At the end of the financial or fiscal year, you gather income, expenses, assets, and liabilities and record them in a standard set of financial statements. Once organized and reconciled, these year-end financial statements help you better understand your business’s financial position.
While these statements are essential all year round, they never matter more than at the end of the year. That’s because a year-end snapshot of your business’s financials enables you to make informed decisions, identify improvement areas, review changes in performance over time, and capture insights into how well your company is managing assets.
The following statements are prepared at the end of the financial or fiscal year, depending on the policy of the business.
Statement of Activities
This statement, commonly referred to as an Income Statement or Profit and Loss Statement, summarizes a business's profitability by detailing its revenue and expenses during a specific accounting period. The document is often shared as a part of quarterly and annual reports as it provides a snapshot of financial trends, business activities, and performance comparisons over set periods, offering crucial insights into the company's financial health.
Cash Flow Statement
This statement provides a detailed picture of how much cash entered and left your business over the accounting period. It demonstrates operating activities, investment activities, and financing activities that affected the cash balance up or down. And finally, it shows the closing cash balance.
Statement of Financial Position
This statement is prepared after adjusting entries done in general ledgers (GLs), income statements, and trial balances to gain a financial snapshot of your business at the year-end. It includes your company’s assets, liabilities, equity, and net worth. Understanding the types of year-end financial statements is just the beginning. What comes next? You need to balance accounts, modify entries, prepare financial statements, and adhere to changing regulations.
Financial Triumph: Crafting Year-end Statements with Expert Precision
Year-end closing is complicated. On average, accounting teams invest approximately 25 days to complete the annual close process. Of course, this includes intensified workloads for month-end closing and quarter-end reporting. With so much going on, it’s easy to miss the details. One of the easiest ways to reduce stress and improve productivity during this period is to outsource accounting. Your outsourced accounting partner adheres to standardized processes to a successful year-end closing cycle. Unsure about outsourcing accounting? Here are the crucial steps that help you to close the books on time.
Verify Receipt of Supplier Invoices
Only a few days left to finalize the annual close, so you need to ensure all outstanding invoices are issued. If not, notify your suppliers to issue outstanding invoices. Accrue the expenses for placing orders in the last week of the year to pay them in the following year.
Verify Issuance of Customer Invoices
Similarly, you need to confirm that your customers have collected receipts for goods and services they received from your company. Issue receipts promptly if any of them have not been prepared yet. This enables your extended accounting team to close the books swiftly.
Accrue Unpaid Wages
To keep your books audit-ready, you need to account for payroll and compensation that your business will pay before the year-end, even though checks are cut after the annual close. Estimate hours in case you are not able to predict salaries and make adjustments after that.
Conduct Year-end Inventory Value
Conduct inventory reconciliation to physical inventory with the inventory accounted for on your balance sheet. However, reconciliation is a daunting task, but you can minimize your strain by outsourcing accounting. Your outsourced accounting partner will ensure meticulous tracking of inventory levels, timely order processing, and precise generation of inventory reports. This can help you reduce the risk of errors and improve the accuracy of financials. This will also set the stage for smooth inventory management in 2024.
Calculate Asset Depreciation
You need to take time out to calculate depreciation and amortization for all fixed assets over the last twelve months. It goes without saying that the value of furniture, office equipment, machinery, and more depreciates every year, so the lost value should be recorded and reflected in your business’s financial statements. Depreciation expenses will have an impact on your business’s taxable income. The outsourced accounting service provider can help track your assets’ conditions over time, enabling you to ring in the new year with ease.
Reconcile Bank Accounts
Now is the time for bank and credit card reconciliation. In case of any discrepancies, make adjustments or create required general ledgers so that your records reconcile bank statements. If you lack expertise, you can partner with a leading outsourced accounting firm to help you with account reconciliation.
Review Financials
Once reconciliation and adjustments are done, you need to review year-end financial statements to ensure your account balances, and everything looks accurate. Apart from financial statements, you should also review budget vs actual report, net profit margin report, AP aging report, weekly and monthly KPIs, and more to evaluate your financial standing and plan for the coming year
Accrue Estimated Tax Expenses
Review your income statement to accrue taxes against your company’s revenue and excess profits during the accounting year.
Close Accounts
Close all subsidiary ledgers for this accounting year. Your business will continue to operate after this annual close, so you need to reopen ledgers and financial statements for the upcoming accounting period. Any new income or expenses henceforth will be recorded in the new period.
Issue Finalized Financial Statements
Now, there is no possibility of new entries after closing accounts. It’s time to generate finalized financial reports and write footnotes. Finally, share documents with partners, board members, advisors, consultants, and other decision-makers along with a cover letter that explains key points. Such reports can help you understand how your business performed in 2023—and how to plan for an even stronger performance in 2024.
Accurate and timely preparation of year-end financial statements is crucial for a business's financial health. It goes beyond a mere compilation of numbers. It complies with regulatory requirements and provides valuable insights for strategic decision-making. Are your year-end financial statements lagging?
Shift to outsourced accounting and let experts handle the complexities of bookkeeping and accurate financial reporting.
They will prepare financial statements for you, so you can make informed financial decisions without all the tedious paperwork. Plus, when it’s time to file your taxes, you’ll know your financials are 100% comprehensive, reconciled, and accurate.
