Preparing for Year End using QBP

Perhaps work is slow in December in the field, but there’s enough to do in the accounting department to keep two people busy. Start now to get your books ready for year end so that January will be less hectic and you’ll only need to worry about W-2s, 1099s and payroll quarterly and year end payroll reports.

Here’s how to do it in QuickBooks (or any other program for that matter, the theory is the same):

Year end work to be typically means proofing all balance sheet accounts as of the end of November so that you’ll know where and what needs to be researched in advance of year end. At that time (after the 11/08 review) everything else should take care of itself for year end and be relatively straightforward.

The Remodelers Ultimate Guide to QuickBooks by Judith Miller

The Remodelers Ultimate Guide to QuickBooks by Judith Miller

So start a few file called “year end 2008 review”; start with the Balance Sheet of 12/31/07 from the tax return and make sure that QBP balances as of the end of last year = that of the tax return; then print the Balance Sheet as of 11/30/08 and then start reconciling all balances to outside source documentation. When reconciled, place photocopies of those balances together with the QBP reconciliation statement (or report print out) in the file – assets on the right, liabilities on the left. By the time you’re done with this nearly everything should be tied down in the Balance Sheet except perhaps for depreciation if you don’t book depreciation monthly.

When the Balance Sheet is perfect (to the penny) then the Profit/Loss will be also perfect (to the penny), although expenses might have been posted erroneously in the Profit/Loss. This is checked by reviewing account balances for reasonableness and checking against budget to actual.

 Year End Checklist

Goal: to simplify year end processing and ensure accurate numbers for payroll tax, managerial and job cost reporting. 

By now you’ve probably completed the first part of the process, completing federal and state required payroll, 1099 and business tax forms. Review the list below to make sure:

  • Close payroll year: [note all reports and forms noted below should be mailed no later than February 2nd, 2009; because the end of January falls on a Saturday, these must be postmarked at the latest by Monday February 2nd.
  • Prepare Quarter 4 941 and state quarterly report and mail;
  • Proof 941 and state 4 quarterly totals to annual payroll summary and to W2 totals – do this BEFORE printing your W2 forms to be sure that all the information contained in your quarterly reports is identical to that contained for year end W2, 940 and state reporting. Research and correct any discrepancies.
  • Prepare W2s for employees and mail.
  • Prepare 940 and any required state annual reconciliation forms and mail.
  • Prepare and mail (again by February 2nd, 2009) all required 1099 forms. Don’t skip or minimize the importance of this part of the year end processing: during a Federal audit, any expenses related to 1099 payees which were not reported will be disallowed for tax purposes.
  • Prepare and hold until the end of February the W3 and 1096 forms which transmit the Federal government’s originals of W2 and 1099s. This allows recipients of each to verify and correct, if necessary, information received from you. Be sure to mail both the W3 plus attached W2 forms and the 1096 plus attached 1099 forms no later than Monday, March 2nd, 2009.

The second part of the process involves preparing financial reports, substantiated by job cost reports, for managerial as well as tax reporting. To the degree that the reports from your current accounting system are reliable, the amount of work required from your CPA will be minimized.

  1. Begin a year end file which will contain all reports, both draft (marked clearly in red) and final together with all supporting documentation. You’ll put copies of the balance sheet documentation on one side, profit and loss documentation on the other. This file will allow you, or anyone else, to better understand the data contained in your final reports used for tax preparation.
  2. Review beginning balances for the current year by comparing them to that of your tax return from the prior year: compare the balance sheet on page 3 of your 2007 corporate tax returns to that of your accounting system. The equity balances should be identical, thus providing an accurate starting point from which to analyze 2008 reports.
  3. Determine a closing date: decide at what point you will have received the majority of invoices from material and trade suppliers, processed the final payroll and entered all accounts receivable invoices for work done in 2008. This is usually by the 10th of the month following however for year end reports, you might choose the 15th or the 20th to be certain every applicable cost has been entered into the accounting and job costing system. Remember to date all transactions in the month and year in which the work occurred, not in which you entered the transaction. This is critical to good reporting.
  4. Prepare an accurate WIP [aka “over/under billings’] for year end: after all postings have been made for 2008, you’ll be able to pull complete and accurate job cost and revenue reports to produce one of the most important numbers in construction accounting: the WIP report, also known as ‘over/under billings’.
  5. Determine which open jobs require a detailed cost to complete analysis in order to calculate the WIP correctly: typically these are any jobs which you know are either materially ahead or behind budget or any large jobs which are at 30/60/80% complete. Print all supporting documentation from your job cost accounting system as well as the calculation form itself and attach to the journal entry representing the year end adjustment.
  6. Proof the balance sheet accounts: because balance sheet accounts carry balances forward from year to year and because they can be easily (relatively easily) balanced to outside source documentation, we start with the balance sheet proof at year end. When the balance sheet accounts are correct, the net profit (or loss) is perfect as well. [For a complete checklist of balance sheet review, visit Judith Miller’s blog here “Tips and Tricks/Balance Sheet”]
  7. Review profit and loss accounts: this is a more difficult proposition than reviewing the balance sheets because there are more transactions and fewer source documents from which to easily proof.
  8. Start by comparing the profit and loss statement to the annual company budget. If you’ve been watching your budget vs. actual reports for the company [as opposed to jobs] over the year, you’ll have a good idea where and why variations occurred. If not, you’ll need to review each component of the profit and loss to be sure that transactions were posted properly.
  9. Next reconcile the job cost summary information to the COGS section of the profit and loss statement: the total revenue for all jobs should equal the total revenue from which your gross profit margin is calculated. Likewise total Cost of Goods (or Direct Expenses) in the profit and loss statement should equal the total of all costs tied to jobs for the year. Be sure you don’t have a job called “My Company” or something like that where you’ve posted costs which are truly overhead – this can skew the reconciliation significantly.
  10. By now you’ve probably got a good sense of the potholes in your financial and job costing system – use this opportunity to fix them, immediately, so that 2009 reports are more reliable and allowing you to better manage both jobs and the company effectively. And build your new year’s budget based on reliable and accurate data. Good luck!
J. Miller and Company
3518 Fremont Ave N #546 Seattle WA 98103
(510) 847-6053
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