Year end – What is the year end or year end procedure?
As the name suggest, this is a procedure that every business or corporation entity has to do at the end of one business or corporation year.
Year end procedure is the reviewing and analyzing of an accounting period.
The significant accounting procedure is to close the Revenue and Expenses. And start fresh accounting of revenues and expenditure with the new year.
This is also called closing the books.
One of the best ways to understand is when we watch a game. Let’s say soccer, after 2 set of 45 minutes, the game is over and based on the goals we determine the outcome of the game.
In accounting, business or corporations are given one year to carry on their activities and after 12 months we look at the outcome.
Just like a soccer game, we also look at the rules of the accounting game.
Do numbers add up?
Are transactions in a any accounts justify its intention?
Have bank reconciliation taken place?
Have depreciation been recorded?
And many more questions.
Any changes that we want to make to the books, our score sheets would be called:
Year-end adjusting entries,
Year end adjustments
Year end adjusting entries:
These entries are recorded either straight in the books or given by accountant to the bookkeeper so that they can be recorded in the books.
The more adjusting entries, the more issues an accountant saw in the books. It is just like watching the stats after a hockey game, number of hits, penalty minutes, … the bigger a corporation, logically there would be more entries.
I remember in one of our accounting clients books I had to made over 100 entries. The books were a mess. She was surprised with all the adjusting entries. Basically, it meant that bookkeeper either did not have the knowledge to perform bookkeeping or was making mistakes or was doing a lousy job.
As a matter fact, one of the reasons that Numetrica exists is because at year-ends work, I used to see a lot of messy work.
So my recommendation to her was ask for more and frequent reports as in month end or quarter end. Ask for monthly bank reconciliation and so on.
Even better, we told her to use QuickBooks Online (QBO), so she and her bookkeeper and us can see the numbers and reports.
She used QBO and adjusting entries were reduced to the normal adjusting entries:
Bonuses for tax planning
Corporate tax adjustment
Some of the messed-up numbers just like watching the score board did not provide the management with accurate reports.
Just like when we watch a game, we want accurate results, we want to know who scored, how many scores, … imagine if the referees never kept a score sheet. So, who one the Stanley cup or Super Bowl? Hmmm, I don’t know no one recorded the scores.
When should a typical year end be?
I personally like to see a year starting from Jan 1 and ending at December 31.
Why? It gives us a perspective since that is our current year as well. Some accounting and tax reports do have an official Jan to Dec date.
For example, payroll and its reporting and issuing T4s and T4 summary. The period for that is from Jan to Dec.
In addition, personal tax return, they also run from Jan to Dec.
So, keeping the year end period from Jan to Dec makes sense and easy to manage and synchronized with our accounting and taxation work.
What happens when incorporation date is not on January 1st?
The answer is easy, we (accountants) choose the year-end to be on December 31.
So, let’s say a company incorporated on Aug 3rd, we choose Aug to Dec 31 for the 1st year of it’s business. Consequently, the following year would be from Jan to December.
Short year end
This is called a short year end; it is the 1st year of business from incorporation date to December 31.
I see a lot of companies with Non 4, Aug 5, Sep 25 as year-end, this means whoever prepared their corporate tax returns or T2, did not put any efforts in establishing an easy and convenient year-end.
What are year end procedures?
The procedure to close the books for the accounting year. Just like keeping score for a sports game. It involves analyzing each account for accuracy, completeness, and relevancy.
What do accountants need for year end?
The accountants need the books and the fact that the books are ready to be looked at. Then we ask for a back up of accounting file, or trial balance and the GL, reconciliation reports, HST filed forms, deposit slips, Accounts receivable or payable listing, …
What is year end closing process?
The procedure to analyzing the accounts or accuracy, completeness, and relevancies. Making sure every transaction is accounted for.
What are year end journal entries?
The corrections, adjustments and modification that are made to the books are often given back to the corporation as adjusting journal entries or year end journal entries.
How we do year end differently?
I do not think there are any different ways to perform a year end. The objective and goals are made to sense our of the numbers and provide am accurate financial statements reports to the client.
Quotes for year end:
Costs for year-end would depend on the complexity of the work, number of transactions cleanliness of the books and so on.
Typically for small businesses it ranges from $1,500 to $6,000
Year end accounting checklist
- All transactions are recorded.
- Bank and Credit Card Reconciliations are completed.
- Investments are recorded.
- Inventory accurate
- Capital assets and are recorded and depreciated.
- Financial statements are reviewed.
- Accounts Receivables listing
- Accounts Payable listing
- Long term debt and interest are reflected correctly.
- All revenues booked.
- All expenses are booked.
- Payroll reconciliation and issuance of T4s
- Bonus or management fees issued.
- Dividends are booked.
- Corporate taxes are booked.
Year end document checklist
1. Trial balance at year end
2. Bank and credit card statements
3. Bank reconciliation report
4. Accounts receivable listing
5. Accounts Payable Listing
6. Payroll listing,
7. Statement of source deduction from CRA
8. Inventory listing
9. Capital assets listing and additions
11. Loan statements
12. General Ledger
When is year end due and corporate tax preparation, T2 due?
Corporate tax payments are due 3 months after year-end. Typically march 31
The actual corporate tax filing is due 6 months after year-end. Typical June 30th
Year end accounting services
At Numetrica, we offer year end accounting services. Most of our client’s year-end or books are ready in March. The reason they are ready at an appropriate date is that they use QBO.
Bookkeeping in QBO, makes the year-end procedure so easy, reliable, and fast. Most of our clients are delighted to know in advance how much taxes they have to pay or declare dividends or bonuses.
Contact us and we would be more than happy to explain and discuss your year end procedure.