Recommendations for Year End Closing with LOU Accounting

Closing the books at year end is a critical part of the business cycle. This process is generally performed by internal accountants or bookkeepers. The tasks involved can vary from business to business and do not always look the same. 

The purpose of year end close is to provide reasonable certainty that the business records are complete, accurate, and free from fraud and error. These records are used for tax return preparation, audit or compilation review, and other financial report requirements.

We’ve compiled a list of recommended practices and processes within LOU to help you close out your year. Some of these processes are similar to those found in the Month End recommendations. You may find your business prioritizes different reports. That's ok! This is not a Year End feature and you are not required to follow this process. This is intended as a guide based on commonly requested reporting needs. 

Complete Prior to Starting Year End Close

1. Prepare a year end close checklist to keep track of when certain closing processes and reconciliations are completed.
   1. Reach out to the CPA firm being used to prepare taxes, compilations, or audits and request in advance the information they will need to complete their work. Incorporate the needed items into the year-end close checklist.
   2. REMEMBER! You can give your CPA access to LOU as a foundation user without incurring a fee if a firm is handling your year end close.
2. Establish an internal company cutoff date.
   1. Establish a deadline for employees to submit backup/supporting documentation in alignment with the closing schedule and cutoff date you established.
   2. In LOU, close the accounting period to enforce the cutoff date throughout the company.
   3. The person completing the year end close can reopen the account period as needed but closing the period helps prevent unwanted changes from others in the organization not involved in the year end close.
3. Conduct a Physical Count to match the actual inventory on hand.
   1. Go to Operations / Reports / LOUs Reports and run the SKU Quantities by Stock Site/Bin report and select the Negative Quantities on Hand template to review any negative quantities in different stock sites or bins that might not be obvious from the Inventory Valuation report. 
4. Verify that all W9’s for Vendors and suppliers are on file and filled out correctly to prepare for 1099 filing.
   1. TIP! To make identifying 1099 Contractors easy, create a Vendor Type called “1099 Vendor” and assign Vendors that type when they require a 1099. This will make it easy for you identify those Vendors in LOU.
   2. For these Vendors, upload of a copy of the 1099 to the Vendor Profile Images.
   3. Use the Vendor Register to gather the amounts paid to each vendor with a 1099 type for 1099 preparation. (This report can only be run for 1 month at a time, so all 12 months will need to be run individually and manually combined)
5. Verify all supporting documents and schedules are updated and ready to use for year end close. These documents and schedules will be from outside of LOU.
   1. These may include invoices or receipts from employee expense reports, employee commission and mileage reports, business travel information, asset impairments, long-lived assets schedule, prepaid expenses such as insurance, capital leases and/or any other applicable manual schedules kept internally.

Key Year End Reports & Functions

1. Financial Statements: these can be exported as .pdf or Excel spreadsheet.
   1. Balance Sheet
   2. Income Statement
2. General Ledger Register: this can be run for a 12-month period and is a critical report to keep for historical purposes. You can export to .pdf or Excel spreadsheet.
3. Trial Balance: this will list the debit and credit ending GL balances for each Account for a period specified. It can be used to drill down into transactions by clicking into an Account and clicking into the transaction to access the source record in LOU. Using the Trial Balance to drill down is a quick and easy way to check transactions listed in the General Ledger. The Trial Balance can also be utilized as a working trial balance by exporting it to excel and recording  year end closing adjustments. This Trial Balance spreadsheet can be used to track manual journal entry adjustments by adding columns for each adjustment to the trial balance.
   1. Go to Accounting / Financials / Trial Balance
   2. Select the date range for the accounting period.
   3. Toggle on the Show amount in debit credit columns
   4. Toggle off the Exclude Zero Balance Accounts
   5. Toggle on the Spreadsheet option in the Output to section.
4. Account Reconciliation Reports: This feature is gives you the flexibility to reconcile any GL Account. An Account Reconciliation Report is created as a .pdf and can be printed and retained for your records.
5. Journal Entries: Journal entries are commonly used to adjust accounts after all transactional activity has been recorded during a period or for something that does not have another method of recording.
   1. Journal entries are considered risky and should be documented.
   2. You can use the General Ledger Register to export a list of Journal Entries by typing “Journal Entry” into the Source Column Contains field and toggling the Show Amount in Debit and Credit Column and Posting Sequence options on.
   3. This display does not include comments of what the Journal Entry is or what it was for. It simply provinces the debit and credit entries for each GL Account and the journal number reference.
6. Journal Listings: These are a list of specific transactions by type.
   1. Transaction types include Accounts Receivable, Accounts Payable, Journal Entries, Cash Receipts, Cash Disbursements, Bank Deposits, Credit Card Disbursements, Voided Transactions, and Inventory.
   2. You can select a 14-day period per journal and see a summary of the transactions during that time period. You can drill down into the debit and credit details, or further into source transactions.
7. Vendor Register is a ledger of activity for each vendor.
   1. Up to 31 days of activity can be exported to either .pdf or Excel spreadsheet.
   2. Some manual consolidation and calculations can be made to this report so it can be utilized for 1099 reports.
   3. It is an additional report to support Accounts Payable transactions but does not list the GL account a transaction is assigned. 
8. Customer Register: this report is essentially a ledger of customer transactions.
   1. Up to 31 days of activity can be exported to either .pdf or Excel spreadsheet.
   2. This register does not reflect Deposits.
9. Audit Log: displays information about user changes. This is an onscreen report and is limited to 7 days of display. Most document profiles in LOU have an indicator of who created the document and when. You can use the History or “i” icon to access the Audit Log information to see when changes were made and by whom.

Year End Close

1. Verify General Ledger Accounts Tie Out to Key Financial Reports:
   1. Verify in LOU Bank Deposits there are no outstanding customer payments to be deposited. Any undeposited receipts need to be resolved prior to starting year end close.
   2. Reconcile the Accounts Receivable Aging in LOU through the end of the year to the Accounts Receivable GL account and Balance Sheet. Ensure they match.
   3. Reconcile the Accounts Payable Aging report in LOU through the end of the year to the Accounts Payable GL account and Balance Sheet. Ensure they match.
   4. Reconcile the Invoices with SKUs report in LOU through the end of the year to the GL and Income Statement. Ensure they match.
   5. Reconcile the Inventory Valuation report in LOU to the GL and Balance Sheet. Ensure they match.
   6. Reconcile the Tax Details report in LOU to the GL and Balance Sheet. Ensure they match (make sure to take into account any payments that have reduced the sales tax liability as these payments are not included in the Tax Details report). 
   7. Reconcile any Customer Deposit Liability using the Pending Customer Deposits report in LOU to the GL and Balance Sheet. Ensure they match.
      1. IMPORTANT!: The Pending Customer Deposits report in LOU can only be run in real time. You must run this report as of the last day of the period and save a copy. Otherwise, you will not be able to generate the report to use for year end closing.
   8. Check that the GL balances match the Balance Sheet and Income Statement for all other accounts. Ensuring there are no issues that need to be addressed. Use any other LOU reports useful to the business as needed.
   9. Once all GL account balances have been tied out to the LOU financial statements, prepare an unadjusted Trial Balance using the Trial Balance in LOU by exporting it to excel to keep track of manual adjustments.
      1. IMPORTANT! The Trial Balance in LOU displays the total ending debit/credit balance of an account. It will not display a beginning balance, change, and ending balance. This information will need to be manually added.
   10. Save a copy of the GL, Balance Sheet, Income Statement, Unadjusted Trial Balance, and any LOU Reports used to balance from the steps above.
       1. IMPORTANT! Manual journal entries are considered a risk. Every effort to document an entry and its purpose should be made to prevent and detect fraud or error. For this reason, it’s extremely important that you maintain substantiating records for all journal entries. 
2. Reconcile General Ledger Accounts – Using Third Party Statements, LOU Reports, and Internal Schedules
   1. Gather bank statements from the banking institution and reconcile all bank accounts using the Account Reconciliation workflow in LOU Accounting. Any uncleared items should be reviewed and adjusted prior to completing the reconciliation.
   2. Credit Cards, Loans, and other statements that are available from outside sources may also follow this process using the Account Reconciliation workflow in LOU.
      1. REMEMBER! The Account Reconciliation feature might not always be the most time effective way to reconcile. Generally, third party statements or documents can be used with Account Reconciliation easily and timely. LOU Reports and internal schedules are often easier to reconcile manually by balancing the total to the GL and addressing if any discrepancies are present.
   3. For each account reconciled using the LOU Account Reconciliation you can print the completed report to substantiate and document the reconciliation. 
3. Adjust & Close Accounts Receivable, Revenue Deferrals or Accruals
   1. Using the established cutoff date, run a GL from the cutoff date to the current date and review any revenue transactions that should be accrued into the closing period, checking with operational employees as needed to verify accuracy of any questions.
   2. In LOU manually record any accruals with a Journal Entry and reverse the Journal Entry in the period the revenue is posted in LOU. 
   3. In LOU manually reclassify any revenue that should be deferred, reverse the Journal Entry when the obligations have been met. 
   4. Make sure to record any adjustments recorded in LOU on the working Trial Balance spreadsheet.
   5. Once all adjustments have been made, ensure the Trial Balance ties out to the GL and Balance Sheet, and Income Statement balances for each account.
   6. Mark completed items off the year end checklist. 
4. Close & Adjust Accounts Payable, Expenses, and Accruals
   1. Using the established cutoff date, run a GL from the cut off date to the current date and review any expense transactions that should be accrued into the closing period. Checking source documents to verify and other resources as needed.
   2. In LOU manually record any accruals with a journal entry and reverse the journal entry in the period the revenue is posted in LOU.
   3. In LOU manually reclassify any expenses that should be deferred, reverse the journal entry when the obligations have been met.
   4. Post a journal entry in LOU for any accruals such as payroll, taxes, or other items that may be unknown and need to be estimated.
   5. Make sure to record any adjustments recorded in LOU on the working Trial Balance.
   6. Once all adjustments have been made, ensure the Trial Balance ties out to the GL and Balance Sheet, and Income Statement balances for each account.
   7. Mark completed items off the year end checklist. 

Adjusting & Closing Revenue & Expense Accounts (Condensed)

Accruals for Revenue

1. Run the GL Register from the cutoff date to the current date. 
2. Identify any revenue not recorded in the period it was earned. 
3. Create a journal entry to accrue the revenue in the period it was earned. 
4. Using the excel trial balance, record the adjustment. 
5. Reverse the journal entry in the subsequent period. 

Accruals for Expenses

1. Run a GL Register from the cutoff date to the current date. 
2. Review expenses after the cut off date that relate to the period being closed. 
3. Create a journal entry to recognize the expenses that benefit the period being closed. 
4. Using the excel trial balance, record the adjustment. 
5. Reverse the journal entry in the subsequent period. 

Deferred Revenue

1. Run the GL register for the year being closed. 
2. Review revenue recognized for obligations that have not been performed. 
3. Create a journal entry for any identified obligations unmet at the end of the closing period. 
4. Using the excel trial balance, record the adjustment. 
5. Reverse the journal entry when the obligation has been met. 

Deferred Expenses

1. Run the GL register for the year being closed. 
2. Review expenses that have been recorded but benefit periods after the period being closed. 
3. Create a journal entry for any transactions to remove them from the closing period. 
4. Using the excel trial balance, record the adjustment. 
5. Reverse the journal entry when the benefit occurs.