Preparing your Accounting System for the New Year can seem like an overwhelming task. Whether your company’s year-end is tied to the fiscal calendar or not, this may be a good time to do some housekeeping activities to get organized. In most countries, companies have an obligation to share their financial status each year, whether to the government, shareholders, owners, or management team. The annual close is also crucial in any audit, and consistent, accurate books are crucial to successfully running a business. Regardless of the software you use, there are some standard rules or procedures to include in your year-end checklist. Here are a few that we would suggest, however, depending on the industry you are in or the uniqueness of your organization, there may be others that you must adhere to.

  1. Filing is one of those tasks that can sometimes get pushed off to ‘later’ so now may be a good time to get this done (grab a coffee or eggnog first). Filing may be electronic, paper based or combination of both. Regardless, ensure proper storage of all critical documents either on a network file server or in locked and secured filing cabinets. For government reporting, businesses are obligated to retain seven (7) years of records as backup to all their company’s activities. As the year rolls over, this also means that you can get rid of that last year you had been maintaining. Make sure that this information is destroyed in a safe and confidential manner.
  2. Check your backup and review your disaster recovery plan. Some businesses have fallen victim to hackers and viruses and without a good recovery plan, checked regularly, it is almost impossible to put the pieces of your data back together! We have had the ‘unpleasant’ task of helping businesses restore the only backup they had, which was over a year old, to try to get back up and running. Needless to say, that was not fun for anyone! Make sure you have someone internally appointed and responsible for this critical job and/or work with an IT company to have a plan in place. It is not only important to have a clearly defined and solid plan, but equally important to check the plan is working BEFORE something disastrous happens. Do not just assume – check, test and check again.
  3. Ensure all expenses are captured in your accounting software. If you have not completed all the bank reconciliations, now is the time to get caught up. Bank recs often close the loop on your accounting activities because they catch transactions you have not recorded from receipts or invoices. If you have company credit cards or have used personal credit cards for business purchases, they should also be reconciled to capture all expenses related to the business. Once you know you have recorded all activity, it trickles down to the customer and vendor level too. This means all statements will be accurate and you can collect outstanding payments and ensure your vendors are paid by relying on accurate and up to date information.
  4. If you process Payroll, either internally or outsourced, this area of your business is always tied to the calendar year and therefore can’t be delayed. Payroll year-end activities could have their very own checklist, but here are a few important tasks for you to consider: Reconcile your payroll totals to your remittances to ensure they match, process any pension adjustments or other corrections to your employee’s file, ensure all employee data is up to date such as SIN numbers and address information, prepare to file employee T4s and summaries with the CRA, and prepare Workers Compensation and Employee Health Tax reports/returns if applicable. If you process payroll in-house, now is also the time to schedule your Payroll Update with your software consultant. Your first pay run in the new calendar year should be processed using the proper tax tables issued by the software publisher as dictated by both Federal and Provincial governments. Also, prior to the new year, review your payroll schedule, statutory holidays, and confirm any carry forward accruals are accurate. Lastly, you may wish to provide any new TD1 forms to your employees and update their information when they return the completed forms.
  5. Inventory Count. If your business is an inventory-based organization and your year-end is December 31st, it may be required (by the bank) or strictly preferred to perform an inventory count. Inventory can be one of your largest assets and knowing the true value of that asset can only be verified with a proper physical count. The result of the count may also shed a light on inefficiencies, loose controls, dead or slow-moving stock or even theft. Many software applications have a built-in process for facilitating this count, or there are third party solutions to help. Organized inventory in your warehouse, clearly identified part numbers, barcodes and scanners can assist with a smooth year-end count. If you do not have the bandwidth to do this work on your own, there are companies available to provide this service. We have worked with a local inventory service business called RGIS for several years. They work with clients by bringing in a team of counters to perform the count for you! This has always proven to be a very successful and stress-free process.
  6. Lastly (and certainly not least) review your financial statements. Compare your subledger reports from Accounts Payable, Accounts Receivable, Purchasing, Inventory etc., to your control accounts on your Trial Balance. They should match! If they do not, investigate any discrepancies. Ideally, you should be checking these reports monthly so if there is an outage, you can resolve by reviewing transactions within a smaller time frame, and if you are on top of it throughout the year, the year-end should be a breeze! If any account balances do not seem right, drill down on the account’s activity and identify any transactions that have been mis-posted and make the necessary adjusting entries. This will ensure a clean and accurate Balance Sheet and Income Statement once the year is completed.

We hope this post was helpful in preparing your accounting system for the New Year. If you have any tasks on your business’s “must do” list that we can help with, please let us know.

‘Happy Closing’ and bring on an organized and successful New Year!