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Pre-New Bookkeeping Cycle Checklist



At the end of every accounting period certain accounts are closed and others remain open. This post is softly trying to remind you with some essential pre-new book opening checklist (things to do) that you may somehow forget to do. You will review the accounts that continue from one business cycle to the next, as well as the accounts that must be closed at the end of each cycle and started with a zero balance in the next cycle. You’ll explore some simple key decisions that must be made about customer and vendor accounts. Yet, a nice tips to organize your record keeping will close this post.

It is just two weeks before the new year. Is your book ready for the new bookkeeping cycle? Not yet, I know, No big deal indeed. Most of us has not been ready yet for it has not even year-end closing yet, right?


So here is checklist you may consider and do before the new bookkeeping cycle in the coming year. Read on…


Finalizing the Ledger

Once you’ve processed all possible payments for the year and accounted for all possible income, reviewed all your accounts, balanced out your books, and prepared the financial statements for the accounting period, it’s time to finalize your General Ledger and get ready for a new year. Some accounts will carry over their balances into the new year (Balance Sheet accounts) and others will start with a zero balance (Income Statement accounts).


Closing Income Statement accounts

Once you’re sure you’ve made any needed corrections or adjustments that were identified when preparing your trial balance and you’ve collected the information needed from those accounts for your financial statements, you can then zero out the balances of all the Income Statement accounts. This will include all revenue, cost of goods sold, and expense accounts.

You don’t throw away the accounting information for the prior accounting period. You just start new pages in your journals and General Ledger accounts with a zero balance for the new accounting period.


If you’re using a computerized accounting system, follow the procedures for closing the accounting period. The accounting system will archive the data for the accounting period and zero out the accounts during the closing process.

EXAMPLE: You are closing the books for the accounting period and have a $75,000 balance in your Sales account. What should you do with that balance? Zero it with the following entry:

[Debit]. Income Statement Summary = $75,000
[Credit]. Sales = $75,000


Now, your sales account has zero balance already. The above entry will add your sales list $75,000 in the Income Statement (report).


Carrying over Balance Sheet Accounts

Balance Sheet accounts never get zeroed out. All these accounts will carry their balance into the next year. You still have the underlying assets, such as cash in your bank accounts, furniture in your stores or buildings you own, so you don’t want to zero out their values. You still owe your creditors and will need to pay any debts either during the next accounting period or during some future accounting period.

EXAMPLE: A mortgage is paid over many years and its balance would be carried over until paid off. The owners of the company certainly still own their share of the company and you must carry over details of that ownership to the next book period to become the opening balance.


Reviewing Customer Accounts

You will likely close your books on a monthly basis, but do a more extensive closing process at the end of a 12-month accounting period. During this year-end close it’s a good idea to take a more critical look at your customer accounts. So far we have discussed about writing off accounts for bad debts, but at year-end it’s time to take a harder look. Bad debt can be used as an expense to reduce taxes, so if you believe certain customers will never pay, it’s a good idea to just write them off at year-end and not pay taxes on what otherwise would be shown as a profit for your company. Even if you’re a sole proprietor, reducing net income will reduce the amount of taxes you must pay on your profits. In fact a sole proprietor can reduce not only income taxes, but also some other taxes (i.e.; You can reduce your Social Security and Medicare taxes when you reduces net income, in the case if you’re an american resident).

EXAMPLE: At the end of the year when closing the books, you find you have six customers who are more than 90 days past due. You don’t expect any of the customers to pay. The customers owe a total of $1,500. Then you would need to make the following entry:

[Debit]. Bad Debt = $1,500
[Credit]. Accounts Receivable = $1,500


You should also reflect the write-off in each of the customer’s accounts.


Assessing Vendor Accounts

During the closing process you should also review your vendor accounts to be sure all bills related to the prior accounting period are entered into the books. If you find an unpaid bill that does reflect expenses for the period you are about to close, you should record that bill by crediting the Accounts Payable account and debiting the appropriate account.

EXAMPLE: In reviewing your vendor accounts, you find that the most recent telephone bill of $135 is not paid or recorded, but it does reflect expenses incurred during the accounting period that is being closed. Then you would need to make the following entry:

[Debit]. Telephone Expenses = $135
[Credit]. Accounts Payable = $135


If you already completed your trial balance, you will need to adjust the numbers to reflect this missing expense.


Deleting Accounts

At the end of an accounting year is a good time to review all your accounts and decide whether or not you still them. If you decide you don’t need an account any longer, the closing process is an ideal time to delete accounts. You should never delete an account in the middle of an accounting year. If you do find that you want to delete an account in the middle, then start a list of accounts you want to delete at the end of the year.

If an account you want to delete is an Income Statement account, then it’s very easy to delete. Because you will be zeroing out all the accounts, you can just delete the account from your Chart of Accounts. If the account is a balance sheet account and it does carry a balance, you will need to move the value of the assets, liabilities, or equities to an account that will still be open. You would move the assets by making an entry in your General Ledger.

EXAMPLE: Suppose you want to consolidate all your vehicle asset accounts into one account at the end of the accounting year. You have an asset account called Vehicles — Trucks with a debit balance of $20,000 and an asset account called Vehicles — Cars with a debit balance of $15,000. You would need to make the following entry in the general ledger to close the two vehicle accounts and start a new one just called Vehicles:

[Debit]. Vehicles $35,000
[Credit]. Vehicles – Trucks $20,000
[Credit]. Vehicles – Cars $15,000


Preparing to Restart Business Cycle

The monthly closing process for any business can take a week or more as needed adjustments and corrections are made. Closing at year-end can take several weeks. Most businesses will send out notices to their employees telling them any revenues or expenses that they want entered for the current year must be in accounting by a certain cutoff date.

During the closing process, a bookkeeper will probably be working with two sets of books: one set that is being closed and a new set for the new account cycle. If you are closing the books at month-end, you may just start a new journal page for the new month. But, at year-end you would more likely have a new set of journals for the new year.

If you are using a computerized accounting system, this restart of the accounting cycle will be managed by the software program, but it is a good idea to print out a report of your year-end account data before starting the closing process in case something goes wrong. Also you should back up your data on a disc before starting the closing process in your computerized accounting system.

At year-end you will also need to make up new files for all your vendors, contractors, and customers. If you have room in your office, you will likely use one file cabinet for the current year and one for the previous year. To set up the files for the new year, you would likely box up the files from two years ago and use those drawers for the new year.

EXAMPLE: if you are getting ready for 2009 and have one filing cabinet with 2008 files and one with 2007 files, you would box up the 2007 files to make room for the 2008 files.


Let’s close this post to answer a question “How Should Record Keeping Organized?”


Organizing Your Record Keeping

Everything you do in your business is going to generate paperwork that you may or may not want to keep. You need to decide what to keep, and what you do keep you need to organize so you can access quickly when you need it. If you computerize your accounting you may not need to keep as much paper, but you still want a paper trail in case something happens to your computer records or you need the backup information for a transaction that is questioned at a later date.

Obviously, file cabinets are where you’ll store most of your records for the current year and the prior year. Older files you may store in boxes in a warehouse or storeroom if you don’t have room in your file cabinets. How you set up the files can be critical to your ability to find something when you need it. Many bookkeepers use four different methods to store accounting information:

  1. File folders: these are used for filing invoice, payment, and contract information about vendors; information about individual employees, such as payroll related forms and data; and information about individual customer accounts.
  2. Three-ring binders: Your Chart of Accounts, General Ledger, and Journals are usually kept in three-ring binders. Even if you do use a computerized accounting system, it’s a good idea to keep a copy of this for the month most recently closed and the current month in hard copy in case your computer system goes down and you need to quickly check information.
  3. Expandable files: These types of files are good for managing outstanding bills and vendor activity. You can get alphabetical expandable files for managing pending vendor invoices and purchase orders. You can use 30-day and 12-month expandable files for managing outstanding bills. As bills come in you can place them in the 12-month file for the month they are due. Then move the current month’s bills to the 30-day file by the day they are due. You may be able to avoid using these files if you are using a computerized bookkeeping system and set up the bill pay reminder system in your accounting program.
  4. Media for storing backup computer data: If you are keeping the books on computer, be certain you make at least one backup copy of all your data daily and store it in a safe place — a place where the data won’t be destroyed if there is a fire. A good alternative could be a small fire safe if your business does not have a built-in safe.


You’ll find it doesn’t take long to build up lots of paper and not have room to store it all. Luckily not everything has to be kept forever. Generally anything related to tax returns has to be kept for at least three years, but once you’re past three years the tax authorized office can’t audit you unless it suspects fraud. So you can get rid of most of your paperwork once it is four years old.

Some exceptions include employees. Those records you must keep until the employee has left the employment of the company for at least three years. The statute of limitations for most actions that can be filed by an ex-employee is three years after they left. In the fourth year, you will be able to get rid of most of your paperwork, but you may want to keep certain sensitive data longer. Any information about assets that are still held by the company should be kept. You also should keep any information about pending legal issues. Check with your attorney and your accountant before destroying old paperwork and be certain you are not tossing something that could be needed.

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