Completing a year end can be a daunting task for many small business owners - one that can prompt all kinds of avoidance tactics! In reality, a business year end is purely a wrap up of the past year and can usually be completed in a series of steps, beginning as early as Day 1 of your new year. Ideally, though, you can begin these steps 2-4 weeks after year end which will ensure you capture everything that needs to be addressed prior to turning your accounts over to your accountant.
Consider your past year and determine if there are any events that may have (or did have) a financial impact that you have not yet accounted for. These could include:
- the potential write-off on sales invoices where you have determined that the amounts will not be recoverable
- large deposits on a future sale that you will need to account for
Your next step is to determine whether payments received AFTER year end should be attributed to the Sales Revenue of your year just ended. An easy way to determine this is to look at the date of the invoice to the client or to look at the date the service was provided, goods shipped, etc. If you have a policy on how and when you recognize revenue, this will help in your assessment.
Following the same idea - determine whether any bills received after year end (usually in the first two weeks) should be attributed to your pre-year end expenses. This is usually easy to determine - look at the date of the bill - if the date is prior to year end, enter the bill date. If your internal policies dictate that you ONLY recognize an expense when a service has been provided or goods received then it is that date that dictates the payable date of the bill.
Confirm Accounts Payable and Accounts Receivable
It is very easy, during the year, to make dupicate entries, forget to clear payables and receivables, etc. and these will usually be caught when you perform your month end procedures. It is a great idea, however, to check your outstanding Payables and Receivables after year end (following Cut-off, above) to make sure that the transactions that are outstanding at year end are, indeed, legitimate payables and receivables.
In order to do this, Select Reports > All Reports (1) and choose Aged Payable Detail (2) - see next picture.
As you can see, above, this report will provide a detailed listing of all the Vendors to whom you owe money at the end of your fiscal year. This report is terrific in that it allows you to click on any of the Bill transactions, view the Bill and determine whether it is, indeed, outstanding. If a duplicate, error or otherwise NOT a legitimate, you can address any changes that need to occur at that time, whether is is editing the Bill, voiding, etc. The same process can be completed for Accounts Receivables. Much of the time, you will find that - if any errors exist - they will be found in the transactions that have been outstanding for 3 months or more unless you are in an industry where the payment of bills is 60 or more days.
Bank, Credit Card and Other "Cash" Balances Confirmation
One of the first steps taken by your accountant may be to determine whether the Statement Balance that is reflected in Xero is consistent with your actual Bank Statement balance, taken from your online banking or physical bank statements.
If you have run the Reconciliation Summary reports monthly and cleared up any errors then this procedure may be relatively quick. To access the Reconciliation Summary, select Reports > All Reports and select Bank Reconciliation Summary.
You will be prompted to select the bank account you wish to see - you will also need to select the date that reflects your year end.
You will also notice that there are two other tabs next to Bank Reconciliation Summary. These provide additional information - and potentially insight - into where any discrepancies may have arisen.
Statement Exceptions can be especially useful as it provides a listing of all transactions that have been manually reconciled by the User (likely you), bank statement lines that have been deleted for one reason or another as well as other possibilities. It is often one or more of these statement exceptions that are the cause of any differences between the bank statement balance in Xero versus your actual bank account statement balance.
Xero handles GST quite nicely with only a few work-arounds needed for GST instalments, GST paid on foreign shipments and other transactions that differ from the basics.
Selecting Reports > All Reports > Sales Tax Report will allow you to generate the GST Report that will assist you in preparing your return. *Note that Sales Tax Report may be a highlighted report that you can select directly from the Reports drop down menu. Selecting the box "Show by Account Type" may provide additional information and you can "check" your GST totals by comparing them to a Profit and Loss statement run for the same period.
As with any report, select the appropriate date range, update and review the numbers. As above, make sure that any GST collected or paid using accounts other that the Locked Sales Tax account will need to be added to the figures on the Sales Tax Report - or actual GST return worksheet - to ensure a correct return.
While the above procedures are by no means an exhaustive list, they are some of the most important steps to be completed in the preparation of your year end and will potentially reduce the list of questions you may receive from your accountant (and potentially your bill). If you have any questions or would like further elaboration, please don't hesitate to reach out!
Have a great, stress-free year end!