconciliation, this is the step where most business owners get stuck. Do not skip it and move on to the rest of the list. Everything else depends on this being right.
Review Your Chart of Accounts
Over the course of a year, accounts tend to accumulate. Maybe you created a "Miscellaneous" account in March when you were not sure where to put something. Maybe your software auto-created accounts from bank feed imports that you never cleaned up.
Go through your chart of accounts and look for:
- Accounts with zero balances that you no longer need
- Duplicate accounts (you might have both "Office Supplies" and "Office Expenses")
- Catch-all accounts like "Miscellaneous" or "Ask My Accountant" that need to be emptied and their transactions re-categorized
A clean chart of accounts makes your financial reports actually useful. A messy one makes them misleading.
Verify All Income Was Recorded
Pull a profit and loss report for the full year. Does the total revenue match what you actually deposited? This sounds obvious, but it is surprisingly common to have income that slipped through the cracks. Cash payments that were never recorded. Invoices that were marked as paid but the deposit was not matched. Payment processor deposits that were recorded as lump sums instead of individual transactions.
If you invoice clients, run an aged receivables report and look for anything that should have been paid by now. Either follow up on the invoice or write it off before year end.
Categorize Every Transaction
Open your profit and loss report and look for anything sitting in uncategorized accounts. Every transaction should have a proper home in your chart of accounts before year end. If you have hundreds of uncategorized transactions, this is going to take some time, but it is essential for accurate tax reporting.
Pay special attention to:
- Large round number transactions that might be owner transfers, not expenses
- Personal purchases that ended up on business accounts (these need to be reclassified as owner draws, not business expenses)
- Refunds and credits that might have been recorded as income instead of offsets to the original expense
Review Fixed Assets and Depreciation
Did you buy any equipment, furniture, vehicles, or other assets over $2,500 this year? These should be recorded as fixed assets, not expensed directly. Your CPA will need this information to calculate depreciation and determine whether to use Section 179 expensing.
Make a list of any significant purchases and confirm they are properly recorded. Also check whether any assets you had on the books were sold, disposed of, or written off during the year.
Confirm Payroll Records
If you have employees, verify that your payroll records are accurate before year end. W-2s are generated from this data, and correcting errors after they have been filed is a headache you do not want.
Check that total wages, tax withholdings, and employer contributions match your payroll reports. If you use a payroll service like Gusto or ADP, the data should reconcile to what is in your accounting software.
Gather Documents for Your CPA
Do not wait until March to start pulling things together. Your CPA will need:
- Reconciled financial statements (profit and loss, balance sheet)
- 1099 information for contractors you paid $600 or more
- Records of any estimated tax payments you made during the year
- Documentation for large or unusual transactions
- Loan statements showing year end balances
- Mileage logs if you deduct vehicle expenses
The earlier you get organized, the smoother tax season will be.
Back Up Everything
Before you make any year end adjustments, back up your accounting file. If you are using QuickBooks Desktop, create a manual backup. If you are on QuickBooks Online or Xero, export your key reports (profit and loss, balance sheet, general ledger) as PDFs.
This gives you a clean snapshot of where things stood at year end, which is invaluable if you ever need to reference it later.
What If You Are Too Far Behind?
If you are reading this checklist and realizing that your books are months (or years) behind, do not panic. But also do not try to rush through a full year of catch-up work in the last two weeks of December. You will make mistakes that create bigger problems.
Instead, be honest with yourself about where you stand. If a professional cleanup is what you need, book a call to talk through your options. It is better to start the new year with a real plan than to patch things together under pressure.
Need help getting your books year end ready? Book a free consultation and let us help you close out the year with confidence.