8 Tips for Closing Your books Faster from an Accounting Experts
It is still the tax season, and if you have prepared your necessary documents for your business, then good job! One of the factors for the success of tax filing is the bookkeeping of all the required documents, expenses, and financial transactions of a business.
Closing the books is a year-end activity where reports are finalized for every business. “Books” are the company’s transaction records used to generate financial statements, and these transactions inform the company about the money flowing in and out of their business. Closing books means reconciling financials and producing reports for the given period, and the information reflects the company’s financial position.
There are ways to close your books faster, and we will share with you these tips.
Transfer Journal Entries to the General Ledger
The journal is the first point of entry for all transactions in bookkeeping. When posted to an account, the journal entries are transferred to the general ledger.
The bookkeeper should post account totals from the company’s cash payment to the company sales and cash receipts journal to the correct general ledger account to close the books. Cash payments or cash disbursements may include payments made by cash, check, or electronic fund transfer. It is the same with the cash receipts journal, but this journal only tracks the inflow and not the outflow of the funds.
Small companies opt to close their books monthly for easier tracking. However, some do it on a quarterly or annual basis. It means that they can add entries for one month or choose entries for specific months or the whole year.
Total the General Ledger Accounts
It is easier to close books when you have worked out the total for each account by adding up all your entries. Add up all the transactions in each general ledger account. Doing this will give you a preliminary ending balance for each account.
Make a Preliminary Trial Balance
Sum up the general ledger account ending balances together to make a trial balance. The trial balance is the report that adds up all the credits and debits in your business. The total credits are to be the same number as the total debits. If they are not, go back and check your work. If the credits and debits are equal, your accounts are balanced, and you are ready to go to the next step.
Prepare Adjusting Journal Entries
Accountants should make certain end-of-period adjustments before you can close your books. Adjusting entries are required to account for items that are not recorded in the daily transactions, such as depreciation accrual, real estate taxes, etc. In a traditional accounting system, adjusting entries are made in a general journal.
Make an Adjusted Trial Balance
Work out the general ledger accounts again to consider the adjusting entries from the previous step and then add them all together to make a trial balance. Ensure that the debits and credits are again equal. If not, go back and check your work.
Prepare Financial Statements
After tracking down and correcting any trial balance errors, the accountant is ready to produce a balance sheet and income statement, known as the profit and loss report. The reports are generated automatically in the accounting software, and they overview a business’s financial position at the end of the applicable accounting period.
Prepare Closing Entries
Prepare the general ledger for the next accounting period by clearing out the revenue and expense accounts and transferring the net income or loss to the owner’s equity. It is done by preparing the journal entries called the closing entries in a general journal.
Generate a Final Trial Balance
All revenue and expense accounts should have zero balance after making the closing entries. Generate another trial balance with balance sheet accounts. The total debit balance should be equal to the total credit balance. This will ensure all general ledger account balances are correct from the beginning of the new accounting period.
The primary purpose of closing your books at the end of the accounting period is to allow you to prepare financial statements that will give the company a picture of its business’s financial status. Closing the books will ensure that your bookkeeping system is in good order and is generating accurate numbers to include in the tax return.
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With our free banking and bookkeeping services, we can ensure that your books are up to date, synchronized, and accurate.