Here's a fun fact for your holiday reflection: according to the Bureau of Labor Statistics, there are over 1.3 million certified accountants in the US. While you may not be among their ranks, you can still learn some important skills from these hardworking professionals.
As someone who likely has other career-related priorities, it can be difficult to manage a business. After all, you may be looking for ways to make end-of-year accounting easier for yourself and your employees. And with good reason! There are a lot of long-winded and incredibly important technicalities at the end of the year surrounding money that leave you feeling overwhelmed. And that's okay—even the most seasoned accounting professionals get confused sometimes!
Fortunately, we've got your back.
All the questions circling in your mind may be haunting you (what does closing the books mean in accounting, anyway?). But there's still hope! We've compiled your ultimate guide for balancing the books, organizing your finances, and checking your work this holiday season. Read on to make accounting easier than ever for yourself—regardless of your accounting experience.
Clear Your Space of Distractions
Clearing your space of distractions is an important first step to starting the accounting process. It's been scientifically proven that having a clear space leads to having clear thoughts and that having fewer distractions increases productivity.
Set the Mood for Work
Once your physical space is set up for work, it's crucial that you also get in the right headspace to begin closing the books. Use the restroom and keep a bottle of water beside you to minimize distractions that cause you to get up.
Also, take a moment to gather your bearings before beginning your work. Listen to a favorite song that will put you in the mood to go at it. Close your eyes, lean back at your desk, and meditate for a few minutes to clear your head. Once that's done, you're ready to get to work!
Know Your Key Terms
The cash flow of a company refers to how much money has been gained or lost during a pay period. To get the cash flow, all you need to do is to take the difference between how much money you have now, at the end of the year, and how much money you had at the beginning.
The definitions listed above are only a few of the most crucial ones. If you need more information, check out this list of accounting definitions! If you know the basics, you're sure to be successful in your work.
What Does Closing the Books Mean in Accounting?
Deal With the Invoices
Perhaps the most crucial thing you need to do when closing the books for the year is to make sure that all our company's invoices are up-to-date. If people have bought things from your business, you need to send them invoices, and you need to do it ASAP. If you don't, your customers and clients won't have the information they may need for taxes or for their own year-end closing of the books!
The clock’s ticking, and you can’t wait any longer to send invoices. On the flip side, you also can’t wait any longer to receive invoices from your vendors. Now’s the time to follow up! Most accounting software will let you easily send invoice reminders for clients or customers who have yet to pay you. And you’ll also want to send follow-up notes to vendors who haven’t invoiced you so you can make payments before the end of the year.
Manage the Expenses
Next, you're going to need to figure out what's going on in relation to your expenses. You likely have been recording your expenses all through the year—great! But if you've forgotten to jot some down, that's okay. It's just going to mean a little extra work now. Having all your expenses in your bookkeeping software is crucial to helping your accountants find all the tax cuts your business can possibly get.
Pay the Bills
The next step is pretty straightforward: you need to pay all the bills that are due before the end of the year!
Remember to pay bills from vendors, contractors, and anyone else you may have wracked up debt with.
Update the Accounts
The next thing to do after paying the bills is updating your accounts. This means that you need to reconcile your bank accounts for your business. You need to make sure that all the income and expenses that you've recorded in your accounting program match those of the official statement that your bank has provided. Failure to do this correctly can cause a lot of strife since you'll be unsure how much money you actually have.
Decide on Employee Bonuses
Finally, as Christmas is the time for giving, it's important that you decide on what bonuses you're giving to which employees. There are a lot of ways to do this, and a popular and fair way to distribute bonuses is to do so by merit. If someone has brought a lot of money in for the company in 2019, reward them for that while preparing for 2020!
After you've made these decisions, be sure that the bonuses are recorded into your accounting software. This will ensure that you don't lose track of where your money has gone and who has already been given Christmas bonuses.
Double Check Everything
Check Up on Tax Information
Before you pay your taxes in April, check up on tax information that's relevant to your business. Occasionally, the IRS will change the amount taxed to certain parts of your business or add or deduct certain deductibles that can help you get money back. Make sure you look at their website so you know exactly what will happen come tax time.
Verify Employee Information
Inventory and Report Check
Finally, you're going to need to do a final inventory and report check of your business. Do the inventory of your assets on the day that you close the books—you'll need this information going into the next year so you can record how much stock you're starting out with.
As for your reports, use your accounting software to run an income statement and balance sheet report. This will get all your necessary information in one place before submitting the information to its appropriate locations.
As a side note: like other parts of closing the books, this job is made much easier with an affordable accounting program that you can run on your computer!
Wrap Up The Year
While closing the books and doing other accounting-related tasks for your company may sound daunting, there are ways you can make it easier on yourself. Knowing how things work, understanding key terms, and utilizing the technology that's at your disposal will work wonders for you this season.
Now that you know the answer to your ultimate question (what does closing the books mean in accounting?), it's time to make the whole process easier for yourself. Click here to get started with the best online bookkeeping service out there. Our software will balance invoices, check expenses, and do all of the rest of the busy work for you so that you can focus on the important tasks that you need to do for your company.