As the financial year-end approaches, businesses need to ensure that all unpaid bills and expenses are properly recorded before closing the books. Overlooking outstanding supplier invoices or missing expenses can lead to incorrect financial reporting, cash flow surprises, and even compliance issues with tax authorities. Properly managing your accounts payable and expenses before year-end ensure that your financial records reflect the true financial position of your business.
In this article, we’ll discuss essential steps and best practices to ensure accuracy when managing unpaid bills and expenses before closing your books.
1. Review Accounts Payable Ledger & Supplier Statements
A common issue many businesses face at year-end is missing or unrecorded supplier invoices. To prevent this:
- Cross-check your accounts payable ledger with supplier statements to ensure no invoices are missing.
- Contact vendors and suppliers for copies of any missing invoices or statements.
- If you have received goods or services but have yet to receive an invoice, record these as accrued expenses to maintain accurate reporting.
- Consider early payment discounts if your cash flow allows, as some suppliers offer reductions for paying invoices ahead of schedule.
2. Chase Down Missing Expense Receipts
Small business expenses, particularly those paid in cash or by company credit cards, often slip through the cracks. To ensure no expenses are left unaccounted for:
- Review company credit card statements, bank transactions, and petty cash records to cross-check expenses.
- Identify any missing receipts and request duplicates from suppliers.
- Use accounting software and receipt-scanning apps to digitise and store receipts in real-time.
- If receipts are missing but the transaction appears in your bank statement, check if it qualifies for deduction with proper explanation.
3. Accrue Expenses for Goods & Services Already Received
Some expenses may not have been invoiced by the supplier before the financial year-end. However, if your business has already received the goods or services, these should be recorded as an accrued expense:
- Examples include utilities, professional services, rent, and employee benefits that may not be invoiced until the next month.
- Ensure that these expenses are captured in the correct period to maintain an accurate financial picture.
- Work closely with your accountant to ensure compliance with NZ accounting standards when recording accrued expenses.
4. Reconcile GST & Tax Implications
Accounting for unpaid bills and expenses correctly has a direct impact on your GST and tax obligations:
- Ensure all deductible business expenses are properly classified to maximise tax savings.
- If you are registered for GST on an accrual basis, claim GST on unpaid supplier invoices for expenses incurred before year-end.
- If your business is cash-based, only paid expenses qualify for GST claims, so it’s crucial to reconcile payments accurately.
- If cash flow allows, prepay certain deductible expenses before year-end to take advantage of available tax benefits.
5. Communicate with Suppliers & Vendors
To avoid last-minute surprises, it’s good practice to engage with your suppliers before closing your books:
- Confirm outstanding balances to ensure all unpaid invoices are accounted for.
- Discuss potential payment deferrals if you need to manage cash flow into the next financial year.
- Update supplier details in your accounting system to prevent future delays in receiving invoices or making payments.
6. Implement Better Systems for Next Year
If unpaid bills and missing expenses are a recurring issue, implementing a better system can help streamline the process:
- Use cloud accounting software to automatically track expenses and unpaid bills.
- Implement automated approval workflows for invoices to ensure nothing is overlooked.
- Encourage employees to submit receipts and expenses in real-time via mobile apps.
- Schedule regular reconciliation reviews (monthly or quarterly) to prevent year-end backlogs.
Properly reconciling unpaid bills and expenses before closing your books is critical for accurate financial reporting and tax compliance. By staying proactive, reviewing accounts payable, reconciling missing expenses, and ensuring all liabilities are recorded, business owners can avoid financial misstatements and gain a clear picture of their financial position.
If you need help reviewing your year-end financials, consider consulting an accountant or bookkeeper to ensure compliance and optimise tax savings.
The content in this blog is intended to provide general insights and should not be regarded as professional advice. Each business situation is unique, and we recommend consulting with a professional for specific guidance. At Black Arrow Business Studio, we specialise in accounting and consulting services designed to support your business’s growth and success. Feel free to contact us for expert advice and customised solutions.
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