How to Close Your Books for the Year

As the year comes to an end, closing your books is one of the most important financial tasks for any small business. Proper year-end bookkeeping ensures your financial records are accurate, helps you prepare your taxes, and gives you a clear picture of your business’s performance. While the process can feel overwhelming, following a structured approach makes it manageable and stress-free.

Here’s a step-by-step guide to closing your books for the year.

1. Reconcile All Accounts

Start by reconciling your bank accounts, credit cards, and any loans. Match each transaction in your accounting system with your bank statements to ensure accuracy.

• Verify that all deposits, withdrawals, and fees are recorded correctly.

• Check for duplicate or missing entries.

• Resolve any discrepancies immediately.

A thorough reconciliation prevents errors from carrying over into the next year and ensures your financial statements are reliable.

2. Review Accounts Receivable and Payable

Next, take a close look at your outstanding invoices and bills.

• Follow up on overdue customer payments to improve cash flow.

• Make sure all vendor bills are recorded and paid.

• Adjust for any doubtful accounts or uncollectible debts.

Properly managing receivables and payables ensures your profit and cash flow numbers are accurate when you close the year.

3. Verify Payroll Records

Payroll is a critical component of year-end bookkeeping. Make sure all employee wages, bonuses, and deductions are recorded and reconciled.

• Confirm all payroll remittances have been submitted to the CRA.

• Check vacation accruals, benefits, and statutory holiday pay.

• Prepare year-end payroll reports for T4s and other tax filings.

Accurate payroll records help you avoid compliance issues and give employees confidence that their pay and benefits are correct.

4. Review Expenses and Categorize Properly

Go through your expense accounts to ensure everything is categorized correctly. Misclassified expenses can distort your financial reports and impact your tax filing.

• Separate operating expenses from capital expenditures.

• Record any year-end adjustments, like prepaid expenses or accrued liabilities.

• Consider accelerating deductible expenses before December 31 to maximize tax savings.

A clean expense record gives you a more accurate picture of profitability.

5. Make Necessary Adjusting Entries

Adjusting entries help ensure your financial statements reflect reality. Common year-end adjustments include:

• Depreciation of assets

• Inventory adjustments for shrinkage or obsolete stock

• Accrued income and expenses

These entries help align your books with accounting principles and provide a true representation of your business’s financial position.

6. Generate and Review Financial Statements

Once all adjustments are made, generate your income statement, balance sheet, and cash flow statement. Review these statements carefully:

• Compare actual results to your budget or forecasts.

• Look for trends, anomalies, or areas needing attention.

• Share insights with your accountant for year-end tax planning.

Accurate financial statements are the foundation for business decisions and planning for the next year.

7. Close the Books and Archive Records

Finally, formally close your books for the year. Lock the accounting period in your software and archive all supporting documents. Keeping organized records makes it easier to reference past transactions and ensures compliance if the CRA requests an audit.

Close Your Books With Ease!

Closing your books for the year doesn’t have to be stressful. By following these steps you’ll have accurate, reliable financials and peace of mind heading into the new year.

Need help closing your books or preparing for year-end taxes? Our accounting team can guide you through the process to ensure a smooth and accurate finish to the year. Contact us today to get started.