Year-End P&L at a Glance
Position yourself for a smooth year-end by reviewing your financials now in preparation for tax season.
The holiday season is officially underway and the last thing we want to think about is that tax season is right around the corner.
However daunting as it is, we know that preparing in advance will give us peace about getting our taxes filed with confidence knowing that our bookkeeping was accurate and we positioned ourselves to take advantage of every possible tax deduction available.
At M.Y.O.B. Consulting, one of the first steps we perform in our Year-End Review is to browse through our clients’ Profit & Loss report. We do this to ensure accuracy in our recordkeeping, ensuring we charged all transactions to the correct accounts.
Assuming your bookkeeping is current and reconciled, we’ll give you the simple steps below:
- Generate a YTD Profit & Loss report BY MONTH
The key here is to view your full year P&L displaying monthly columns side-by-side. This will give you the monthly comparison perspective.
- Check it for accuracy
Begin top left at the first account and skim over month-by-month looking for major fluctuations from one period to the next that may be a cause for concern. You’re looking at the revenues, cost of sales and expenses line-by-line and want to question or drill down on any amounts where you see significant or questionable changes from one period to the next. It is in this process you will identify whether any items might have been miscategorized (charged to the wrong account).
- Dig Deeper
When coming across questionable amounts in a particular account, drill down to the detail level and review the individual transactions making up that total for the month to gain better understanding of why the amount is inconsistent (higher or lower than expected). You are reviewing the names, dates and amounts to ensure that all look correct. This is where you will find whether a transaction has been miscategorized, duplicate posted or missed altogether. Make sure whomever does your bookkeeping addresses any questions and makes the necessary adjustments to clean up these items.
This process could take an hour or a half day, depending on the layout of your chart of accounts, the accuracy of your bookkeeping and how up to date all of the reconciling is. None the less, it is a crucial step to preparing for your accountant for year-end tax prep. It will also give you great peace of mind about the accuracy of what you’re reporting on your tax returns and give you a good idea of where your net earnings stand as you approach year-end. We recommend you providing this preliminary Profit & Loss to your CPA, along with the Balance Sheet (after you’ve performed the same quick review on the Balance Sheet) before the end of the year giving him/her the opportunity to advise you on any transactions that need to happen before December 31st.
