Business transactions all end at the end of the business year, so it’s key to start planning for year end before it arrives.
Businesses run on a steady diet of statements, reports, and ledgers. Record keeping is the lifeblood of business. In order to accurately report the profits and losses of the business, staff must perform a series of procedures.
What Is a Fiscal Year?
A fiscal year is the period used for calculating annual financial statements. In many jurisdictions, laws of accounting and taxation require financial reports to be done once per twelve months. For some businesses and organizations, the “year” time period is a calendar year -- January 1 through December 31.
In almost three quarters of businesses in the U.S., the fiscal year ends on December 31. While for the U.S. government, the fiscal year begins on October 1 and ends on September 30 of the next year. Universities use the fiscal year end date during the summer, to align the academic fiscal year with the school year. Universities are quiet during the summer months, which allows time for reporting. To further complicate matters, per Wikipedia, some companies, for the purpose of accurately taking stock, will end the fiscal year on the same day of the week, which means that some fiscal years are 54 weeks, while others are 53.
Year End Procedures: A Top 10 List
Year end procedures for fiscal years will vary slightly by business. For the most part, businesses wrap up the following elements for the end of the fiscal year.
1. Financial Periods
The end of the fiscal year is similar to the end of any other month. The only difference is the deadline for submission of payments is earlier to make the end of the fiscal year deadline.
The final update for the year includes, processing of:
- final purchase invoice, staff, expenses, sales invoices
- accruals for the cost of goods and services
- accrual of income due
- completion and posting of internal transfers
- adjustments for stocks
- allocations of income to donations
2. Purchase Invoices, including Purchase Order Processing and Staff Expenses
Items included in year end financial accounting: manual invoices, purchase orders, and expenses.
Count all stocks. Enter any adjustments to value of stock to match with physical stock.
4. Sales Invoices and Sales Ledgers
All sales invoices must be submitted by the first week of the final month of fiscal year. Any other invoices submitted after this are counted for next fiscal year.
5. General Ledger, including Journals and Internal Transfers
In order for an accurate accounting, check that the following are entered in the general ledger:
- cash lists
- foreign payment
- electronic transfers
- journal entries, including manual internal transfers
- accruals and prepayments
- stock adjustments
- any restricted fun close-down entries
6. Accrual and Prepayments
All departments must submit accruals and prepayments at year end.
7. Restricted Funds, including Donations, Restricted, and Endowments
Any donation and grant money not spent will be carried over to the next year. Endowments are carried forward to next fiscal year.
Reports need to be run in the first week of the last month of the fiscal year.
9. Timetable, including Payroll Deductions
Each department of the company will have its unique deadlines. The reporting for each department will pertain to the department’s needs.
10. Computer Systems
Account for all computer upgrades, software updates, and peripheral expenses.
Tips for Business Owners at Year End
Business owners should, of course, practice rigorous screening of all accounting practices, particularly personal services income. Evaluate all franking accounts to see if there is a benefit in paying a dividend to take advantage of tax credits.
For stock, a thorough review should be done. Obsolete stock may be discarded. All stock must be physically counted.
Send all employee tax ID numbers to the accountant for record keeping. Evaluate staff bonuses and other compensations.
Debts should be reviewed in order to write off bad debt. Review loans for adherence to rules.