Year-End Bookkeeping Checklist for Small Business

A step-by-step year-end close checklist for small business owners — reconciliations, adjustments, 1099s, and everything to do before your CPA gets your books.

By Sarah Chen · · 13 min read

Year-End Bookkeeping Checklist for Small Business

Most small businesses treat year-end like a tax event. It's actually a bookkeeping event that happens to have tax consequences. If your books are clean on December 31, your tax return is a matter of days, not weeks — and your accountant will thank you.

This is the checklist we use internally and the one we recommend to Ledger Flow customers. Print it, work top-to-bottom, and check off each step.

Phase 1 — Before December 31 (last two weeks of the year)

1. Reconcile every bank and credit card account through the most recent statement

Every account. Not most accounts. Not "the important ones." Every account.

Success criteria: your ending balance in the books equals the statement ending balance for the most recent closed statement period.

2. Chase down any missing income

  • Did every invoice go out?
  • Is anything sitting in "draft" that should have been sent?
  • Did any customer pay outside your usual flow (Zelle, Venmo, PayPal) that hasn't been recorded?

3. Chase down any missing expenses

  • Have you captured every reimbursable expense you paid personally?
  • Are there any subscriptions still charging that you canceled?
  • Are all vendor bills from November and December recorded?

4. Plan for last-minute tax moves

Talk to your CPA now, not February 15. Common December moves:

  • Prepay January expenses to shift deductions into this year
  • Purchase equipment to use Section 179 deduction
  • Contribute to a SEP-IRA or Solo 401(k)
  • Convert a Traditional IRA to Roth (personal, but relevant for owner planning)

Nothing here is universal advice — the point is to have the conversation before December 31.

Phase 2 — First two weeks of January

5. Reconcile December statements

As soon as December statements arrive, reconcile them. This is the single biggest driver of a clean close.

6. Review your Accounts Receivable

  • Which invoices are more than 90 days overdue?
  • Are any customers uncollectible? Consider a bad-debt write-off.
  • Send year-end statements to any open customers.

7. Review your Accounts Payable

  • Are you accruing bills that were incurred but not yet paid?
  • Any duplicate bills to clean up?
  • Any vendor credits or overpayments to apply?

8. Review outstanding checks and deposits in transit

Long-outstanding uncashed checks (>6 months) are candidates for reissue or escheatment. Deposits sitting in transit for more than a week point at reconciliation issues.

9. Take physical inventory (if applicable)

If you carry inventory, count it. Adjust your inventory account to match. This is a Cost of Goods Sold event and directly affects your tax bill.

10. Review fixed assets

  • Did you purchase anything $2,500+ that should be capitalized instead of expensed?
  • Any assets disposed of, sold, or scrapped?
  • Update your depreciation schedule.

11. Review loans and lines of credit

  • Do year-end loan balances in your books match the lender's year-end statement?
  • Split loan payments correctly between principal and interest.
  • Record any accrued interest not yet paid.

12. Payroll

  • Confirm all Q4 payroll taxes have been remitted.
  • Reconcile payroll to your bank feed line by line.
  • Verify W-2s and 1099-NECs are ready for the January 31 filing deadline.

Phase 3 — Adjusting entries (mid-January to end-of-month)

13. Prepaid expenses

Anything you paid for in 2026 that provides benefit into 2027 (annual software, insurance, subscriptions) should move to a prepaid asset. Amortize into expense over the benefit period.

14. Accrued expenses

Anything you'll pay in 2027 for a service used in 2026 (utilities, contractor invoices, year-end bonuses) should be accrued to 2026 expense with a matching liability.

15. Deferred revenue

Payments received for services not yet delivered should sit on your balance sheet as a liability, not on your P&L as income.

16. Owner draws and contributions

Confirm every owner draw and contribution is correctly categorized. Misclassified draws are one of the top three sources of adjusted journals at tax time.

17. Loan interest split

For any loan payment, verify the split between principal (balance sheet) and interest (expense).

Phase 4 — 1099s and information returns

18. Run your 1099 report

Any US-based non-corporate vendor you paid $600 or more via check, ACH, cash, or Zelle needs a 1099-NEC. Payments made via credit card or third-party processors (PayPal, Stripe) are excluded — those platforms issue 1099-Ks.

19. Verify W-9s on file for every 1099 vendor

Missing W-9s are the #1 reason 1099 filing goes off the rails. Start collecting them in December.

20. File 1099-NECs by January 31

Both to the vendor and to the IRS. State filings vary by state.

Phase 5 — Financial statements

21. Produce final Profit & Loss

For the full year and by month/quarter. Review for:

  • Categories with unusual variance vs. prior year
  • Any category with $0 that shouldn't be
  • Any category with large "Uncategorized" or "Ask My Accountant" balances

22. Produce final Balance Sheet

Confirm:

  • Assets = Liabilities + Equity (down to the penny)
  • Cash matches your reconciled bank/credit card balances
  • Accounts Receivable and Accounts Payable match your subledger detail
  • Retained earnings rolled forward correctly

23. Produce final Cash Flow Statement

Reconcile against actual cash movement. Large discrepancies mean adjusting journals were miscategorized.

24. Save PDFs of statements as of December 31

Snapshot financials to a permanent folder. Books can (and will) change after the fact; snapshots don't.

Phase 6 — Hand-off to your CPA

25. Package everything

Give your CPA:

  • Trial balance
  • P&L, Balance Sheet, Cash Flow Statement (annual and by quarter)
  • General ledger detail
  • Bank and credit card statements (December)
  • Loan statements (December)
  • Fixed-asset additions and disposals
  • Payroll summary (W-3, 941s, 940)
  • 1099 summary
  • List of open questions ("I paid X for Y — capitalize or expense?")

26. Lock the period

Close and lock the period in your accounting software so no one accidentally posts back into it.

How Ledger Flow shortens this checklist

Most of Phase 1 and Phase 2 runs automatically in Ledger Flow: bank feeds reconcile through the AI matching engine, subscription detection surfaces recurring charges, and receipts attach to transactions as they clear. The steps that require human judgment — adjusting journal entries, inventory counts, CPA hand-off — still require human judgment, but the mechanical work is compressed from days into hours.

Related reading

Ready to make next year's close easier? Start your 30-day free trial of Ledger Flow — card required, $0 due today, then $20/month.

Frequently Asked Questions

When should I start year-end bookkeeping?

Start in the last two weeks of December. Reconcile every account through the most recent statement, chase down missing income and expenses, and talk to your CPA about last-minute tax moves before December 31.

What's the difference between accrued and prepaid expenses at year-end?

Prepaid expenses are payments made in the current year for benefit received next year — they move to the balance sheet as an asset. Accrued expenses are costs incurred in the current year but paid next year — they hit the current year's P&L with a matching liability.

Do I need to send 1099s to every vendor I paid?

You need to send 1099-NECs to US-based non-corporate vendors you paid $600 or more via check, ACH, cash, or Zelle. Payments made via credit card or third-party processors are excluded — those platforms issue 1099-Ks directly.

When are 1099-NECs due?

January 31, both to the recipient and to the IRS. State filing deadlines vary. Collect W-9s from vendors in December to avoid a January scramble.

How long should year-end close take?

For a small business with clean books maintained monthly, year-end close is typically two to five business days. Businesses that only touch their books at year-end can spend two to four weeks on it.

What should I give my CPA at year-end?

A trial balance, P&L and balance sheet, cash-flow statement, general ledger detail, December bank and credit card statements, loan statements, fixed-asset additions and disposals, payroll summary, 1099 summary, and a written list of any open questions.