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Year-end closing

Year-end closing is the process in which companies inspect and update their accounting records ("the books") at the end of the fiscal year. This is the critical final step in the company's annual financial reporting process.

The year-end closing process identifies any balances or deficits on the company's books, which are then carried over into the new fiscal year. This lets you create more realistic budgets based on what was actually spent in the prior year.

The ultimate goal is to maintain good fiscal hygiene and keep a close eye on the company's financial health.

Typical year-end close procedures

While every company may have its own year-end close procedures, here's a list of common activities that most businesses follow. 

Create a closing schedule

Identify the important dates and the activities that must be completed by each. These include reporting and data processing deadlines and the fiscal close date.

Gather outstanding invoices & receipts

You’ll need these to reconcile and close the books. Ensure that all employees understand their obligations and give them ample time to submit documents. Expect delays.

Examine your assets

Reconcile all cash accounts and record adjusting entries. Compare inventory accounts with physical stock (if appropriate), and review prepaid spend.

Reconcile transactions

Ensure that your recorded transactions match evidence from credit card statements, bank statements, invoices and receipts.

Close accounts receivable & payable

Compare amounts received or paid against what has been accrued. If there’s a balance, create adjusting entries.

Accrue accounts receivable & payables

Any receivables owed at the end of the year should be added as credits on the income statement, and debits on the balance sheet.

Any unpaid debts (payables) should be listed as liabilities or accrual expenses on the balance sheet.End-of-year closing checklist for finance teams

Further tips to ensure a smooth close

Throughout the year, certain common activities need to be done diligently by finance teams. Ensure you have good processes for the following.

A clear procurement process

You need full visibility over purchasing and procurement. At month- and year-end, you should be able to check any important transaction to see the purchase order, approval, fulfilment, and delivery. And the more you can automate all of this, the better.

Smooth travel expenses

Employee expense claims can add hours or days of work at the end of the year. Your ability to collect claims and receipts and then process reimbursements smoothly is critical. 

Integrated accounting systems

With modern technology, there's no good reason for many data entry. Your accounting systems should integrate with one another, so you're never copy/pasting data from one to the next.

Why year-end closing is important

Whether at month-end or year-end, the close process serves a few important functions. These procedures help you:

In most countries, companies have an obligation to share their final status each year. The annual close is also crucial in any audit, and consistent, accurate books are crucial to successfully running a business. 

Create investor reports

For public companies, filing an Annual Report for investors is also a legal obligation. And in venture-backed companies, investors need to make sure that their money is well spent. 

Ensure effective financial management

Regularly examining the company's books and eliminating errors as you go reduces the chances of major issues down the line. Like checking a car's tires and wheel alignment, the closing process gives you regular opportunities to make sure that the company is set up well for the future. 

The key annual financial statements

Public companies are obliged to provide an Annual Report to shareholders. This must give an accurate account of the company's state, based in part on a few key financial statements. 

As part of the closing process, finance teams typically prepare three documents: 

  • Annual balance sheet: This shows the companies assets, losses or liabilities, and shareholder equity as of the current fiscal year. 

  • Profit and loss (P&L) statement: The P&L statement (also called the income statement) sets out the funds coming into or going out of the business during the year, typically broken down into categories. This shows the company's overall profitability, and investors use it to assess the ability to impact profitability over time. 

  • Cash flow statement: This shows the amount of cash entering and leaving the business, excluding any future or unrealised amounts (credits). It gives the company's cash position at the end of the year - a quick way to see your financial health.

Together, these three statements form the financial basis of your annual report.   

Key accounting terms

A few phrases or terms related to the financial close process:

Fiscal year

The fiscal year is the 12-month period measured in the year-end close period. This often isn't a regular calendar year, and may instead be determined by the date when the company was registered. Unlike the tax year - which is a fixed date set by the government - a company's fiscal year may be chosen by its founders. 

Fiscal year-end closing produces a summary of the company's financial situation for this fiscal year, and not necessarily the calendar year.

Closing date

The closing date is the final date for closing the books - the last day of the fiscal year. All revenue and expenditure created on or before this date belongs in the prior year, while any after this date is listed in the next fiscal year.

Similar to tax filings, companies will often require one or two months following the closing date to complete the year-end close process and account for any activities that took place up until this date.

Accounting period

The accounting period is simply the time period for which you're closing the books. For the year-end close will usually by the fiscal year. For a month-end close, it will be the previous month. 

Trial balance

A trial balance is similar to the balance sheet, but limited to a specific period of time - usually a month, quarter, or year. It sets out the different ledger accounts with either debit or credit amounts remaining. The amount of credit balance remaining should equal the debit balance, indicating "balanced" books.

Accounts payable

This is the money owed by your company to suppliers. Like any debt, accounts payable is a liability needs to be paid at some point. Thus it needs to be listed as a debt or liability in balance sheet accounts.

Accounts receivable

Accounts receivable are the various amounts owed to the company by customers or borrowers. These are listed as credits at closing, but can't be included in the cash flow statement until the money has been received. 


Accrual versus cash basis accounting is a common consideration. As the name suggests, cash basis accounting only considers cash that has entered or left the business by the closing date. In other words, what matters is cash in hand. 

Accrual accounting includes the company's assets and liabilities at the closing date (including accounts payable and receivable). For this reason, it's often considered a more accurate reflection of the company's financial health. 

General ledger

The general ledger is your core record of transactions, listed as journal entries. General ledger accounts should have all the information needed to deliver the three financial statements explained above, and to produce the company's Annual Report.

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Last update: 2 February 2022