The ultimate end of financial year payroll checklist

The end of financial year process is much more efficient with the introduction of cloud technology and QuickBooks Online. No more sending or receiving backups of the file, and businesses can continue to use the file in the new financial year. Here’s our ultimate check-list to closing out payroll for the financial year.

Check your beginning balances

End of year reconciliation reports

Reconcile accounts

Reconcile loans and company loans

Reconcile inventory

Reconcile GST control accounts

1.  Check your beginning balances

Before we begin, it’s a great idea to check the balances that you are starting with are correct and haven’t been changed since the last year. Login to your client dashboard to see any changes to previously reconciled accounts, and to check that the previous period was locked off using the Close Books feature.

1. Login to QuickBooks Online Accountant
2. Navigate to the Clients tab
3. Click the clients name and select the Bookkeeping tab
4. Check the Close date, it should be the last financial year
5. Check the Review in QuickBooks area for any changes that have occurred to transactions – (this will also allow you to navigate directly to the transaction)
6. Review the Account watchlist, check that any accounts with a reconciliation date are reconciled to the end of this period
7. Check for accounts that should have been reconciled such as credit cards and bank accounts and reconcile if necessary
8. Write down a list of these reconciled accounts for later on in the process.

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2.  EOY Reconciliation Reports

If you followed our End of Financial Blog last year you will already have your report set ready to run under your custom reports tab, it this is your first time following our blog create your reports following the instructions below.

There are a few reports you should run as part of your reconciliation checklist, customising the reports and saving them all as ‘Last Financial Year’ and adding them to a group will mean that these are all ready to run next financial year.

1. Go to the Reports centre on the left-hand navigation menu
2. Select the All tab
3. In the Business Overview section select the Balance Sheet
4. Customise the report by setting the report period as Last Financial Year
5. Select your reporting method Cash or Accrual
6. Select Save Customisation and the customisation box will appear
7. Give the report a name i.e. Balance Sheet – EOY Reconciliation
8. Add the report to a group – You will need to add this group if this is the first time you are running them, I have called mine “EOFY Reconciliation”

You can also choose to share the reports.

The other reports I have added to my report set are:

• Profit & Loss
• Aged Receivables
• Aged Payables
• Inventory Valuation Report
• Trial Balance

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3.  Reconcile Accounts

From the balance sheet you need to ensure that all balance sheet balances do reflect the real position of the business. The first step is to make sure all your bank accounts, credit cards and bank loans are reconciled to the bank statement as at 30th June.

This ensures the accuracy of your bookwork and also verifies that all transactions on your bank, credit cards, and loan accounts have been entered and match to your reconciliations.

To reconcile these accounts;

1. Login to your client file and click the Account Toolbox
2. Click on Reconcile

Once you see the Reconcile window you will be able to select the Reconciliation History and if any changes and Auto Adjustments have been made – you will be able to tab down and commence reconciling the account

1. Choose the bank account you need to reconcile from account drop down box
2. Click the Reconcile Now button
3. A pop up window will appear and this is where you will enter the bank statement date and balance
4. Click the OK button
5. Reconcile the bank account and click Finish Now

Once selecting the Finish Now button the Difference will show zero. Follow this process for ALL bank accounts Ensure ALL clearing accounts are at zero unless there is a reason for it not to be.

Notes for reconciling accounts

Credit Cards

Credit cards are normally not usually dated at month end, so you will have to draw a line as at June 30th and reconcile to this balance. So you may find that depending on last date reconciled you will have to reconcile to June 30th and then to statement date balance

Loan accounts

These type accounts should be reconciled on a regularly as they are a liability to the business and should reflect the true and accurate balance as at June 30.

Clearing accounts

Clearing accounts should always have a zero balance at the end of financial year, follow the reconciliation process to ensure that you have checked the clearing accounts and there is not a balance that needs to be allocated

Petty Cash

Petty cash needs to be reconciled to balance as at June 30th, ensure that all receipts have been entered into QuickBooks online and reconciled to balance of cash in the Petty Cash tin

Un-deposited Funds

As per the clearing accounts this account also needs to be checked off and looked at June 30th with the balance in this account should only to be the amounts left unbanked as at June 30th

Suspense Accounts

The suspense accounts transactions are mainly transactions that you have put on hold until you can work out the correct account to allocate to. This needs to be at zero as at June 30th.Top

4.  Reconcile loans and inter-company loans

Review Director Loans

Directors or Shareholders borrowing money from their company for private expenses can result in tax consequences. Under tax laws any loans to shareholders may be automatically treated as unfranked dividend payment.

It is recommended that you review the transactions posted to the Directors Loan to ensure they have posted correctly and highlight any issues to the accountant. Especially if the directors loan is a debit.

It is a good idea to get the accountant to review this account before the 30th June so that loans can be paid back by the Director or Shareholder, the accountant may be able to allocate wages to the loan account to repay the loan before the 30th June.

To review directors’ loans in QuickBooks Online, display a Balance Sheet as of the financial year-end;

1. Go to the Report centre
2. Select Balance Sheet from your end of year reports group
3. Click Run Report button

Locate each Director Loan account and click on it to produce a Transaction Report for that account.

Inter-Entity Loans

When working with customers that have inter-entity loans check that the loans balance to each other in each company file. Run a balance sheet for both companies as at the 30th June, one company will have a Debit balance and the other company should have the same amount but a credit balance. If the amounts don’t balance drill down into each account from the balance sheet report in QuickBooks Online and go through each transaction in both to work out which transactions are missing.

Accounts Receivables (Debtors)

From your customised reports created in Step 1, run your A/R Ageing Summary Report, this report summarises the customers that owe money at the end of the year and how long they have owed it. This is useful to determine if a customer that owed you money for a long time is a doubtful debt and could possibly be written off. Ensure the Accounts Receivable Report total equals the Aged Receivables on your Balance Sheet. 

Write off bad debts

Once the debtors have been reviewed and bad debts decided, you will need to process transactions to write these invoices off and pick up the bad debt expense.

The recommended process to Write of Bad Debts is to create an adjustment note on the customers account.

To create an adjustment note;

1. Create a new service and assign the income account to a Bad Debt expense
2. Select the global Create button
3. Under Customers > Adjustment Note button
4. Complete the adjustment Note choosing the customer that you will be writing of the bad debt
5. Select the service “Bad Debt” and in the description type BAD DEBT on the Invoice no.
6. Select the correct GST code for this transaction – Save the Adjustment note.
7. Select the global Create button
8. Click on Receive Payment
9. Choose customer and apply credit to invoice that is to be written off.

 Accounts Payables (Creditors)

This report summarises the suppliers that you owe money to at year end, how long you have owed it and also to determine why you have not paid this, do these amounts match your supplier statements. As with the A/R report, make sure your A/P Summary reconciles to your Balance Sheet Accounts Payable or Creditors.

 Reconcile Foreign Currency Debtors and Creditors

If the business has multicurrency you may have foreign debtors (receivables) or creditors (payables). Make sure that the year-end balance of the accounts payable and accounts receivable in each foreign currency is valued at the correct financial year-end exchange rate.

That way, the balance sheet, which is always in the home currency, will display the correct home currency value of each foreign currency debtor and creditor account.

QuickBooks Online creates a journal entry behind the scenes, affecting Exchange Gain or Loss in the home currency only. Again, the number of foreign monetary units (by account and by supplier or customer) in each of the foreign accounts being revalued does not change; only the value in the home currency is changed. This is achieved by making a home currency adjustment in QuickBooks Online.

Revaluation of foreign currency debtors and creditors

If you would like to revalue the debtors and creditors to reflect the exchange rates at the end of the financial year:

1. Select the Gear icon > Lists > Currency
2. Under the Action column, click on the drop down list of the currency you are revaluing
3. Select Revalue Currency
4. Select the date you want to revalue at i.e. 30 June
5. Select Revalue

QuickBooks Online will also show you the exchange gain/loss based on the exchange rate you entered.

1. Click Save

This step will create a journal entry for you for the unrealised gain/loss for these transactions for this currency as at June 30th.

Note: This is a huge time saver helping you to revalue your debtors and creditors.

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5.  Reconcile Inventory

Write off Obsolete Stock

If the company has stock that can no longer be sold as of the 30th June, a simple way of dealing with this stock is to do an Inventory Qty Adjustment

1. Select the Create Button> Other > Inventory Qty Adjustment

Check the transaction has updated the accounts correctly

1. Go to the Report centre
2. Select Balance Sheet from your end of year reports group
3. Click Run Report button
4. Locate the Inventory account and click on it to produce a Transaction Report for that account.

Repeat the process with your profit and loss report and check the amount in your cost of goods is a Debit.

Check Stock-take Balance against Balance Sheet Stock on Hand Balance

It is important to make sure that if inventory is being tracked, that all transactions that affect the inventory asset account are purely as a result of products in transactions, not accounts. This will help ensure that the Inventory Asset account on the balance sheet on any given date will be accurately supported by a sub-ledger for each product.

To check the stock take balance to the balance sheet;

1. Run the custom report you created at step 1 called Inventory Valuation Summary.
2. Check the value of stock on this report matches the value of stock on your Balance Sheet.

Note: You may want to run an Inventory Valuation Detailed report and export this report to Excel in order to get quantity totals for each product by selecting the Excel button. If the report is simple enough, this may not be necessary.

Review the Quantity and Amount totals for each product. Compare the totals to the inventory count results. (Remember, the Amount total in QuickBooks Online reflects FIFO inventory costing, and so compare the FIFO cost of what is remaining to the stock take and the current value and test for reasonableness.) Look to see if any transactions used the Inventory Asset account without specifying a product, which will have its own section labelled “Not Specified.”

Click on each of the transactions in this section to correct the transactions, then re-run this report to ensure that there are no “Not Specified” inventory transactions and that the totals match the Balance Sheet figure as well as the stock count.

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6.  Reconciling GST Control Accounts

Keep in mind that although the content below covers reports using the Reports Centre in QuickBooks Online, you will also want to make use of the GST tab for GST-related reports, completing the BAS, and making a payment.

Ensure that tax codes have been entered correctly

1. Run the Transactions without GST report to ensure all transactions that should have a GST code do.
2. Run the Transactions by GST Code to ensure all transactions have the correct GST code allocated.
3. Review all tax codes entered against the income and expense accounts as well as balance sheet accounts related to purchases, such as fixed assets and stock. If you encounter any transactions that were entered with incorrect GST Codes, click into the transaction and correct from this report.

GST on Accrual Basis:

Reconcile outstanding GST to the GST paid on June BAS

If QuickBooks Online has been used properly, you and/or your client will have used the GST Centre and its reports and functions to complete the BAS, mark it as Lodged, and record the related GST payment.

1. Run a Balance Sheet on an accrual basis as of the 30June to review the GST payable balance. The numbers will match the Balance Sheet and the reports in the GST BAS Summary tab.
2. Save the reports, and ensure that you can see the date and time when the reports were produced.

It is always a good idea to ensure that all transactions for the financial year are entered before completing the BAS. Often it doesn’t matter how diligent you and your client are about producing sales invoices in a timely fashion, there are times when you will receive invoices from a supplier in August with a June 29 date.

If that happens and the invoice is entered at the correct date, there will be GST amounts affecting the GST payable balance after the BAS has been lodged and the balance paid.

Should this be the case, review the new GST Payable balance on the Balance Sheet as of the 30 June, then run a GST Exception Report, which lists the transactions containing GST that have been added, modified or deleted in prior “marked as lodged” GST periods.

There are two ways to get to the GST Exception Report:

1. Go to the Reports centre
2. Select ALL Reports
3. Select Manage GST
4. Click GST Exception

You can also access this report from the Run Reports button in the GST Centre.

Compare this report to the amount in the new GST Payable balance to ensure that it accounts for all the changes to GST in this period.

You can reconcile the GST payable account in the same way you reconcile a bank or credit card account. (This also can be done for any other liability account i.e. PAYG/Superannuation).

1. Go to the Accountant Toolbox
2. Select Reconcile
3. Choose the BAS Liabilities Payable account from the Account drop down menu.
4. Click the Reconcile Now button to begin.
5. A pop up screen will appear, here you will enter the year-end date on the BAS, enter the ending balance as the year-end date on the BAS.
6. Click the OK button to begin.
7. Choose to tick Hide transactions after the statement’s end date right hand top corner.
8. Mark all transactions on each side of the Reconcile window, unmark the entered-or-edited-too late transactions uncovered using the Transaction Report above, observe that the difference is zero.
9. Click the Finish Now button in lower right.

Then you will have a permanent record of the transactions that affected GST payable after the lodging of the BAS.

GST on Cash Basis:

Reconcile outstanding GST to the GST of Debtors and Creditors

If the client is lodging GST on a cash basis, the rest of its accounting reporting on an accrual basis, you are able to reconcile the GST owing amount. In theory, the GST owing on a cash basis should be equal to the GST owing on an accrual basis, adjusted for the GST of the Debtors (accounts receivable) less the GST of the Creditors (accounts payable) outstanding. It is possible to compare these figures to test the GST owing on a cash basis compared to the balance sheet on Accrual basis.

Compare the GST balance on the Balance Sheet as at 30 June on a cash basis and on an accrual basis by running the Balance Sheet twice for the same date and taking note of the GST payable amount:

1. Go to Reports centre
2. From the custom reports select the balance sheet we created at step 1
3. The first report should run in whatever default Accounting Method, cash or accrual, save or print this
4. Change the report to run on and the other method, cash or accrual basis, save or print this

The difference between these two figures is the amount you will want to reconcile.

For Debtors:

1. Go to the Reports centre
2. Select ALL Reports
3. Select Manage Accounts Receivables
4. Invoice List by Date
5. Select Customise
6. Select Last Financial Year as Transaction Date
7. Add Tax Amount to the Rows/Columns
8. Select A/R Paid to Filter and change to Unpaid
9. Click Run Report.

Review the listing. Export to Excel if necessary, and extract the amount of the receivables (as different invoices might have different GST implications) that will relate to the GST total amount outstanding.

Next, run the Accounts Payable report as of the year-end date:

1. Go to the Reports centre
2. Select All Reports
3. Select Manage Accounts Payable
4. Run Unpaid Bills report
5. Select Customise
6. Select Last Financial Year as transaction date
7. Add Tax Amount to Rows/Columns
8. Click Run Report

Review the report, this will give you a total for GST

We can now check to see if our GST outstanding as at June 30th matches to our balance sheet.

The formula is

GST Accrual – Cash = GST from Debtors –GST from Creditors

When running these checks above either Accrual Basis or Cash Basis at year end, we also need to take into account the lodgments during the year to this outstanding or last quarter by running a BAS

Summary, by entire year and quarter by quarter.

1. Go to the Reports Centre > All Reports > Manage Taxes > BAS Summary Report
2. In the From date and To date enter in the entire year date i.e. 01/07/17 to 30/06/18
3. Repeat for all 4 quarters i.e. 01/07/17 – 30/09/17 and then 01/10/17 to 31/12/17 etc.

Then in a spreadsheet (see below sample), compare the amounts lodged at the ATO with the amounts in your QBO file, ensure that no movements have occurred after BAS’ have been lodged, this will show up between the Diff to be paid in June BAS and BAS June FY if there are any movements this should be taken up as an adjustment in the June BAS

Review Assets bought and sold

To review the Asset register and discuss with the client the state and location of each fixed asset on the list as at the end of the financial year., including:

• If the asset is no longer serviceable, or if it has been sold
• If the asset was sold, that any gain or loss on the disposal of the asset was correctly entered
• If it was donated, or if it no longer worked, that there is a journal entry reflecting the disposal of the asset

Generally, a Tax accountant will create these journal entries as part of the income tax reporting.

As part of the Bookkeepers year end process you should review all assets purchased during the year and ensure they were properly recorded for the accounts review.

• Review all large expenses on the Profit & Loss, and check with your client to see if any of these “expenses” should really have been recorded as fixed asset purchases.
• Ensure that each purchase has the correct purchase date, value and full description so that Reports will give the accountant with the detail required.
• It is also a good idea to attach a copy of the purchase to the transaction in QuickBooks Online so it is easy for the accountant to access.

Reports and Adjustments

Provide Information to the Client

It’s a good idea to provide the client with reports and information throughout the year, at the end of a BAS period works well, this will address and problem areas as they come up, this will enable the client to make decisions on a situation and rectify if required.

Clicking on figures or transaction details can be done in any report to “zoom in” on the selection and provide more detail and ultimately open original transactions. When changing the settings of any report, such as the date range, select Run Report to display it using the new settings. Assume that the dates are for the year-end just being completed unless otherwise stated:

Profit & Loss

1. Go to the Report Centre
2. Select Profit and Loss
3. Change the Dates to produce this report for the client at any time for This Financial Year-to-date (YTD) and, after the year-end that just occurred, for the Last Year.
4. Select Run Report to display the report using the new settings.
5. Click on any figure in this report to produce a detail of all transactions adding up to that figure, and click on any transaction in the detail to open up the original transaction for review/edit.

Profit & Loss YTD analysis vs. previous year YTD

1. Go to the Reports
2. Search for Profit and Loss Comparison (Accountants Only).

Balance Sheet at Year-End

1. Go to the Report Centre
2. Search for Balance Sheet
3. Select the year end date
4. Click Run Report button.

Note: This is not a report that clients typically understand, so take the time to explain the significance of certain accounts that are of particular importance. Show them their bank and credit card balances, debtors, creditors, loans, and inventory.

Summary of Outstanding Debtors

1. Go to the Report Centre.
2. Search for the A/R Ageing Summary.
3. For more detailed information, click the A/R Ageing Detail (All Reports > Manage Account Receivable) report as well.

Note: If viewing the Summary version of this report prompts questions, clicking on the figures in the Summary report will provide details as well. Review this report with the client to ascertain if any invoices should be written off as bad debts.

Summary of Outstanding Creditors

1. Go to Report Centre.
2. Search for A/P Ageing Summary.
3. For more detailed information, search the A/P Ageing Detail (All Reports > Manage Account Payable) report as well.

Note: If viewing the Summary version of this report prompts questions, clicking on the figures in the Summary report will provide details as well. Review this report with the client to ascertain if all these outstanding bills are indeed payable.

Project/Job/Location/Class Profitability

1. Go to the Report Centre
2. On the All Tab find the Business Overview section.
3. Click on Profit and Loss by Location or/and Profit and Loss by Class
4. Modify date as needed
5. Click on Customise.

Provide Information to the Accountant

Providing information for Tax preparation is easy in QuickBooks Online. An accountant will be able to log in to QuickBooks Online Accountant once they have accepted the invitation to be an Accountant User and view the data. Here are the typical reports;

• Profit & Loss
• Balance Sheet at Year-End
• Trial Balance at Year End
• Receivables Summary at Year-end
• Payables Summary
• BAS Reports for the Year

We created a few of these reports at step 1, the others can be added to this group and exported or emailed as one report to the accountant along with a copy of your End of Year Checklist

Enter EOY Adjustments

The accountant may wish to enter these end-of-year adjustments directly into the client’s QuickBooks Online file, or he or she may give you the finalised trial balance with the entries to record.

Although journal entries can be recorded in any of the subscription levels of QuickBooks Online, it’s best to be accessing the company via QuickBooks Online Accountant, as it features special tools that are unavailable to even the Master Admin user of a QuickBooks Online file. One such tool is the ability to tag a journal entry as Adjusting by checking a box on the journal entry screen. Start out by making a journal entry in the usual way:

1. Select Accountants Toolbox
2. Select Journal Entry
3. Check the box next to Adjusting Journal Entry, and then fill out the journal entry as per the accountant’s year-end entries.

There are a couple of reports which are related to Adjusting Journal Entries, they are useful for you after you enter the end-of-year entries to compare to the accounts lists:

In the reports Centre under “For my Accountant” Reports select Adjusting Journal Entries to view the journal entries and Adjusted Trial Balance to view the unadjusted (pre-adjustments) trial balance, the total adjustments in adjusting journal entry form by account, and the adjusted trial balance by account.

Start or Rolling over a new Financial Year

Take a Copy of the File? Not necessary!

Typically, using desktop accounting software, it is simply due diligence to make a copy of the data file and store it in a properly labelled folder (such as a folder with the four-digit year indicating the year-end date being the name) when the year-end work is complete. One of the beautiful aspects of QuickBooks Online is that this is totally unnecessary! Just keep working in the same file and QuickBooks Online will maintain all the history for easy access in the future should it be necessary. The entries are always there. You may be concerned about loss of data or corruption. Again, this is a beautiful aspect of QuickBooks Online; it’s secure, it’s cloud-based, and all these typical accounting data file worries are a thing of the past.

Roll over the file to a new year? Again, not necessary!

Because QuickBooks Online keeps everything in the one cloud-based company file into which you sign in with your chosen browser, you need not concern yourself with creating a new company file for each new financial year. Just have your client continue to enter transactions using the proper dates, including new dates in the next year, as if there is nothing different to consider. In fact, there is nothing different to consider; just pretend that a day has passed rather than a financial year! The only worry you might have is what if your client decides to delete or make other changes to the year-end that was just completed, or any date before then. A simple way to prevent this is to set a closing date.

1. Select the Accountants Toolbox
2. Select Close the Books
3. Select Advanced from the left side menu > Accounting and then edit Closing the Books
4. Place a checkmark in the box next to Closing the Books. This will open up some more functionality
5. Enter a Closing Date (i.e. the year-end you are completing)
6. Choose the drop down button in the Closing Date warning type section next to Warn and require password
7. Enter the password you wish to establish for this closing date and then re-enter it to confirm it
8. Click Save.

If your client is the Master Admin user of this QuickBooks Online file, that won’t stop him or her from entering the closing date password (or changing the password if they forgot it) and making changes to periods that should be left untouched except for reporting purposes. However, creating a closing date and password, along with updating the closing date as time elapses, means that if necessary, you can run an Exceptions to Closing Date report, which will show what changes anyone with the proper credentials and knowledge of the password made to these “should be closed” periods.

This is an “audit trail” type of report and will come in very handy should you be required to undo whatever trouble your client created because they didn’t understand the meaning and significance of the term “closed period.”

Notify your client that they are not to make any changes to closed periods and explain to them what that means. Explain to them that if they do so, they will incur increased bookkeeping and accounting fees to undo errors they created despite the warnings.

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