How to Close the Books: Your Year-End Bookkeeping Guide

As the year ends, it’s time to close your books—finalizing your financial records so you can start fresh and prepare for taxes.

Closing the books can feel overwhelming if you’ve never done it, but it’s a systematic process. Here’s everything you need to do.

What Does “Closing the Books” Mean?

The Concept

Closing the books means:

Finalizing all transactions for the year
Ensuring records are accurate and complete
Preparing for tax filing
Resetting for the new year

After closing, your year’s financials are locked in and ready for reporting.

Why It Matters

Tax preparation: Your CPA needs accurate, complete records.

Historical record: You want a reliable record of how the year went.

Fresh start: Beginning the new year with clean books.

Legal compliance: Many businesses are required to maintain accurate annual records.

The Year-End Close Timeline

When to Start

Early December: Begin preparation

Start catching up on any behind items
Gather outstanding documents
Identify potential issues

Late December: Final transactions

Complete any final purchases or invoicing
Make tax-motivated payments
Collect outstanding receivables if possible

First Week of January: Close the books

Final reconciliations
Adjusting entries
Year-end reports

January 31: 1099 deadline

Issue 1099s to contractors

Tax filing deadline: Complete submission

All records ready for CPA

The Closing Process

Think of it as three phases:

Cleanup: Fix everything that’s wrong
Complete: Add everything that’s missing
Close: Finalize and lock

Phase 1: Cleanup

Reconcile All Accounts

Reconcile every bank and credit card account for December:

Match your records to bank statements
Investigate and resolve differences
Ensure ending balances match exactly

This catches errors before closing.

Review Transactions for the Year

Go through each month’s transactions:

Are they categorized correctly?
Are there duplicates?
Is anything miscoded?
Are large items properly recorded?

Fix errors now, not during tax prep.

Clean Up Chart of Accounts

Delete unused accounts
Combine similar accounts
Ensure consistent naming
Archive what you no longer need

Address Outstanding Items

Clear out the clutter:

Old outstanding checks (more than 6 months)
Uncleared deposits
Unexplained differences
Pending items in bank feeds

Fix Common Problems

Uncategorized transactions: Assign a category to everything.

Missing receipts: Find them or document what happened.

Duplicate entries: Delete the duplicates.

Wrong accounts: Move transactions to correct accounts.

Phase 2: Complete

Ensure All Income Is Recorded

Verify all revenue is captured:

All invoices sent and recorded
Cash payments recorded
All payment platforms reconciled (PayPal, Stripe, etc.)
Match to 1099s you’ll receive

Ensure All Expenses Are Recorded

Verify all expenses are captured:

December payments made but not yet recorded
Recurring expenses (subscriptions, etc.)
Petty cash and out-of-pocket expenses
Employee reimbursements
Year-end purchases

Record Owner Transactions

Ensure owner activity is correct:

Owner draws recorded (not expenses)
Owner contributions recorded (not income)
Personal expenses paid by business (code as draws)
Business expenses paid personally (reimburse or record)

Record Depreciation

If you have depreciable assets:

Calculate annual depreciation
Record depreciation expense
Update asset values

Your accountant may handle this, but have the asset list ready.

Accrue for Outstanding Items (Accrual Basis)

If you use accrual accounting:

Accrue expenses incurred but not paid
Accrue income earned but not received
Record prepaid expenses properly

Record Any Adjustments

Common year-end adjustments:

Prepaid insurance adjustments
Bad debt write-offs
Inventory adjustments (if applicable)
Corrections for errors discovered

Phase 3: Close

Generate Year-End Reports

Run and save these reports:

Profit and Loss (full year)
Balance Sheet (as of December 31)
Trial Balance
General Ledger (full year)
Accounts Receivable Aging
Accounts Payable Aging

Save as PDFs for permanent record.

Review Financial Statements

Look at your reports with critical eye:

Does the P&L make sense?
Is the balance sheet balanced?
Are there unusual amounts?
Do the numbers match your expectations?

Investigate anything that looks wrong.

Prepare 1099 Information

If you paid contractors $600+:

Compile list of contractors
Verify you have W-9s on file
Calculate total payments per contractor
Prepare 1099-NEC forms

Deadline: January 31 to both IRS and recipients.

Close the Books

In your accounting software:

Set a closing date (usually December 31)
Set a password for the closing date
This prevents accidental changes to closed period

Some software has a formal “Close Year” function.

Archive Records

Save and organize:

Year-end financial reports
Bank statements for the year
Reconciliation reports
Supporting documents
Tax returns (when filed)

Store securely (cloud backup recommended).

The Year-End Bookkeeping Checklist

Bank and Credit Card Accounts

Reconcile December bank statement
Reconcile all credit card statements
Clear outstanding items
Verify ending balances match

Income

All invoices sent for year
All payments received recorded
Third-party platforms reconciled
Revenue categories reviewed

Expenses

All expenses recorded
Expenses properly categorized
Receipt documentation complete
No personal expenses in business

Owner Transactions

Owner draws properly recorded
Owner contributions properly recorded
Personal/business clearly separated

Assets and Liabilities

Fixed asset list updated
Depreciation recorded
Loan balances accurate
Accounts payable verified

Payroll and Contractors

All payroll recorded (if applicable)
W-9s collected from contractors
1099 information prepared
1099s issued by January 31

Reports and Documentation

Tax Preparation

Records organized for CPA
Supporting documents gathered
Questions for CPA listed
Meeting scheduled with CPA

Preparing for Your CPA

What Your CPA Needs

Financial reports:

Profit and Loss (full year)
Balance Sheet (end of year)
General Ledger

Supporting documents:

Bank statements
Credit card statements
Significant receipts
Loan statements
Asset purchase documentation

Business information:

Changes in ownership or structure
New activities or revenue streams
Major purchases or sales
Any unusual transactions

Personal information (for pass-through entities):

Other income sources
Estimated tax payments made
Retirement contributions
Other deductions

Organizing for Tax Prep

Create a folder (physical or digital) with:

Profit and Loss
Balance Sheet
Bank statement year-end balances
Summary of major purchases
1099s received
1099s issued
Questions and notes for CPA

Common CPA Questions

Be prepared to answer:

Did you buy or sell any major equipment?
Did you take out any new loans?
Did you pay any contractors over $600?
Did you have any unusual income or expenses?
Were there any changes to your business?

After Closing: Setting Up the New Year

Roll Forward Balances

Your accounting software usually handles this automatically:

Asset and liability balances carry forward
Income and expense accounts reset to zero
Net income rolls into equity

Verify the beginning balances look right.

Review Chart of Accounts

For the new year:

Add new accounts if needed
Remove unused accounts
Update for any business changes

Update Budgets

If you use budgets:

Review last year’s actual vs. budget
Create budget for new year
Build in realistic expectations

Set New Year Goals

What are your financial goals?

Revenue targets
Profit margin goals
Cash reserve goals
Debt payoff plans

Write them down and build them into your tracking.

Schedule Recurring Tasks

Set reminders for:

Monthly reconciliations
Quarterly estimated taxes
Mid-year review
Next year’s close

Build the habits that make year-end easier.

Common Year-End Mistakes

Mistake 1: Waiting Until April

Starting in April means rushing, errors, and stress. Start in December.

Mistake 2: Not Reconciling

Skipping reconciliation means errors carry into tax returns. Always reconcile.

Mistake 3: Forgetting 1099s

The January 31 deadline sneaks up. Start gathering W-9s in December.

Mistake 4: Incomplete Records

Missing receipts and documentation cause problems later. Complete records now.

Mistake 5: Not Communicating with CPA

Your CPA shouldn’t be surprised by your financials. Communicate during the year and before year-end.

Mistake 6: Making Changes After Close

Once you close, don’t make changes to prior year. Adjust in current year if needed.

When to Get Help

Signs You Need Help

You’re significantly behind on bookkeeping
Books don’t balance or make sense
You’re unsure how to handle certain transactions
You’re stressed about year-end
You don’t have time to do it properly

What Help Looks Like

Bookkeeper cleanup: Catch up and close the books for you.

Bookkeeper ongoing: Maintain books so year-end is already done.

CPA review: Have an accountant review your work.

A few hours of professional help can save days of stress.

The Bottom Line

Closing the books is about accuracy, completeness, and preparation:

Clean up what’s wrong
Complete what’s missing
Close and lock the year

Done properly, year-end close takes a few hours—not a few weeks of panic. The investment pays off in smoother tax prep, accurate records, and a fresh start.

Start early. Work systematically. Don’t skip the reconciliations.

Need help closing your books? At Profit Path Books, we can handle year-end close for you or maintain your books so closing is seamless. Book a consultation to get help before year-end.