The holidays are here, and the new year is just around the corner.  Read on for year-end accounting tips…

Do you use accounts receivable?  If you use invoices (and accounts receivable) to bill your customers, then you must always remember to match payments from your customers with the previously entered invoices.  For some reason, people always seem to forget that payments from customers have outstanding invoices waiting to be paid.  No accounting system will make this link for you.  You have to do it yourself.  The end of the year is a good time to look for outstanding invoices that have already been paid.

You should also write off those receivables that, in all probability, you will not collect.  Any amount that you don’t expect to collect or that exceeds some reasonable time-period (such as being ninety-days past due) can be written off as bad debt.  In no way does this mean that you cannot or should not continue to try to collect the debt.  It just means that you’re not going to pay tax on some income that you don’t actually expect to receive.

Print out your income statement, and look at significant accounts (especially sales and cost of goods sold.)  Prepare detailed reports listing the individual transactions for these accounts.  Look for negative numbers as signs of trouble.  Typical mistakes leading to negatives include items set up incorrectly or accidentally choosing the incorrect account for a transaction.

Do you have a large profit?  Maybe you should consider a purchase if you had been planning one in the near future anyway.  You might as well make the purchase this year and get the tax benefit.

Once you have finished your accounting for the year and provided financial statements to your banker, your accountant, and the IRS, you cannot change any transaction prior to the end of the year.  Similarly, you should never change a paycheck after you have made a tax liability payment or filed payroll tax returns.  Use your accounting software to formally close the books each year, so you won’t run into trouble.  (If you have any questions or problems with this, leave a comment below or call me at 217.398.4258.  Same goes for any other processes or errors with your books.)

Don’t forget to update your payroll tax tables after the last payroll of the year and before the first payroll of next year.  With most accounting software, you will need to manually change the rate for state unemployment.  This must be done between the last payroll of one year and the first payroll of the following year.  Think of other tax changes that may affect your business before the start of the year.  For example, sales tax rates sometimes change.  Be sure to change them in your accounting or POS software before the year begins.

Finally, backup your company file and store it somewhere other than your place of business.