Preparing for your year-end reports and filings, including an audit, can be hectic and tedious. Below is a quick list of what is needed at the end of your fiscal year. These tips are aimed at corporations and non-profit organizations but are still applicable to sole proprietors and partnerships.
- Harvest your financial statements: Just like a farmer harvesting crops, it’s time to gather your financial statements for the year. This includes your balance sheet, income statement, and statement of cash flows. Your accountant or auditor will often ask for a Trial Balance report.
- Weed out errors and omissions: You’ll need to weed out any errors or omissions in your financial statements. This means checking for mistakes in your calculations or any missing information. Look for any accounts shown in a negative, this is often a red flag and could mean your account types are wrong or could be a bigger error also. For example, liabilities are not normally listed as negative on a Balance Sheet despite being an amount owed, therefore a negative liability is no longer a liability, it is an asset.
- Plow through your depreciation schedule: Make sure all of your assets are properly accounted for and that you’ve calculated their depreciation correctly. Make sure to track all disposals and possible gains or losses. Keep detailed notes on your depreciation and the rules you are following including the depreciation method you are using.
- Track down your prepaid expenses: Review your prepaid expenses and make sure they’re properly accounted for and recognized in the correct period. Expenses for supplies or services rendered in the next fiscal year should not be expensed in the current period, despite the amounts being credited from bank in full. Make sure you declare the expenses when used and when doing so credit your prepaid account instead of your bank account, or you will be doubling up transactions and leaving an unused balance in your prepaid account. (Prepaid expenses is an asset account)
- Track down your deferred income: Make sure your deferred income is properly accounted for and recognized in the correct period. Make sure you declare the income when used and when doing so debit your deferred income account instead of your bank account, or you will be doubling up transactions and leaving an unused balance in your deferred income account. (Deferred income or Unearned revenue is a liability account since it is technically money that may need to be paid back if you become unable to deliver the services paid for by your customer)
- Gather your accrued liabilities like filling up a shopping cart: Accrued liabilities are expenses that are used in current period but that you haven’t paid for yet. Make sure you’re accounting for them correctly and that they’re recognized (expensed) in the correct period. This includes any supplier bills not yet paid (in accounts payables), accrued wages to employees when the time worked is in the current period but paid in the next fiscal year, or any other services or supplies received and/or used but not yet paid for.
- Review and reconcile Accounts Receivable. Makes sure its accurate and accounts for bad debt.
- Reconcile your accounts like a farmer counting sheep: Just as a farmer counts their sheep to make sure none are missing; you’ll want to reconcile your accounts to make sure everything adds up. Reconcile against your bank statements and against your paper receipts to make sure there are no mistakes (like duplicates or missing transactions).
- Petty cash: Reconciling petty cash is like making sure you haven’t lost any coins from your piggy bank. Just as you might dump out your piggy bank and count each coin to make sure you haven’t lost any, reconciling petty cash involves carefully counting each coin and bill to make sure your records match the actual amount of cash on hand. It’s like keeping track of your spare change to ensure you can use it for what you need. Petty cash reconciliations can be tedious, but the importance of properly accounting for those funds should not be understated.
- Milk your auditor or accounting professional for as much information as possible: Probe them for information about any areas where they found discrepancies or where you can improve your financial processes for the next fiscal year. Pick their brain as much as you can. This can save you time and resources and prevent any government intervention.
- Plant seeds for next year: Finally, take what you’ve learned from this process and plant seeds for improving your financial processes going forward and ensuring a successful year-end audit next year.
By following these fun and memorable steps, you’ll be well-prepared for your year-end.
