Many of our clients generate their tax and financial reports on a calendar year basis. With that in mind, here are some year-end accounting items that should be reviewed as the calendar year draws to a close. These same points apply equally to clients reporting on a fiscal year basis.

Some of these may seem very basic. After many years as both an accountant and software consultant, however, I feel that they are very important steps needed to demonstrate the integrity and reliability of your accounting database.

General Ledger

  1. The debit and credit balance totals on the general ledger trial balance should be the same, i.e., they should “balance”
  2. All balance sheet and income statements accounts should be reviewed for reasonableness, investigated and adjusted as necessary. Here are some examples of items that could require further analysis:
    1. If an income account has a debit balance, or an expense or a cost of goods account has a credit balance.
    2. Any prepaid account with a credit balance.
    3. Withheld payroll tax accounts showing a debit balance.
    4. Any other liability account with a debit balance.
    5. The proper allocation of notes or loans between current and long-term portions.
    6. Any balance which is obviously too large, for example; bank charges showing a $50,000 expense charge.
    7. If your books have a suspense, exchange, or clearing account, it should be reviewed and reconciled to the individual transactions where those charges properly belong

Cash and Bank Accounts

  1. All accounts should be reconciled by utilizing the account reconciliation functionality within the Sage 50 software. If you are using Sage 50 as your accounting software this is a powerful and easy-to-use feature.
  2. Review all old outstanding checks and deposits to determine if they need to be adjusted or written off.

Accounts Receivable

  1. The accounts receivable subsidiary ledger (i.e., the A/R aging report) total should be the same as the accounts receivable account total on the general ledger trial balance.
  2. The aging report should be reviewed for past due balances and considered for dunning calls or possible write offs.
  3. The aging report should be reviewed for any negative (credit) balances and verified or adjusted as needed.

Accounts Payable

  1. The accounts payable subsidiary ledger (A/P Aging aging report) total should be the same as the accounts payable account total on the general ledger trial balance.
  2. The aging report should be reviewed for past due balances and considered for analysis or possible write offs.
  3. The aging report should be reviewed for any negative (debit) balances and verified or adjusted as needed.

Inventory

  1. If inventory is an integral part of your accounting system, an annual physical inventory count should be taken.
  2. The general ledger inventory accounts on the trial balance should be adjusted to reflect the dollar value of the physical inventory count.
  3. The inventory subsidiary ledger (in Sage 50 the inventory valuation report) should then match the physical inventory count and have the same dollar value as the sum of the inventory accounts on the general ledger trial balance.

Financial Statements

  1. At a minimum, the Balance Sheet and Income Statement should be printed and reviewed.
  2. On the Balance Sheet, the total assets must equal the total liabilities plus total capital (equity).
  3. On the Income Statement, the net income year to date must match the net income in the capital section of the Balance Sheet.

 Other Year End (or period end) Considerations

  1. If you are using budgeting, Income Statements with budget comparisons should be printed and reviewed.
  2. Budgets for the next year should be determined based on variances from the prior year and projections for the new year.
  3. Any chart of accounts ID’s, with no activity either at the year-end or during the year, should be considered for inactivation and ultimately for purging.
  4. The entire chart of accounts should be reviewed, and changes made, to properly reflect the financial information in a manner that is meaningful to management in assessing the financial health of the company.
  5. This is a good time to review customer, vendor and inventory records, to mark as inactive those records which have had no activity for a specified period of time.
  6. If job cost is being utilized, the various job cost reports should be analyzed and reviewed.
  7. The financial statements, Balance Sheet and Income Statement, should be reviewed for possible redesign prior to the start of the next reporting period, to reflect the evolving reporting needs of management.

You should of course consult with your accountant if you are unclear on how to perform any of these suggested review steps. Crosspointe Consulting Group may also be able to help you with the “nuts and bolts” of making the needed corrections in your accounting software.  Please don’t hesitate to contact us at 877-357-0555, or by email at info@crosspointecg.com, with  any questions you may have regarding the configuration of your accounting software or the design of your financial reports..