If your business runs on a calendar year, your fiscal year ended this week. Here are some common year-end adjustments that may need to be made to your books.
Retirement Plan Contributions
If cash is available at year-end, it’s a great idea to maximize the allowable deductions for the retirement plan you qualify for. One example is a SEP IRA. You can deduct up to 25% of your or your employee’s salary (up to $50,000 deduction maximum per employee for 2012, but please check with your CPA or tax preparer for the numerous exceptions and rules).
Depreciation
If you have assets that will last longer than one year, such as the purchase of equipment or an automobile, an adjustment may need to be made to reduce the value of those assets. This adjustment will reduce your profit and will also reduce your tax bill.
Amortization
If you have a loan of any type, the payment consists of both principal and interest. Each time you make a payment, the principal and interest amounts can vary. At the beginning of the loan, you pay more interest and less principal. At the end of a loan, it’s reversed. Each payment is different, and if they haven’t been recorded correctly each month, it’s time to make the adjustment so that the loan balance is correct.
New Acquisitions or Obligations
If you’ve made a significant acquisition, such as real estate, buildings, large equipment, or another company, and somehow the transaction did not get properly recorded on your books, then now is the time. Similarly, if you’ve taken on new debt, the new liability needs to be put on the books.
Noncash Transactions
It’s easy to overlook transactions that do not require a cash outlay, but these need to be recorded as well. For example, if you performed consulting services in exchange for a spa gift certificate, this transaction should be reflected in the proper revenue and expense accounts.
Year-End Profit
Once your books are adjusted for all of these changes, you’ll have all the information you need to find out how your business performed for 2012. You can then use your 2012 revenue and profit numbers to set new goals for 2013.