Closing the Books, Part 2

In Part 1 of Closing the Books, we shared tips for making month-end close smooth sailing. Now, let’s delve into year-end close.

Year-End Close Considerations

As your fiscal year draws to a close, it’s time to look at:

1. Receivables and payables
2. Salary fringe allocations/accruals
3. Worker’s Comp/Unemployment Insurance
4. Year-end postage (and other supplies)
5. Reclassification of temporarily restricted/unrestricted net assets
6. Reconciling statement of position (balance sheet) and closing/opening accounts

Receivables and Payables

At year-end, it is important to review all receivables and payables to ensure they are attributed to the correct year. If any are “subsequent events,” they need to be adjusted so they reflect the correct fiscal year.

Salary Fringe Allocations/Accruals

Review all entries pertaining to salaries and benefits. Make sure that any benefits, including bonuses, are attributed to the correct fiscal year. Carry over any Paid Time Off (PTO) or other benefits that accrue year-to-year.

Workers Comp and Unemployment Insurance

These expenses should be evenly apportioned among programs. You can do this via journal entries. Workers Compensation insurance may have varying rates; however, workers comp insurance for specific positions may be higher than for others.

Year-End Postage and Other Supplies

Postage and other supplies that are not carried as prepaid expenses or inventory assets should be moved from the expense account to the prepaid inventory account and then reversed in the opening month of the new fiscal year.

Reclassification of Temporarily Restricted/Unrestricted Net Assets

If you have fulfilled the restricted purposes or conditions of any net assets, the balance of the net asset categories must be updated. It’s a good idea to do this monthly or quarterly, or you can do it at the end of the fiscal year via a journal entry.

Reconciling (SOP) Statement of Position (Balance Sheet) and Closing/Opening Accounts

When you receive the auditor’s year-end adjustments, double check that your financial statements match the audit figures. This check helps with several things. First, it ensures that you have entered all the audit entries correctly into your accounting software. It also ensures that all subsequent statements will be correct. This is especially important for SOP account balances; they carry over from year to year. Statement of Account (SOA) ending balances should also match your system so that you can view accurate year-over-year comparisons.

Make Year-End Close Easy

Although taking time from your busy day to complete monthly and year-end closing can be challenging, failing to do so can lead to many problems. Your accounts can quickly get out of sync, showing incorrect assets and liabilities; amounts won’t tally with bank or credit card statements; and you’ll quickly lose sight of the big picture of your organization’s finances.

Using the outline in Part 1 and the next steps detailed here in Part 2 of the various steps needed to close monthly and end of year accounting, you will make this process smooth and easy—and gain an accurate and complete picture of your organization’s finances.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.