As the year draws to a close, it’s time to take a closer look at your financial reports.
Whether you are operating as a sole proprietor or a corporation, understanding what to review in your statements before year-end can save you costly mistakes and stress come tax season. I am going to walk you through exactly what to check — and why — so you can close your books with confidence.
Here is what you will learn:
- What to review on your AR, AP, Balance Sheet, and P&L reports
- How to spot red flags that impact tax filing and accuracy
- Practical steps to prepare your records for smooth year-end reporting
Let’s begin by understanding why a year-end financial review matters and how it lays the foundation for smart tax and business decisions.
1. Why Year-End Financial Review Matters
A year-end financial review isn’t just about closing the books — it’s about understanding your business story for the year. Every invoice, expense, and account balance reflects the health of your operations and sets the stage for smarter decisions next year.
When done properly, a year-end review helps you:
- Ensure accuracy for tax filing. Catching errors now prevents costly adjustments later.
- Spot financial trends. Understanding where you gained or lost helps guide next year’s budget.
- Strengthen compliance. Clean, reconciled records protect you during audits and streamline your tax submissions.
Many business owners skip this step because it feels tedious or confusing. But in truth, reviewing your financial reports before year-end gives you control — not chaos. It’s the difference between scrambling for receipts in April and filing confidently in February.
2. Reviewing Your Accounts Receivable (AR) Report
Your Accounts Receivable (AR) report shows the money owed to you by customers — and it plays a big role in both cash flow and accurate income reporting. At year-end, reviewing this report carefully ensures your revenue truly reflects what’s collectible.
Start by identifying overdue or uncollectible invoices. If a client hasn’t paid and is unlikely to, we may need to record a bad debt expense. This adjustment keeps your income realistic and helps reduce taxable revenue appropriately.
Next, verify all invoices have been issued and applied correctly. We want to make sure payments received are matched to the correct customers and that no deposits or credits are left unapplied.
Finally, take note of customers who consistently pay late. This insight helps you tighten payment terms or follow up before closing the year — strengthening your cash position heading into the new year.
3. Reviewing Your Accounts Payable (AP) Report
Your Accounts Payable (AP) report shows what your business owes to vendors, suppliers, and contractors. Reviewing it before year-end ensures your expenses are complete, accurate, and properly timed — which directly affects your net profit and tax liability.
First, check for any bills in your AP that might have already been paid. You could have used personal funds for some of them, or maybe there was a discrepancy with the payment amount so your bookkeeper couldn’t match to the invoice. Sometimes, if multiple bills were paid together, it might not be clear which payment goes with which invoice. It’s really important to sort this out now so we can clear out any bills that shouldn’t be there and make sure the payments are applied correctly.
Next check for outstanding bills dated before year-end that haven’t yet been submitted to your bookkeeper. Accruing these ensures your expenses are recognized in the correct period, aligning your P&L with the actual work or goods received.
Also, clean up your records by asking your bookkeeper to clear old or incorrect payables — such as voided bills or credits never applied. This prevents overstatement of liabilities and helps you start the new year with a clean slate.
4. Reviewing Your Balance Sheet
Your Balance Sheet provides a snapshot of your business’s financial position — what you own, what you owe, and what’s left over (equity). A careful year-end review ensures every account accurately reflects reality before you close the books.
First things first, take a look at your asset accounts. Make sure the bank balances match up with your reconciliations and that petty cash is all counted. Your bookkeeper handles this every month, but it’s good to double-check that everything looks right to you. Also, make sure your fixed assets include any purchases, sales, or disposals that happened throughout the year. If you sold or got rid of any equipment, let your bookkeeper know so they can update your asset accounts. This way, the depreciation at year-end will be accurate.
Next up, take a look at your liabilities. Make sure your loans and credit cards match up with the statements, and that any interest accrued by year-end is recorded. For payroll or GST/PST taxes payable, double-check that the balances align with your filings. Your bookkeeper will handle this, but it’s always smart to give it a quick review. Also, take a moment to check your Shareholder Account to ensure there aren’t any balances that need to be repaid and that everything looks accurate to you.
Lastly, take a look at your equity section. Make sure owner draws, dividends, or contributions are classified correctly, and that your retained earnings show your net profit or loss for the year.
An accurate Balance Sheet ensures your business’s net worth is real — not inflated or understated.
5. Reviewing Your Profit and Loss (P&L) Statement
Your Profit and Loss (P&L) statement really tells the story of how your business is doing — showing the revenue you’ve earned, the expenses incurred, and whether you’ve made a profit or a loss over the year. Taking a look at it before the year wraps up is a great way to make sure everything’s accurate, spot any trends, and fine-tune your tax strategy.
Start by ensuring all income and expenses are properly categorized. Misclassifications — like posting income to “other income” or expenses to “cost of goods sold” — can distort margins and confuse both you and your tax preparer.
Next, take a moment to check for any missing or duplicate entries. It might be helpful to compare your expense categories with what you had in previous months or around the same time last year to see if anything looks off. If you spot any unusual spikes or drops, it could mean there are some errors or even new opportunities to explore! Think about what you might be missing—did you drive for work this year but forget to submit any auto expenses or mileage reimbursements? Maybe you have a home office but didn’t include any of those expenses. Did you accidentally forget to submit your cell phone bills that you pay for personally? We just want to make sure everything is accounted for!
Now, take a moment to think about profitability trends. Are your gross margins getting better? Are your operating expenses starting to rise? These insights can really help you make smart decisions — not just for taxes, but also for planning next year’s strategy.
6. Preparing for Tax Filing (Personal and Corporate)
Once your reports are accurate and reconciled, it’s time to turn your attention to tax readiness. A little preparation now can save hours of back-and-forth with your accountant later — and potentially reduce your tax bill.
Start by gathering all your supporting documents like bank and credit card statements, payroll summaries, loan statements, and receipts for any big purchases. If you’re running a corporation, don’t forget to include things like shareholder or director expense reimbursements and dividend records. For those of you who are sole proprietors, it’s really important to keep your personal and business expenses separated. If you have a bookkeeper, they’ll handle most of this for you, but keep in mind they can only work with the documents you provide them. So, making sure your bookkeeper has everything they need before year-end is super important!
Next up, let’s make sure all the year-end adjustments are wrapped up. This means we need to record things like depreciation, inventory adjustments, prepaid expenses, and accrued liabilities. Don’t forget to check the adjustments for Auto, Home Office, Cell Phone, and Internet for personal use as well. It’s also important to ensure that owner’s draws or shareholder loans are recorded correctly to keep things smooth with the tax authorities.
Then, think about some strategic year-end actions you could take, like making charitable donations, buying any needed equipment, or paying out bonuses before the year wraps up to help with deductions. It’s a good idea to chat with your accountant before moving forwrd to make sure everything fits well with your overall tax plan.
Finally, review everything through the lens of accuracy and documentation. Tax authorities don’t just want numbers; they want records that back them up. A clean, well-documented file means faster tax prep and fewer headaches if you’re ever audited.
With your tax preparation underway, you’re ready to look ahead — using your year-end review to plan a stronger, smoother new year.
7. Setting Up for a Strong Start Next Year
Your year-end review shouldn’t just close the books — it should open the door to a better financial year ahead. The insights you’ve gained from reviewing your AR, AP, Balance Sheet, and P&L can help you make smarter decisions and keep things running smoothly.
Start by establishing a monthly financial review routine? Instead of waiting until next December rolls around, carve out some time each month to go over your reports, check for any errors, and see how you’re performing against your goals. This approach will make year-end feel a lot less stressful and ensure your data stays reliable throughout the year.
Next, consider process improvements. Are there ways you could automate invoice reminders, use receipt-scanning apps, or streamline your processes? Even small tweaks to your system can save you hours and cut down on the chance of overlooking important details.
Lastly, think ahead and plan proactively. Use your financial results to set next year’s budget, forecast cash flow, and outline your growth goals. Having a well-informed plan can turn those financial reports from just paperwork into a powerful tool for managing your business.
By making your year-end review a regular habit, you’ll not only simplify tax time but also build a stronger financial foundation for the year to come.
As the year comes to a close, your financial reports tell a bigger story than just numbers — they show how your business has performed, where it stands right now, and what’s in store for the future.
By taking a look at your Accounts Receivable, you can make sure your income truly reflects what you can collect. Checking your Accounts Payable and Balance Sheet helps you verify that your expenses, assets, and liabilities are all in order. And when you refine your Profit and Loss statement, you’ll gain a clearer picture of your performance, which sets you up for a smooth and informed tax filing.
These steps aren’t just about meeting compliance requirements — they also give you the tools to manage proactively, plan strategically, and step into the new year feeling organized and in control.
Feel free to reach out to us if you have any questions.
