Year-end comes every twelve months whether we are ready or not. The year-end process can be a lot to remember when it comes to accruals and the “once a year” transactions that need to be done. Commonly missed year-end entries are reclass entries needed between assets and liabilities. They are commonly missed due to the utilization of your accounting software when it comes to recording accounts receivables and cash receipts, and accounts payable and payments.
What are the common reclass entries that should be done at year-end? For accounts receivables, they include any credits within the account, such as credit memos to customers, overpayments and deposits that would need to be reclassed to a liability account such as unearned revenue or customer deposits.
For accounts payable, they include debits within the account, such as credits from vendors, payments made on an expense applicable to the next year or overpayments made to vendors that would need to be reclassed to an asset account such as prepaids.
While these seem immaterial, and yes, at times they are, the sum of multiple transactions within the same account could amount to a material reclass entry. It is important not to understate these assets and liabilities at year-end. It is a best practice to summarize these items within accounts receivable and accounts payable to discuss the totals with your auditors in order to determine if year-end entries are necessary.
If you have any questions, please contact your Henry+Horne advisor.