Year-end like a Pro with Quick Books

There are a few things I like to do at year end for my clients, just to get their files tidied up.

Now is a wonderful time to review the work.  Look for areas that need clean-up.  Again, preliminarily see if there is any place you can spend, if you have a decent profit sitting on the books and some good cash flow.

It’s a good time to look it over and maybe make those purchases before the year closes for your particular business. 

If you are a business owner with QBO Plus, Essentials, or Simple Start and don’t have QuickBooks online accountant version, you can still manage to investigate the troublesome areas in QuickBooks. It will just take some extra steps and super-sleuthing skills to get you there.

1.    Review the Balance Sheet

Review your accounts looking for anything that seems to be in the wrong column. What I mean by that is if you are looking at an asset with a credit balance or a liability with a debit balance, something is probably wrong.  You will also see them with a negative balance. Unusual balances are generally a red flag that something is not right.

2.    Assets/Depreciation and Prepayments

Assets: If you’ve been entering your own depreciation, look at these balances too. I have seen where people do their own depreciation by memorizing what the accountant has recorded in past years. They memorize it to continue forever. If the life of the asset is gone, you will see a negative asset balance which will need investigating.

Prepayments:  You pay for your insurance bill in a couple of large payments. Your insurance policy period could run other than the calendar or financial year. You need to divide that total insurance bill by 12 months and then make a journal entry to expense it monthly.

Some clients will just enter the whole amount into the insurance expense category. Their insurance may run from 8/1/19 to 8/1/20 so you cannot expense the entire payment in 2019 since 8 of the months are for the 2020 financial year.

3.    Loans and Credit card balances

Loans:  People tend to enter the entire loan payment into the loan account (liability) and not expense the interest on the account. Look to see if you have properly broken out your loan payment. You should see several line items on a payment entry:  loan account, interest expense. Remember, a loan is NEVER an expense, just the interest portion is.   For the final month of the year, attach the loan statement that ties to the year-end balance so your bookkeeper/accountant has access to these important documents.

Credit Card Balances:   People tend to forget that many Credit Card Statements run mid-month to mid-month and so as with prepayments they may stretch over the end of financial year – just be aware and attach a statement that ties to your year-end balance so your bookkeeper/accountant has access to it.

 4.    Review the Accounts Payable (you owe) and Receivable (you are owed)

Reviewing these accounts is a must.   I have seen some books where it is never looked at and some books where it is just small housekeeping to clean up tiny left- over amounts.  Let's just say a customer paid you £320.00 when their invoice was £320.21.  

A balance of 0.21 balance lingers on the accounts receivable report and is never adjusted off.  It is unlikely that the customer will pay this, for the most part.  So, it is a good practice to either write these off with a credit note using the same item as the original invoice (Cash accounting) or Bad Debt (Accrual accounting).  

 5.    Unapplied cash payment or income accounts

Why did this happen?  It is usually a date issue. Someone dated a customer payment or a bill payment before the date of the invoice or bill. Simply go into the transaction and amend the date.

6.    Review the Profit and Loss Report

Use the Profit & Loss Detail report to really drill down and make sure every transaction is in the right category.  Check none are listed as ‘deleted’ in the Chart of Accounts.  Check every single transaction is in its correct account. Nothing is Uncategorized or in Ask my client/Accountant.  Nothing or very small items are in Miscellaneous.  If they are, then investigate and recategorize them. This is the best way to get accurate records which will help you when you need to analyse your data and know your numbers.

7.    Directors Loan Account (Limited company) or Drawings (sole trader)

Check all the transactions in this account to make sure they are personal expenses and do not need to be recategorized for business. If they are recategorizes make sure the VAT element is correct too.

If this all sounds like a lot to do, please give me a call and we can discuss the Bookkeeping Packages I offer.

www.purplebookkeeping.com