Jim Merritt - November 6, 2024

Originally written in November 2023. Updated for the 2026 year-end.

Now is the time to get your QuickBooks® financial house in order!

You don't want to wait until January—or worse, several months into the following year—to discover that your accounting records contain problems that could have been corrected much earlier.

NOW is the time!

If you've been maintaining your accounting records throughout the year, you may already have many of the following items under control.

If you've been procrastinating, however, it's time to get started.

Taking the time to review your QuickBooks® records before year-end can help you identify accounting problems, prepare more reliable financial statements, and make life easier for both you and your CPA.

I've put together 23 recommendations to help you get started.

IMPORTANT: As you work through this checklist, don't become overwhelmed. If you find something that doesn't look right, resist the temptation to make random adjustments simply to get your accounts to balance.

QuickTrainer can help you determine what needs attention.

If you're not sure where to begin, our Data Review Services for QuickBooks® Users are designed to identify potential problems and recommend appropriate next steps.

You can also call us at 910-338-0488 or email [email protected].

Part 1: Bank Accounts, Reconciliations, and Transaction Documentation

1. Reconcile All Bank and Credit Card Accounts

Make sure all bank and credit card accounts are reconciled through their most recent available statement dates.

Bank statements typically close at month-end, while credit card statements may close on different dates.

Your reconciliations should agree with your actual financial institution statements.

A word of caution: If your beginning balance in QuickBooks® does not agree with the previous reconciliation's ending balance, STOP!

Don't create a reconciliation adjustment just to make the difference disappear.

A previously reconciled transaction may have been changed, deleted, or incorrectly marked as unreconciled.

For additional guidance, read our article:

Changed or Deleted a Previously Reconciled Transaction in QuickBooks® Online? Here's What to Do!

2. Review Outstanding Checks and Deposits

When reviewing your reconciliations, pay close attention to older transactions that have not cleared the bank.

Ask yourself:

• Is this a legitimate outstanding check that the vendor hasn't deposited?

• Was the transaction entered twice?

• Was a deposit recorded that never actually reached the bank?

• Was a transaction recorded in the wrong account?

• Is there another reason this item remains outstanding?

If a transaction is duplicated or incorrect, determine the proper correction before changing it.

Don't automatically delete or void old transactions. Some may belong to previously reported accounting periods, and others may represent legitimate outstanding obligations.

When in doubt, investigate first.

If you need help identifying reconciliation problems, QuickTrainer offers Cleanup Services for QuickBooks® Users.

3. Save Important Year-End Documentation

Once December has ended and you've completed your final reconciliations, save copies of your December bank and credit card statements.

Your CPA may want these documents to verify the account balances reported in QuickBooks®.

Also, retain documentation for significant purchases of equipment, vehicles, furniture, and other assets.

For example, if you purchased a computer system costing several thousand dollars, make sure the original invoice or sales receipt is available.

Your CPA may need this information to determine the appropriate accounting and tax treatment.

4. Always Enter Meaningful Transaction Memos

Want to know one of the best things you can do for yourself, your CPA, and anyone else reviewing your accounting records?

ALWAYS, always, always enter a meaningful memo when recording transactions!

Checks, bills, deposits, expenses, and journal entries should contain enough information to explain their purpose.

Examples include:

• What was purchased?

• Why was the expense incurred?

• What was the source of the revenue?

• What project or customer does the transaction relate to?

Suppose you're reviewing a transaction six months from now.

Would you understand what it represents?

Would your CPA?

Would someone else maintaining your books?

A short, meaningful memo can save a tremendous amount of research.

When accountants encounter transactions they don't understand, they must ask questions. Those questions take time—and time costs money.

MEMO, MEMO, MEMO!

5. Review Your Chart of Accounts for Improper Posting

As you review your Balance Sheet and Profit & Loss Statement, look for accounts containing descriptions such as Other.

In QuickBooks®, this can sometimes indicate that transactions have been posted directly to a parent account rather than to one of its subaccounts.

For example:

• 6100 – Utilities

• 6110 – Electric

• 6120 – Water

• 6130 – Telephone

If Utilities is intended to function strictly as a parent account, transactions generally should be posted to the appropriate subaccounts.

However, posting directly to a parent account is not automatically prohibited by QuickBooks®. It becomes a problem when it interferes with your desired reporting structure.

Review these accounts for consistency and determine whether any transactions should be reclassified.

If you're uncertain about your Chart of Accounts, One-on-One Training for QuickBooks Users can help you understand how your account structure affects your financial reports.

Part 2: Payroll, W-2s, and 1099 Reporting

6. Prepare for W-2 and W-3 Reporting

If you have employees, make sure your payroll records are accurate and complete before year-end.

Review the following:

• Current employee names and mailing addresses

• Social Security numbers

• Federal Form W-4 information

• Form I-9 employment eligibility documentation

• Employee compensation and withholding

• Payroll deductions and benefits

• Employer and employee payroll tax liabilities

The W-3 summarizes the W-2 information being submitted to the Social Security Administration.

For the 2026 tax year, the general deadline for furnishing employee W-2s and filing W-2/W-3 information with the SSA is February 1, 2027.

If your payroll is processed through QuickBooks® Payroll or another payroll service provider, verify which year-end forms the provider will prepare and file.

You remain responsible for ensuring your payroll information is accurate.

For more information, visit the IRS Instructions for Forms W-2 and W-3.

7. Review Your Independent Contractors and 1099 Reporting

If you've paid independent contractors during the year, review your vendor records to determine which payments may require reporting on Form 1099-NEC or another information return.

Start by making sure you have a completed Form W-9 for each applicable contractor.

The W-9 provides essential information, including the payee's legal name, tax identification number, and federal tax classification.

In QuickBooks®, review:

• Vendor names and addresses

• Tax identification information

• 1099 tracking settings

• Expense accounts used to record contractor compensation

• Payments that may have been recorded to incorrect accounts

• Payments made through credit cards or third-party settlement networks

Remember that not every payment to a contractor is necessarily reportable on Form 1099-NEC.

Important 2026 update: The general Form 1099-NEC reporting threshold for qualifying nonemployee compensation paid during 2026 is $2,000.

For payments made before 2026, the general threshold was $600.

Certain exceptions apply, including rules involving attorneys, backup withholding, and particular types of payments.

Consult the IRS Instructions for Forms 1099-MISC and 1099-NEC or your tax professional to determine the correct treatment.

8. Retain Copies of Payroll and Contractor Tax Forms

Maintain copies of your applicable year-end tax reporting documents.

These may include:

• Employee Forms W-2

• Form W-3

• Contractor Forms 1099-NEC

• Forms 1099-MISC

• Form 1096, where applicable

• Quarterly payroll tax filings

Form 1096 generally serves as a transmittal for applicable information returns filed on paper; it is not normally required with electronic filings.

Your CPA may need copies of these documents to reconcile payroll expenses, withholding liabilities, and contractor compensation.

Part 3: Review Your Balance Sheet

For the following items, I recommend reviewing your Balance Sheet using the accrual accounting basis, even if your business ultimately files its income tax return using the cash method.

An accrual-basis review can help identify outstanding receivables, payables, and other balances that may not be readily visible in cash-basis reports.

9. Review Your Balance Sheet Carefully

Your Balance Sheet provides a snapshot of your company's financial position at a specific date.

It includes:

• Assets

• Liabilities

• Equity

Review each account balance and ask yourself whether the amount makes sense.

Look for unusually large balances, negative balances, old transactions, and amounts you cannot explain.

A Balance Sheet that contains unexplained amounts may indicate bookkeeping problems requiring further investigation.

10. Reconcile Accounts Receivable

If your business creates invoices that customers pay later, you should have an Accounts Receivable (A/R) balance.

Compare the A/R balance on your Balance Sheet to an Accounts Receivable Aging Summary using the same reporting date and accounting basis.

Do the totals agree?

If not, investigate.

Common problems include:

• Customer payments that haven't been applied to invoices

• Duplicate invoices

• Payments recorded directly to income

• Incorrect customer credits

• Journal entries affecting Accounts Receivable

Don't simply write off unexplained customer balances.

Determine why the discrepancy exists before making corrections.

11. Review Undeposited Funds

Undeposited Funds is one of those QuickBooks® accounts that frequently causes confusion.

This account temporarily holds payments received from customers until those payments are recorded as part of a bank deposit.

Ideally, older transactions shouldn't remain in this account without a legitimate explanation.

However, Undeposited Funds does not necessarily have to equal zero on December 31.

For example, customer checks received in December but deposited in January may legitimately remain in Undeposited Funds at year-end.

The important thing is to determine whether the balance represents actual payments still awaiting deposit.

Look for:

• Customer payments never included in a deposit

• Deposits entered twice

• Payments matched incorrectly through Bank Transactions

• Old amounts that should have cleared months earlier

The appropriate tax-year treatment of payments received near year-end depends on the facts and your accounting method.

If Undeposited Funds contains old or unexplained amounts, a QuickBooks® Data Review can help identify the underlying problem.

12. Review Fixed Assets and Depreciation

Review significant purchases made during the year.

Examples may include:

• Buildings and land improvements

• Furniture and fixtures

• Computer hardware

• Equipment and machinery

• Business vehicles

• Leasehold improvements

• Certain software purchases

These transactions may need to be recorded as fixed assets rather than ordinary operating expenses.

The appropriate capitalization threshold should be established with your CPA, considering your accounting policies and applicable tax rules.

Don't assume that every purchase exceeding $1,000 must be capitalized—or that every purchase below that amount should automatically be expensed.

Also review accumulated depreciation and verify whether appropriate depreciation entries have been recorded.

Your CPA should determine the applicable depreciation method and tax treatment.

13. Reconcile Accounts Payable

If you enter bills in QuickBooks® and pay them later, you should have an Accounts Payable (A/P) balance.

Compare your Balance Sheet's Accounts Payable balance to the A/P Aging Summary using the same reporting date and accounting basis.

Do they agree?

If not, investigate potential causes:

• Bills paid with regular checks or expenses instead of bill payments

• Duplicate vendor bills

• Unapplied vendor credits

• Deleted bills

• Incorrect payment applications

• Journal entries affecting Accounts Payable

One common problem occurs when someone changes a bill after its payment has already been recorded.

Another occurs when someone deletes a bill without understanding the impact on its related payment.

These issues can distort vendor balances and create unnecessary cleanup work.

14. Review Credit Card Account Balances

Credit card balances should be reviewed and reconciled against the appropriate statements.

Normally, a credit card liability account carries a credit balance when the company owes money to the card issuer.

A debit balance may indicate a legitimate credit balance with the issuer, an overpayment, a refund, or an accounting problem.

However, don't assume that every unusual balance is incorrect.

Investigate what created the balance and determine whether it agrees with the underlying credit card activity.

15. Review Sales Tax Liabilities

Sales tax is another area where incorrect bookkeeping can create significant problems.

When QuickBooks® Online calculates sales tax on taxable transactions, it generally records the related liability through its sales tax functionality.

Sales tax payments should be recorded using the appropriate sales tax payment workflow.

Review your sales tax liability accounts and look for:

• Incorrectly recorded sales tax payments

• Manual journal entries affecting sales tax liabilities

• Unexpected balances

• Duplicate sales tax payments

• Differences between QuickBooks® and filed sales tax returns

Don't assume that a regular expense or check is the proper method for recording sales tax payments.

If you have concerns about your sales tax balances, investigate the activity before making adjustments.

16. Review Payroll Tax Liabilities

Payroll tax accounts deserve special attention.

Payroll processing typically creates liabilities representing taxes withheld from employees and taxes owed by the employer.

Those liabilities should be reduced when the corresponding payroll tax payments are properly recorded.

Review balances associated with:

• Federal income tax withholding

• Employee Social Security taxes

• Employer Social Security taxes

• Employee Medicare taxes

• Employer Medicare taxes

• State withholding taxes

• Unemployment taxes

Where separate G/L accounts are used, comparing the employer and employee portions of Social Security and Medicare taxes may help identify unusual activity.

However, differences are not automatically errors because of factors such as taxable wage limits and additional Medicare tax rules.

Look for unexpected debit balances, old liabilities, duplicate payments, and transactions recorded to incorrect accounts.

If you use an outside payroll provider, make sure the payroll information recorded in QuickBooks® agrees with the provider's reports and actual bank withdrawals.

17. Review Business Loans

Your Balance Sheet may contain liabilities for:

• Bank loans

• Vehicle loans

• Mortgages

• Lines of credit

• Shareholder loans

• Member loans

• Owner loans

Review each loan account and compare its balance to a lender statement or other reliable documentation.

Payments often consist of both principal and interest.

The principal portion reduces the outstanding loan balance, while the interest portion is generally recorded as an expense, subject to applicable accounting rules.

If the QuickBooks® loan balance doesn't agree with the lender's records, investigate the difference.

Possible causes include:

• Principal payments recorded entirely as expenses

• Interest incorrectly posted against principal

• Missing loan transactions

• Incorrect opening balances

• Additional loan advances not recorded

Do not automatically create a journal entry to force the balance to agree. First identify the underlying discrepancy.

Special care is also needed with shareholder, member, and owner loans.

Loan repayments and distributions can have different accounting and tax consequences depending on the entity type and circumstances.

Discuss these transactions with your CPA before assuming one treatment provides a particular tax advantage.

18. Review Your Equity Accounts

Common equity accounts include:

• Capital Stock

• Additional Paid-in Capital

• Owner Contributions

• Owner Draws

• Shareholder Distributions

• Member Distributions

• Retained Earnings

Review these accounts and determine whether the balances and transactions make sense for your business structure.

For example, a shareholder distribution should not automatically be recorded as an ordinary business expense.

Similarly, owner contributions and loan proceeds are not the same thing.

Retained Earnings is especially important because it represents accumulated prior-period earnings, adjusted for applicable transactions.

QuickBooks® Online generally carries forward prior-year net income into Retained Earnings automatically.

Review unusual manual entries to Retained Earnings with your accountant before making changes.

Part 4: Review Your Profit & Loss Statement

Now that we've reviewed the major areas of the Balance Sheet, let's turn our attention to the Profit & Loss Statement.

I generally recommend initially reviewing the Profit & Loss on an accrual basis to identify the underlying accounting activity.

19. Review Your Profit & Loss Statement

Your Profit & Loss Statement summarizes income, costs, and expenses over a selected period.

For your year-end review, compare the current year with the prior year.

Look for:

• Unusual increases or decreases in revenue

• Unexpected expenses

• Accounts showing negative balances

• Inconsistent account classifications

• Unusual or duplicate transactions

• Missing expenses or income

You may also find it helpful to compare individual months to identify irregularities.

Financial statements become much more useful when you understand what the numbers represent.

20. Review Income Accounts

Review the transactions recorded within your income accounts.

Depending on your workflow, you may find:

• Invoices

• Sales receipts

• Credit memos

• Discounts

• Deposits

• Other legitimate revenue-related transactions

If your business uses invoices and customer payments, verify that those payments are properly applied and deposited.

If revenue is recorded directly through deposits, make sure it hasn't also been recorded through sales receipts or invoices.

Duplicate revenue is a common problem when downloaded bank transactions are added instead of matched to existing QuickBooks® transactions.

21. Review Cost of Goods Sold

Cost of Goods Sold (COGS), sometimes referred to as Cost of Sales, generally represents the direct costs associated with goods sold or services delivered.

Depending on the business, these may include:

• Products purchased for resale

• Direct materials

• Certain direct labor costs

• Subcontractor expenses associated with delivering services

• Other appropriate direct costs

The proper classification depends on your business and accounting policies.

Review these accounts to determine whether transactions have been recorded consistently.

For example, office supplies used by administrative employees usually shouldn't be included in Cost of Goods Sold.

Similarly, inventory purchases and their eventual recognition as Cost of Goods Sold require appropriate treatment.

If you find expenses that appear to be misclassified, investigate before making changes.

22. Review Operating Expenses

Review the detailed transactions in your operating expense accounts.

This is where those transaction memos I discussed earlier become especially valuable.

For example, suppose you find a transaction in Office Supplies for $2,500.

The memo reads:

"New office computer system."

That description should prompt you to consider whether the transaction belongs in a fixed asset account, depending on your capitalization policy.

Or suppose you find an electric utility bill recorded under Books & Publications.

That's probably a classification error.

Review expenses for:

• Incorrect G/L accounts

• Duplicate charges

• Personal expenses recorded as business expenses

• Fixed asset purchases recorded as operating expenses

• Transactions posted to the wrong accounting period

Correct classifications contribute to more meaningful financial statements.

If your accounting records contain extensive classification or reconciliation problems, QuickTrainer's Cleanup Services for QuickBooks® Users can help identify and correct them.

23. Compare Your Prior-Year QuickBooks® Financials With Your Tax Return

This is one of the most important recommendations in the entire article.

Make sure your prior-year QuickBooks® financial information has been reconciled with the financial information used to prepare your filed business tax return.

Your CPA may have made tax-related adjustments that aren't reflected in your QuickBooks® file.

For example:

• Depreciation adjustments

• Inventory adjustments

• Reclassification entries

• Loan or liability corrections

• Owner equity adjustments

• Other year-end journal entries

Some tax adjustments should be reflected in your books, while others are tax-only adjustments and should not automatically be entered into QuickBooks®.

The objective is to understand and reconcile the differences.

If these differences are ignored, your opening balances and future financial reports may become increasingly difficult to interpret.

One final recommendation: Set a Closing Date in QuickBooks® Online.

Once the prior year's accounting records have been reviewed and finalized, establish a closing date and appropriate password protection.

This helps protect prior-year transactions from unintended changes.

For instructions, see Intuit's Guide to Locking Your Books in QuickBooks® Online.

What If Your QuickBooks® File Isn't Ready for Year-End?

If you've made it through this checklist and discovered several issues, you may be wondering where to begin.

That's understandable. Many accounting problems are connected, and correcting one item without understanding its relationship to other transactions can sometimes create additional problems.

QuickTrainer provides several services that can help.

Data Review Services for QuickBooks® Users

Not sure what's wrong? A Data Review can help identify discrepancies, unusual balances, reconciliation issues, and other areas needing attention.

Cleanup Services for QuickBooks® Users

Already know your accounting records contain errors? Cleanup services can help correct transactions, balances, and reconciliations that require attention.

One-on-One Training for QuickBooks Users

Want to become more confident maintaining your own books? Personalized training can help you understand reconciliations, financial reporting, transaction entry, and proper accounting workflows.

If you're unsure whether a Data Review or Cleanup is appropriate, you may find this additional article helpful:

What Is a QuickBooks® Data Review—and When Should You Have One?

Don't Wait Until Tax Season to Discover Your Accounting Problems

While this article doesn't cover every conceivable year-end accounting issue, I've tried to identify some of the most common areas business owners should review.

The sooner you identify a problem, the more time you'll have to understand and correct it before your financial information is needed for tax preparation.

If your books are accurate, congratulations!

If they're not, now is the time to do something about it.

QuickTrainer is located in Wilmington, NC and works remotely with businesses throughout the United States.

📞 Call QuickTrainer at 910-338-0488

📧 Email: [email protected]

🌐 Website: www.qti-wilmington.com

Let QuickTrainer give you back your time.

This article provides general accounting and bookkeeping information and is not intended as individualized tax or legal advice. Consult your CPA or tax professional regarding your particular circumstances.

QuickTrainer, Inc. is an independent QuickBooks® consulting and training company and is not affiliated with or employed by Intuit Inc. Intuit and QuickBooks® are trademarks and/or service marks of Intuit Inc.