Closing the Books? Avoid These 7 Common Year-End Accounting Mistakes

The holiday season is right around the corner, and for many individuals and businesses, it’s the signal that it’s time to close the books. The end of the year is a critical time to get your financial records in order before the New Year. But doing so in a rush can create costly errors.

A clean year-end close isn’t just about compliance; it’s about maintaining your or your company’s financial integrity. Inaccurate financial records directly impact your cash flow, your decision-making, and your ability to secure funding.

Here at Cukierski & Associates, we have guided countless clients through this process, and we’ve seen the same handful of mistakes trip people up. In this blog, we’ll walk through them so you can navigate your year-end with confidence.

Waiting until the End of the Year (and Poor Recordkeeping)

Waiting until the last week of December to sort through a year’s worth of transactions is the primary cause of human error in accounting. This last-minute scramble is a symptom of a much larger problem: inconsistent recordkeeping throughout the year.

Why it’s a problem: A rushed process leads to simple but costly mistakes: transposition errors (typing $95 instead of $59), basic data entry errors, or even errors of omission where you forget a transaction entirely. These mistakes create misleading financial statements.

How to avoid it: The solution is disciplined, year-round recordkeeping. Best practices are no longer about hoarding receipts. They include the following.

Organized Document Storage

Use a cloud-based document management system where all supporting documentation (receipts, invoices) is digitally attached to its transaction.

Secure Data Management

Modern systems have secure features like encryption and multi-factor authentication, along with automatic backups, protecting your critical financial data from loss or breach.

Consistent Data Categorization

Proper data categorization from the start prevents misclassification errors when it’s time to generate reports.

Skipping Account Reconciliation

Assuming that bank balances are correct can be dangerous. Account reconciliation is a fundamental internal task. It’s the process of ensuring financial records match bank statements as well as invoices or credit card bills.

Why it’s a problem: Without reconciliation, you could be missing fraudulent charges, bank errors, or duplicate payments. It’s also how you catch uncashed checks or outstanding invoices that need to be followed up on.

How to avoid it: Perform a bank statement reconciliation for all accounts every single month. This makes year-end a simple review, not a major project.

Mishandling Inventory Counts

For any business that sells a physical product, inventory is one of your largest assets. A physical inventory count at or near year-end is non-negotiable.

Why it’s a problem: An inaccurate inventory count directly misstates your Cost of Goods Sold (COGS) on your income statement and your assets on the balance sheet. This can significantly warp your profitability and lead to paying the wrong amount of income tax.

How to avoid it: Schedule a physical count and implement a clear system for counting, including goods in transit and obsolete items that need to be written off.

Forgetting about 1099s

This can be a huge compliance blind spot for many businesses. If you paid an independent contractor, freelancer, or unincorporated business more than $600 for services during the year, you are required to issue them a Form 1099-NEC.

Why it’s a problem: Failures to file (and file on time)1099s can lead to significant audits and fines. This issue is often tied to the misclassification of employees and independent contractors, another major red flag for regulators.

How to avoid it: Before the year ends, pull a report of all vendor payments. Identify who needs a 1099 and ensure you have their correct name, address, and Taxpayer Identification Number (TIN) by having them complete a Form W-9.

Commingling Business and Personal Expenses

While it may be convenient at the time, using the wrong account can create loads of work down the road. Using your business account for personal expenses or using your personal credit card to pay a business vendor can make bookkeeping difficult.

Why it’s a problem: Commingling funds makes it difficult to track deductible business expenses accurately. For incorporated businesses, it can also “pierce the corporate veil,” putting your personal assets at risk in a lawsuit.

How to avoid it: Maintain separate bank accounts and credit cards for business and personal use. If you make a mistake, document it immediately and have your bookkeeper or accountant classify it correctly.

Not Separating Capital Expenditures from General Expenses

Did you buy a new computer for $1,500? That’s not a simple “office supply” expense. It’s a capital expenditure as it’s a significant purchase that will be used for more than one year.

Why it’s a problem: General expenses are deducted in the year they are incurred. Capital expenditures must be depreciated, meaning you deduct a portion of the cost over several years according to tax law. Misclassifying them can lead to an incorrect tax liability.

How to avoid it: Review all large purchases made during the year. Work with your accountant to identify which items should be capitalized and set up a depreciation schedule. This includes vehicles, machinery, equipment, and significant software purchases.

Treating Tax Planning as a Post-Year-End Activity

The biggest missed opportunity is waiting until March or April to think about your tax liability for the year that’s already over. By then, the window for most strategic tax-saving moves has closed.

Why it’s a problem: You lose the chance to make strategic decisions that could lower your tax bill, such as timing equipment purchases, contributing to retirement accounts, or making charitable donations.

How to avoid it: Meet with your accountant or tax advisor in Q4 (October/November). Project your annual income and expenses to estimate your tax liability. This gives you time to make adjustments before the December 31 deadline.

Why CPAs are the Ultimate Prevention and Detection Strategy

Avoiding these mistakes isn’t just about a year-end fix; it’s about implementing robust prevention and detection strategies from the get-go. For many businesses, the most effective way to do this is to not go it alone.

When you outsource your accounting to a qualified CPA, you are not just hiring a bookkeeper; you are investing in a system designed to prevent errors before they happen. Professionals will:

• Implement Internal Controls: They establish a formal transaction review process, advise on the segregation of duties, and ensure your financial reporting is accurate and compliant, making you ready for review by lenders or external auditors.
• Leverage Technology Correctly: They ensure you’re using the right centralized software with AP automation solutions and can provide employee training to use these systems correctly.
• Enforce Regular Reconciliations: They perform regular reconciliations as a standard part of the accounting cycle, ensuring discrepancies are caught and fixed immediately, not months later.
• Ensure Compliance: From complex payroll issues to timely tax filing, they take compliance off your plate, freeing you to focus on your business.

Make Year-End Accounting a Breeze with C&A

At Cukierski & Associates, we embody our “Big-Firm Experience, Small-Firm Appeal” promise. We believe in providing proactive, year-round support so that year-end is a smooth, predictable process. Don’t let these common mistakes create any issues for your business records or personal finances.

Connect with us today!

Frequently Asked Questions on Year-End Accounting

When should I start my year-end accounting process?

Ideally, start your preliminary review in early Q4 (October). This gives you time to review your mid-year financial goals, make adjustments, and plan for taxes. The final closing process should begin as soon as your December bank statements are available.

Can I do my own year-end accounting for my small business?

Yes, small businesses can do their own year-end accounting with diligent year-round bookkeeping and meticulous records. However, having a professional accountant review your work is a wise investment to catch errors and identify tax savings.

What is the difference between a 1099-NEC and a 1099-MISC?

As of 2020, Form 1099-NEC (Nonemployee Compensation) is used specifically to report payments to independent contractors for services. Form 1099-MISC is now used for other miscellaneous payments, such as rent or royalties. Learn more about 1099 reporting requirements.