Year End Bookkeeping Check List

For year end, there a few items you should review to make sure you are not missing expenses on your books or need to pay additional expenses for the tax deduction.
1. Review your taxes paid for the year for payroll, property tax, etc to make sure you have paid them. If you have not you either have to pay them by the 31st or will have to take the deduction in the next year. You can generally pay most taxes online.
2. Verify that you have booked all interest expenses on any loans you have for the business and the loan balances are reflected correctly on your balance sheet.
3. Review any fixed assets you have purchased during the year and check if they are fully depreciable, such as furniture and equipment. You may want to go ahead and expense the depreciation on the books to see where you stand. If the asset is not fully depreciable, for example personal laptop computers, then you can estimate how much of it you can depreciate, for example 75%.
4. If your taxable income is higher than what you would like to pay income tax on, check if there are any outstanding expenses you can pay by the 31st of December.

How to enter recurring bills

If you have bills that come in monthly at the same amount and want to enter them in the bill pay system, you can memorize the bill. Let's say you have a monthly internet bill that comes in each month and is due on the 10th of the month for $45.00. You would go to the Vendors tab in Quickbooks and select "Enter Bills". Fill out the information on the bill then select "Memorize Bill." From there you can select to enter it monthly and how many months you want to keep entering the bill and on what day of the month. Because the default due date is 10 days you want to have it entered on the 1st so that you are able to have it due on the 10th of the month. Now when you run your Unpaid Bills report it will automatically appear on the listing each month. This can help save your data entry time.

How to run the accounts payable report in Quickbooks

There are actually several reports that deal with accounts payable in Quickbooks. There is an A/P (accounts payable) aging report, which shows how old your bills are in groups of 30, 60 or 90 days and above. There is also a vendor balance report, which shows the balances you owe by vendor. However the report I use for reviewing accounts payable is the Unpaid Bills Detail report. This will give you every bill you owe in alphabetical order, along with the aging period of the bill and the due date. You select a due date to see all bills due by that date, say for instance the 1st of the month. From here you can see who you owe, how much, when it was due and make your payment decisions.

Next, how to enter recurring bills.
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How to Use the Accounts Payable System in Quickbooks

The system in Quickbooks for accounts payable is called Bill Pay. It works very similar to issuing a check in Quickbooks, but instead you issue a “bill”, which is really an accounts payable. You select under the Vendors tab, “Enter Bills”. Then you select the vendor and enter the information in the fields such as the reference number, which would normally be an invoice number or maybe the period you are paying, for example August. Enter the amount due. You also have a tab for the due date. You can default to the company preference in Quickbooks, for example 10 days, or you can enter a specific due date for the bill. You can enter info in the memo field as well. Then enter the account to expense to and the amount or amounts if there is a breakdown. And that’s it. However, you need to do this for each bill you receive, which is why I advise that it creates more work than just issuing a check.
Next, how to run the accounts payable report in Quickbooks

Pros and Cons of the Accounts Payable System

I personally am not a fan of using the accounts payable system in Quickbooks. These are the reasons: First, you are having to input information twice. Once when you enter the bill and second when you issue the check. The other problem that happens is that many people start out using the accounts payable system but then when it comes time to record the check they do not go back to the accounts payable system and issue a separate check, creating a duplicate entry. Therefore I will preface the use of the accounts payable system with this; either use it all the time or don’t use it at all as it will create more problems for you. The pros of using the accounts payable system is primarily for budgeting purposes and for prioritizing payments. Once you enter all your bills you can then run a report listing the bills due and choose which ones are more vital to pay immediately.

Next. How to use the accounts payable system.

Information to put on Checks

The information you record on checks is very important for future reference. The more information you put on the check the easier it is to classify what type of expense it is. Some of the problems I have seen when recording checks has to do with not putting enough information on the check. For example, it may seem a time saver to not put the name of a vendor on a check, which you are able to do, but later if you are looking for a particular check by vendor, then you have to review all the checks to find the right one. The same goes for not recording the expense account and using the Miscellaneous Expense account. That account should be rarely used. I often see this account used, maybe if the person is not sure what kind of expense it is and plans to go back and reclassify the check later. It is better to use the account called “Suspense” instead.
The vital information is the date of the check, generally the date you wrote it, the name of the vendor, the amount, and in the memo field, what the expense was for of if there is an invoice number, that is also usually good to note.

Next, the pros and cons of using the Accounts Payable System.
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Tips for Setting up Vendors

 Setting up vendors you use in a logical manner is important to prevent errors and duplication on vendors.  It is probably best that the setting up of vendors on the vendor list in Quickbooks be done by only one person. These are some of the time savers I use to prevent some problems.

Vendors are set up alphabetically in Quickbooks. If you have vendors that start with the name “The”, such as The Home Depot, shorten it to just Home Depot, because when you are looking for the name you probably won’t remember that the vendor’s name starts with “The”.

If a vendor has a ridiculously long name, shorten it to what you know you will remember.

I personally don’t set up an individual name for each gas station that a client has gone to, unless that is some kind of vital information to them (which it usually isn’t, unless they are a Trucker). I set up a vendor called “Gas Stations” and then in the memo field put the name of the gas station. This will keep the list of vendors a little shorter.  You will find that the vendor list can get very long, and some of them may be a gas station visited once and never again when traveling.

I do the same for restaurants, I set up a vendor called “Restaurants” and in the memo field put the name of the restaurant.

I also set up an account called  “Transfers”  that I use to record bank transfers done between banks within the company.  That way they all appear under one name.

Next, what information should I record on the check?

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Recording Checks

Even though we are in the age of debit and online transactions, businesses still write a lot of checks, usually made out to individuals and small businesses. My recommendation is to order check forms that have duplicates. Most banks these days make you request that your bank statement include an image of your checks. They do not send you the actual check back. Banks will offer copies online. Some of them charge for this service and others may offer it free for up to 90 days, but after this period, you have to pay for a copy of the check. So save yourself future trouble and have duplicate check copies. This is especially true in these days of bank consolidations. Washington Mutual for example, which was bought by Chase Bank, is charging $7.00 per bank statement or check copy requested, which is ridiculous.

Most bookkeeping software offers you the option to print checks from the software. However many businesses don’t use this and still use bank checks then go on Quickbooks and record the checks. Generally this will require that you set up a list of vendors that you use, and then choose an expense account.

You can either set up the vendors as you write checks, or if you have a list of vendors that you use and want to set them up all at once, you can do that as well.

Next, tips to set up vendors.

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Occasional Expenses on a Credit Card

Now if you normally don’t use a credit card for business purposes and just do this occasionally, then you probably don’t need to set up an account on your books for your credit card. Simply use the Owner/Equity Withdrawals account to track an occasional use of the credit card for business. For example, you buy some office supplies at Office Depot and use your personal credit card. Instead of having the credit card set up on your books you make an entry the same as if it were a cash expense, debit office expense and credit Owner Equity or Owner Investments.

Next, how do I record checks?

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Personal Expenses on the Credit Card

If you are also using a credit card for personal expenses and business expenses, then you will need to make an entry showing equity withdrawals for any personal purchases. Let’s say you used the credit card to buy some clothes at TJ Maxx. The account you would assigned to this is Owner or Equity Withdrawals. You want to record these transactions even though they are not for the business so that you can keep a correct balance payable on the card. Now when you make a payment on the credit card, you will debit the Bank X Credit Card account, and credit the Bank Account used.

Next, how do I show an occasional business expense if I use my personal credit card?

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Credit Card Purchases

One of the items that sometimes is overlooked are credit card purchases. If you have several credit cards, it is probably best to designate one of the cards for the business. However that can sometimes be difficult, especially if you get some kind of reduced interest offer on a card that you want to use. If you use a credit card regularly for business expenses, then you want to set this up as a liability on your books. You would set up an account such as Bank X Credit Card.

In Quickbooks, there is a separate function to enter credit card charges. You enter the date, name of the retailer and the amount. If you have more than one card you also select which credit card account you are using. Your entries should then reflect your credit card balance. Generally I enter the charges based on the statement. You also want to be sure to record the interest expense and any other charges the card may be charging, such as credit life insurance, which a lot of credit card companies have a way of sneaking in.

Next, what if I am also using the card for personal expenses?

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What other costs are considered Cost of Goods Sold?

Now if you were also assembling the product and you paid someone $5.00 to assemble it then the cost would rise to $6.50 per piece for the Cost of Goods Sold.


In another example you are a car dealer who sells used cars. Your cost of Goods Sold would be the price you paid for the car purchased, plus any parts and labor (mechanic repairs) you paid to make the car sellable. The total of these would then be your Cost of Goods Sold.

Basically any cost you put into the product to make it sellable is considered Cost of Goods Sold. This could be from buying paint to paint the product to the laborer who is applying it. But the cost has to be related directly to making product ready to sell.


Next Credit Card Purchases
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Recording Purchases of Inventory

If you are selling a product, then the tracking of your inventory expenses are very important as this will probably be a primary expense for your business. Normally a purchase of inventory is also considered what is called Cost of Goods Sold. This phrase basically means what it says, the cost of the product that you sold. For example, you sell hair accessories and spend the following. $1.00 per piece and .50 cents for packaging. Therefore the cost of the goods you sold were $1.50 per piece. The inventory portion is the $1.00. The packaging is a Cost of Goods Sold expense.

The bookkeeping entry would be as follows. Debit Inventory Purchases for $1.00 packaging for .50, credit Bank Account (if paid thru bank).

But of course you would be buying in bulk so this number would be much higher.

Let’s say you are a used car dealer and buy cars at an auction to resell. You paid $1200 for an auto. The bookkeeping entry would be debit Auto Inventory and Credit to the Bank Account (if paid thru bank).


Next, what other costs are considered Cost of Goods Sold?

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Record Recurring Expenses or Deposits on Bank Accounts

One of the features that Quickbooks offers is the ability to record a recurring transaction. In Quickbooks this is called a memorized transaction. This can be any kind of transaction such as a deposit or check. Setting up a recurring transaction can save you time over the year from having to re-enter transactions that repeat each month. Let’s say for example that you have a rental property and each month you receive a deposit at the bank for $200.00 from the tenant. Instead of having to record that deposit each month you can record it once, tell the system to record the same transaction once a month and for how many months.

Let’s take another example. Your insurance payment is automatically debited on your business bank account for $75.00 each month. You can set up a check payment in Quickbooks recording this recurring check for 12 months. This is a convenience that many people overlook as a way of reducing their data entry time. A good time to set these up is at the beginning of the year. 

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Record Bank Transfers Between Accounts

Sometimes you need to record transfers between banks. This can be between two business accounts or from the Personal Account in the case of a Sole Proprietor to/from the business account. If the transfer is from one business account to the other, you record a debit to the account the funds are being transferred to, and a credit to the one being transferred from. For example, you transfer funds from the operating account to your payroll account. Debit the Payroll account and Credit the Operating account.

However, If you are transferring from your personal bank account to the business account, then this is considered an equity investment in your company. In this case you would debit the Operating account, where you are transferring the money to, and credit the Owner’s Equity account.

If you are transferring money from the business account to your personal account, this is considered an Equity Withdrawal. In this case you would do the opposite, debit the Equity account and credit the business bank account.

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How do I record Sales Tax?

If you have a business that has to collect sales tax, when you record your sales figures, there should be a separation for the portion of sales tax you are collecting from your regular sales. For example, you sell 10,000 in retail sales but with sales tax the total you collected was $10800. Your entry for bookkeeping purposes should be reflected as a debit to your bank account and the two credits, one to the sales account for $8000 and one to the sales tax liability account for $800. Do not record the sales tax portion as sales. Some people record the total amount collected as sales and then back out the sales tax from the sales account each quarter. However this is not correct because it overstates your monthly sales figures. Sales tax is not considered an expense, it is considered an item you are collecting for the government. Sales tax should never be recorded as an expense item.

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Recording Deposits

So what should I record on my Bank Deposits? Normally deposits should represent your sales for your business. However sometimes when you have a new business you may need to deposit money that is from you personally or money that you borrowed from another source. If you are recording a deposit for money that is not from sales, then you should record it either as an equity contribution if it is coming from your pocket, or as a loan. Your debit would be to the cash account, and your credit entry would be to either the equity account, if the money is from you, or to a loan, example, Wells Fargo Business Loan. If the deposit is for sales from your business, then record it to the sales account. Next, what about if I am collecting Sales Tax?


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What is a Good Pattern for Entering Items?

Most people will develop a pattern to enter items into their bookkeeping systems. Developing a pattern and having a checklist helps to ensure you did not forget something on your books. The pattern that I generally use is in this order.

1. Record Deposits
2. Record Bank Transfers between accounts
3. Record recurring debits on the bank account for the month
4. Record purchases of inventory
5. Record credit card purchases
6. Record checks
7. Record debits per bank statement
8. Record Cash purchases

I will discuss some of the nuances on some of these items further.

Next, what should I know before recording bank deposits?

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What is a Journal?

A Journal in bookkeeping terms, is simply a listing of transactions you have entered in the order you put them in. Most of the time the order is by date, because most bookkeeping is done chronologically. This report will basically list the date of the transaction (that you put on it), the accounts that were hit as a debit and a credit, and the amount. A journal is good to look at more in terms of looking at it comparatively to see if you missed any items. Most of the time when you do bookkeeping you are going to develop a pattern for posting items. Just make sure that each month has this same pattern going.

Next, what is a good pattern to use for entering items?

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What is an Income Statement?

The most important report that needs to be run, the Income Statement, basically tells you and anyone else who looks at it how much money you brought in and how much you spent on your business. The difference is either a profit or a loss. Hopefully you will have more months when you have a profit than the other way around. Banks will look at this document to try to determine whether or not you are a business that will stay in business for the long haul. Anytime you need to prove income for your business you may be asked to present this statement.

Next, what is a journal?


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What kind of bookkeeping reports do I need to run?

As far as accounting or bookkeeping software is concerned, the two reports that are vital for financial purposes are the Balance Sheet and the Income Statement. I will explain what each one is and what purpose they serve. The Balance Sheet is simply a listing of balances of your assets and liabilities. Assets are anything major you purchase of value such as furniture, equipment, autos, computers, software etc. Assets are also any money you have in banks or other investments you such as CD’s. Liabilities are basically any debt obligations that you owe such as loans on the equipment or car you purchased for the business. It could also include things such as a line of credit at your bank or if you took out a home equity loan to use for business. The purpose of a balance sheet is to show what you are worth in terms of your business. Banks use this information to determine how you have been handling your business and may use this information to decide whether or not you are a good credit risk. Sometimes companies that you want to do business with will ask for the balance sheet.
Next, What is an Income Statement?

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Entering Each Item

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Enter each item, or summary entries?

So if you have a lot of transactions each month, you may want to consider whether you need to enter each item separately or if you want to do some summary entries. Obviously summary entries would be easier on your fingers. However, if you need to go back to search for information, then you may not want to enter all of your info as summary entries. A summary entry would be for instance, you add up all the expenses for gas on your debit card and instead of entering each debit in your accounting software you enter a total as one check or journal entry. Let’s say you also paid for gas several times by cash. You could add up all the cash receipts for gas for the month and enter those as a summary entry. Remember for gas you can also track miles instead of actual (see previous post), but I am using this as an example. The same could be done for business meals. Let’s say you have a construction company and you buy breakfast for your workers in the mornings. You could enter a summary entry for those purchases instead of entering each receipt for breakfast sandwiches at McDonald’s. Your bank statement would still serve as a detail back up.

Next, why enter each item?

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What’s the best way to enter my expenses?

Alright, now that we’ve discussed the major expense categories, we should discuss the various ways you can track them. As I have mentioned previously, if you don’t have a lot of expenses, let’s say 25 or less for the year, you can probably just do a spreadsheet. However if you have a regular business that has a regular amount of receipts, what is the best way to track these?

My advice is to go thru your monthly business bank statement, which as I advised previously you should have opened a separate business account for your business and not run it thru your personal account. If you also are using a credit card for your business, you also want to try to keep a clean card that is only used for the business. You can then use that as a record for data entry.

There are several bookkeeping programs out there, and the one I use is Quickbooks so I will discuss that one. The other programs out there are similar.

I have also used DacEasy which is a program I also like, and of course there are others such as Peachtree.

Next, enter each item, or do summary entries?

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