In continuation of my last article, that covered year-end closing activities related to receivables, I have listed year-end activities related to payables here.
- Accrual of Expenses & Taxes (Payroll, Rent, Utilities, Property Tax & Sales Tax)
Many small businesses either maintain their books on cash basis or do not accrue important expenses like rent, wages etc. on a monthly basis. Hence year-end accruals are a necessary step. Also, accruals done for previous months need to be reversed in the current month.
- Aged Payables should match with A/P
This is similar to the balancing done in AR. Differences indicate missing bills and/or vendor payments applied against AP balance rather than being applied to the individual bills. It could also indicate journal entries that hit the AP account but not the individual vendor balances.
- Review and approval of all journal entries and check disbursements
This is important activity as disbursements need to be carefully analyzed to account for missing check numbers and reconciled with bank and credit card statements. Journal entries involving large disbursements need to be carefully reviewed for accuracy.
- Check All Expenses A/c's according to their trends
Analyze values of expense account for different months against their averages to identify outliers. Outliers could indicate seasonal expense, unusual occurrence or data entry error. Its' useful to draw trend-lines to understand and identify expenses growing or going down.
- Check all Tax Liabilities Payments
Balances of sales tax, payroll liabilities, and property tax need to be reviewed along with payments done for these liabilities through the year, so that correct year-end liabilities can be stated. It is especially important to check taxable against non-taxable sales.
- Reconcile bank and credit card statements
This is a very important activity which ideally should be done monthly. However many small businesses end up doing this at the time of yearly closing of books. Credit card statements should be scrutinized carefully to separate personal expenses from business expenses.
- Reconcile Inventory Physical to General Ledger
Inventory reflected in books is usually out of sync with the actual physical inventory. Hence a physical count needs to be done at year-end to adjust the inventory count in books. If there is a shortfall in physical count, this means the inventory difference needs to be recognized as an expense and vice-versa. Additionally some items' existing market value may be far below the original cost. So it is necessary to mark-to-market (a finance term for adjusting book values to reflect current market values) such items. This will affect the income statement of the firm.
- Check if interest have been booked on all liabilities
While doing this step, it is useful to pay attention to the terms of the note payable/loan payable. Interest booked will depend on these terms too.
Most of these activities require good accounting knowledge, so it may make sense to use an outsourcing accounting service provider to do these activities for you. With the help of economical outsourcing services, you sure can keep your books healthy at year-end!
Priyankar Baid is an experienced accountant who has consulted small businesses in US, Cananda and UK over the last few years. He also runs a firm http://www.outsourcinghubindia.com specializing in online accounting. He helps businesses set-up accounting systems, clean-up existing books and implement outsourcing agreements. His firm specializes in providing accounting and reporting services to small medium businesses in North America. Article Source: http://EzineArticles.com/?expert=Priyankar_Baid |
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