Increase your productivity with my top end-of-the-year suggestions for QuickBooks
Many of my clients use QuickBooks and often ask how to “close” their records for the end of the year. Closing a software package refers to the process of locking previous time periods so that changes cannot be made (intentionally or accidentally). Usually, if you need to correct a mistake, you are then forced to create a correcting or adjusting entry in the current period. QuickBooks doesn’t have a standard year-end close feature, although it does have a “soft” close that is protected by your secret password. We will discuss this feature later in this article.
With that said, there are actions that you can take at the end of the year that will make your life and your business more productive. You always want to be creative with your system and to think about what information that your records provide you and how you can use those records to make decisions. I have suggestions —all of them simple and straightforward – that I’ll share with you that will make your records and report more accurate and timely
1. Remove receipts from petty cash and reconcile the account. Petty cash is often ignored and receipts continue to build in the box for several years. It is absolutely amazing the amount of money that we spend through petty cash. You should treat your petty cash fund like a bank account and reconcile it on a regular basis. If $200 was recorded as your petty cash, and you’ve spent it, then you should have $200 in receipts when the money is gone. Be sure your employees know that you are tracking this. It doesn’t seem like much, but it is your money and it does add up over a number of years.
2. Reconcile your banking accounts as close to the year-end as possible. This will include your savings as well as checking. Although it is always important to know how much money your business has in the bank, it is especially so at the end of the year when you are finalizing your company’s financial performance for the year. If you haven’t reconciled your accounts, your accountant will when you take your records in for tax preparation, and he/she will charge you for this service. Whether you are on a manual or computerized system, bank reconciliations are important to your business and should become second nature to your accounting system. Begin the new year knowing exactly how much cash you have in the bank. Download a full discussion and bank reconciliation form at by clicking here.
Likewise, you will want to reconcile your credit cards and loan statements. These balances affect your Balance Sheet, which is a report that shows your financial position for the year-ending. This reconciliation will help you understand if you have acquired additional assets, liabilities or both during the year, thus affecting your net worth.
3. Make depreciation entries for assets. Depreciation is the process of writing off your assets based on their usable lifespan and which enables you to include the amount as an expense on your P&L, thus reducing your income and your taxes. Sometimes, business owners view this as a “paper” expense and disregard the importance of it while managing their businesses. Depreciation is a way to keep you humble by making sure that you prorate part of your assets every year into your Profit and Loss report. In order to earn your income, you had to invest in great equipment or other assets.
4. Take a physical inventory and make appropriate adjustments in quantities and values in QuickBooks. If your fiscal year ends at the calendar year, you are probably already aware of the need to take physical inventory. The purpose of this inventory is to reconcile it with your inventory asset records and to let you make adjustments for your COGS, any theft, damage and obsolete merchandise. This action is important to take regularly and affects both your P&L and your Balance Sheet.
5. Print financial reports – It is important to create, print and read both an Income Statement (Profit and Loss or P&L) and a Balance Sheet for the full year. If you haven’t been creating reports regularly, these end-of-the year reports will show you the financial position of your company. The Profit and Loss will show you the gross revenues you earned and what the expenses were that were required to earn that income. By deducting the expenses from the revenues, you’ll have Net Profit (or Net Loss). The Balance Sheet shows what assets your business owns, what liabilities (debts) that you owe and thus the net worth of your company. These reports should be printed and reviewed at least monthly, or you may be unpleasantly surprised by what you see at the end of the year.
6. Archive and backup your data off-sight. If you have a computerized accounting system, regular back-ups are imperative. These back-ups should be made and stored off-site—for example in a safety deposit box or other secure location. Please don’t backup on the same hard drive as your data file—they need to be moved from your operations area. Hopefully, you will never need them; however, they are very inexpensive insurance in case something tragic happens to your hard drive or your office area.
7. Close your software using the end date of your fiscal year to prevent accidental or intentional changes from QuickBooks’s. You can create a soft lock for previous periods (months, quarters and years) to keep from accidentally changing your records; and yet you still have access to making corrections that you need. Employees, or part-time bookkeepers, cannot make changes or corrections unless you share the password. Other software has a permanent or hard closing feature for monthly and annual closings. In QuickBooks, you close your records by selecting a date and selecting a password. Your file cannot be changed prior to the date without the password. Use it annually, if not monthly, particularly if you have employees.
8. Sign-up for automated payroll system that feeds directly into your records. There are several levels of payroll services by Intuit and other payroll service companies that will feed directly into your financial software. Take some time and find out what it will cost you to have an automated payroll system—you will love it! The fees are extremely reasonable as several companies are currently vying for a leadership position in the market. I use and recommend Intuit’s service because the process is totally transparent and takes just a few clicks to process. Manual payroll affords the opportunity for making mistakes – large and small — which you must then correct in your payroll. A 10¢ mistake, for example, must be corrected regardless of how much time you spend on it. You cannot just send a dime to the IRS and call it good. If you have payroll, make this your one big new year’s resolution above all else.
9. Hire a knowledgeable professional, bookkeeper, accountant and/or advisor to help you understand your financial statements. You might need the help of your accountant to accomplish some of the above mentioned actions.
You may find yourself reading these tips at a time of the year that is not the end of your fiscal year. Whenever you read them, obtain expert advice, find an advisor and follow through with your commitments. Be sure you take charge of your accounting now and really run your business productively and profitably!
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Marie Gibson is devoted to helping business owners make wise business decisions by taking charge of their accounting and running their business profitably! For more information and to register for her ShoeBox-101 Self Study Class and 52-weekly e-minders, visit this link.
The information presented in this article is for informational purposes only and should not take the place of professional financial and/or legal consultation.