It’s the beginning of December and finalizing the books for the year is already on your mind. What can you do before sending your QuickBooks file to your CPA to make it easier for them to prepare the annual financial statements and tax returns? Here is a brief checklist to simplify the process:
1. Reconcile the Bank and Credit Card Accounts. This is a standard good practices activity that should be done on a monthly basis, but is sometimes overlooked in the flurry of year-end activities. Be sure to pay attention to the “uncleared” transactions (both payments and deposits) and research any stale-dated items that might be duplicated revenue or expense.
2. Check for Duplicated Cash Receipts. Start by selecting Banking > Make Deposits. If a window pops up showing that you have receipts that are ready to go to the bank, you will need to investigate this account further to find out the status of these items. There may be a duplication of income recorded during the year that needs to be addressed.
3. Compare the Balance Sheet to Last Year’s. Generate a comparative balance sheet by selecting Reports > Company & Financial > Balance Sheet Prev Year Comparison. Set the date range to “This Fiscal Year.”
The first account to review is Retained Earnings. The current year’s balance should be equal to the ending balance reported on last year’s tax return. If that’s not the case, you’ll need to dig deeper to reconcile the difference. Have any adjusting journal entries created by your CPA last year been posted to your QuickBooks file? Have there been any transactions posted after the year-end that are dated last year? Some common transactions are additional bills or voided checks, but there can be any number of reasons for this problem.
Next, go down the balance sheet account-by-account. Do the account balances make sense when compared to last year? Are there any negative amounts? Is there a balance in the “Undeposited Funds” account (see above) or “Opening Balance Equity”? If new equipment was purchased (or disposed of) during the year, is the change evident in the Fixed Asset accounts? Are loan balances being reduced as payments are recorded? Be sure to compare account balances to any outside documents you might have, such as bank, credit card, or loan statements, to make sure your QuickBooks balances agree.
4. Review Accounts Payable and Accounts Receivable. While steps one through three above should help you discover most common errors that might be hiding in your QuickBooks file, reviewing accounts payable and receivable will also help by revealing any old, outstanding items that need to be written off or transactions that need to be recorded. Access the accounts payable reports by selecting Reports > Vendors & Payables > Unpaid Bills. This will give you the open balance details summarized by vendor. To get a report of open balance details for your customers, select Reports > Customers & Receivables > Open Invoices.
The review checklist activities above will save your CPA many hours of work and go a long way to ensuring that you are generating complete and accurate financial reports, not only at year-end but throughout the coming year as well. For more information about preparing your QuickBooks files, please contact your Aronson LLC tax advisor or Susan Goncalves, Shanda Swann or Barbara Thomas at 301.231.6200.
About the Author: Susan Goncalves is a Manager in Aronson’s Diversified Commercial Services Group, where she specializes in federal and multi-state tax compliance for S corporations, C corporations, partnerships and individuals. She also has expertise in payroll tax compliance; accounting system structure and management, with specialization in QuickBooks; and assisting small business management with accounting managers as an outsourced controller.