This guide covers 10 key areas to review before year-end to support a smoother close and a more manageable tax season. Whether a business manages its accounting internally or works with an outsourced accounting partner, addressing these adjustments early can improve financial accuracy, simplify tax preparation, and reduce year-end reporting issues.
What Are Year-End Accounting Adjustments?
Year-end accounting adjustments are entries made to financial records before finalizing the books for an accounting period. These entries ensure that revenue and expenses are recorded in the appropriate period and that assets and liabilities are accurately reflected in the balance sheet.
Without these adjustments, businesses may report incorrect profits, carry inaccurate account balances, or overlook financial obligations.
10 Year-End Accounting Adjustments Every Business Should Review
1. Accrued Expenses
Expenses relate to the current accounting period but have not yet been invoiced or paid. For example, professional fees for services already received, utilities consumed but not yet billed, contractor expenses pending invoices, and interest accrued on loans.
Why it matters: Missing accrued expenses can overstate profitability and understate liabilities.
2. Prepaid Expenses
Businesses often pay certain expenses in advance, including insurance premiums, software subscriptions, rent, and annual service contracts. The portion applicable to future periods should remain recorded as an asset rather than being entirely expensed in the current period.
Why it matters: Expensing a full prepayment at once understates this year’s profit and overstates next year’s. At year-end, list each prepaid balance and confirm that only the consumed portion has been expensed.
3. Depreciation and Fixed Asset Adjustments
Fixed assets such as computers, machinery, furniture, and equipment may require depreciation entries at year-end. Review all newly purchased assets, disposals and retirements, depreciation recorded for the year, purchases that were expensed but should have been capitalized, and any change in useful life or estimates.
Why it matters: Incorrect fixed asset records can affect both reported expenses and balance sheet values.
4. Accounts Receivable and Bad Debt Allowances
Outstanding customer balances should be reviewed before finalizing the books. Age your receivables and look for overdue invoices, disputed balances, likely uncollectible accounts and missing credit notes. Then decide how to reflect expected losses.
The appropriate approach depends on the accounting framework and the nature of the receivables. Review the allowance methodology and any specific write-offs with your CPA to ensure they are recorded correctly.
Why it matters: Unreviewed receivables overstate what you expect to collect.
5. Accounts Payable and Unrecorded Liabilities
Compare vendor statements, open purchase orders and January payments against your payables ledger. Common misses are vendor invoices dated before year-end but received after it, contractor payments, outstanding professional fees, freight and logistics charges, and pending operating costs.
Why it matters: Unrecorded liabilities make results look better than they are.
6. Deferred Revenue and Customer Advances
Businesses that receive payments before delivering goods or completing services may need to recognize these amounts as liabilities until the applicable revenue recognition criteria are met. Examples include annual subscriptions, advance payments, retainers and prepaid service contracts.
Check that each balance has been released to revenue only as the service was delivered.
Why it matters: Recognizing revenue too early can distort financial performance and create year-end reporting issues.
7. Payroll and Employee-Related Accruals
Payroll records should be reviewed to identify compensation and employee-related expenses attributable to the current period but payable later.
Depending on the business and applicable accounting requirements, these may include unpaid salaries and wages, bonuses earned during the period, commissions payable, employer payroll taxes, and accrued paid leave or other employee benefits.
Why it matters: Payroll is usually a company’s largest cost and payroll-related adjustments help ensure employee expenses and related liabilities are recorded accurately.
8. Inventory Valuation and Adjustments
If you hold inventory, reconcile the physical count to the books and review discrepancies, damaged or obsolete stock, goods in transit, and costing. Write inventory down where cost is not recoverable, as your framework requires.
Why it matters: Inventory errors flow straight into cost of goods sold, gross profit and the balance sheet.
9. Bank, Credit Card, and Balance Sheet Reconciliations
Reconciliations are how you find what is missing. Reconcile bank and credit card accounts, loans, receivables, payables, payroll liabilities, clearing and suspense accounts and, where relevant, intercompany balances. Investigate every unexplained difference rather than carrying it forward.
Why it matters: Reconciliations expose missing transactions, duplicates, misclassifications and wrong balances, each of which may need an adjusting entry.
10. Foreign Currency and Other Year-End Valuation Adjustments
If you hold foreign currency balances or transact in other currencies, revalue foreign currency bank accounts, receivables, payables and loans at year-end rates and record the exchange gain or loss.
Also check balances that depend on estimates or fair value, such as:
- Investments, which may need to be marked to market
- Goodwill and other intangibles, which may need an impairment review
- Lease balances, such as right-of-use assets and lease liabilities where they apply
Why it matters: Balances should reflect values at the reporting date, not stale amounts.
Tax-Focused Year-End Items for the 2027 Filing Season
Clean books make tax preparation faster, and several tax items need action before or just after December 31. Confirm details and deadlines with your CPA, since rules vary by entity type and state.
- Information returns (1099 and W-2). Collect W-9s from contractors now, confirm which vendor payments are reportable, and check the current IRS reporting threshold for the year.
- Estimated tax payments. Review year-to-date profit and compare it to payments already made. A final estimated payment may fall in December (for calendar-year corporations) or January (for many individuals and pass-through owners).
- Income tax provision or accrual. If your statements include income tax expense, estimate the current-year liability and record it so profit is not overstated.
- Sales tax and other indirect taxes. Reconcile the sales tax payable account to your returns and filings, and clear any difference before closing.
- Book versus tax depreciation. Tax depreciation often differs from the schedule in your books because of elections such as Section 179 and bonus depreciation. Decide on asset purchases and elections with your tax advisor while there is still time to act before year-end.
- Payroll tax liabilities. Tie payroll tax payable to filed Forms 941 and state returns, and confirm that year-end payroll is fully recorded.
- Supporting documents. Gather loan statements, asset purchase invoices, vehicle logs and home-office or other deduction support while they are easy to find.
A Practical Year-End Accounting Review Checklist: What to Do in November, December and January
Before finalizing the books, your in-house or outsourced accounting teams should confirm that the following activities have been completed. Spreading the work over three months keeps the January close from becoming a scramble.
The timeline below is designed for businesses following a calendar year ending December 31. Businesses with different fiscal year-ends should adjust the schedule accordingly.
November: Find the Problems
- Reconcile bank, credit card and loan accounts through October.
- Review receivables aging and chase or flag overdue balances.
- Clear or explain old items in suspense and clearing accounts.
- Collect W-9s from contractors and confirm vendor details.
- Review year-to-date profit with your tax advisor and plan any year-end purchases or elections.
- Schedule the physical inventory count if you hold stock.
December: Act Before the Year Ends
- Make decisions on asset purchases, bonuses and estimated tax payments that must happen by December 31.
- Update the fixed asset schedule for additions and disposals.
- Process final payroll and note which wages and benefits will be paid in January.
- Run the inventory count and record the results.
- Ask vendors for statements as of December 31.
January: Close and File
- Reconcile all accounts to December 31 statements.
- Post the accrual, prepaid, depreciation, deferred revenue and payroll adjustments covered above.
- Review invoices and payments received after year-end for unrecorded liabilities and cutoff errors.
- Reconcile payroll and contractor totals, then prepare and file W-2 and 1099 forms by the January 31 deadline.
- Review the final trial balance, lock the period and hand supporting schedules to your CPA.
The One-Page Year-End Close Checklist
Before you lock the books, confirm that you can answer yes to each of these:
- All bank and credit card accounts are reconciled.
- Accounts receivable aging has been reviewed.
- Outstanding vendor invoices and unrecorded liabilities have been identified.
- Accrued and prepaid expenses have been reviewed.
- Depreciation and fixed asset schedules are updated.
- Inventory balances have been reconciled and reviewed.
- Payroll and employee-related accruals are recorded.
- Deferred revenue and customer advances are reconciled.
- Intercompany balances are matched and discrepancies resolved.
- Foreign currency balances are reviewed where applicable.
- Suspense and clearing accounts have been investigated.
- Balance sheet accounts have been reconciled.
- Supporting schedules and documentation are available for review.
Why Year-End Adjustments Should Not Be Left Until the Last Minute
When accounting adjustments are postponed until the final weeks of the year, finance teams often face a backlog of reconciliations, missing documentation, unexplained balances, and urgent review requests.
A proactive approach helps businesses:
- Improve the accuracy of financial statements
- Reduce last-minute accounting corrections
- Prepare cleaner books for tax preparation
- Support audit and financial review requirements
- Improve visibility into profitability and liabilities
- Reduce pressure on internal accounting teams during year-end
The most effective approach is to review accounts throughout the year and use the final close process to resolve remaining items rather than rebuild months of accounting records.
Get a Year-End Readiness Review from KnowVisory Global
Year-end accounting requires careful review, accurate reconciliations, and timely adjustments across multiple accounts. KnowVisory Global supports businesses and CPA firms with bookkeeping, account reconciliations, month-end and year-end close, financial reporting, and accounting review support.
Our accounting professionals help organize financial records, investigate discrepancies, prepare supporting schedules, and maintain cleaner books for year-end reporting and tax preparation.
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