Year-End Close
Complete guide to year-end closing procedures including retained earnings, audit preparation, and tax reporting.
Overview
YEAR-END CLOSE TIMELINE
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DECEMBER JANUARY FEBRUARY-MARCH
──────── ─────── ──────────────
Q4 Close Year-End Tasks Audit/Tax
│ │ │
▼ ▼ ▼
┌─────────┐ ┌─────────────┐ ┌─────────────┐
│ Dec │ │ Retained │ │ Audit │
│ Month │─────────►│ Earnings │───────►│ Adjustments │
│ Close │ │ Roll │ │ Tax Filing │
└─────────┘ └─────────────┘ └─────────────┘
Year-End Close Timeline
Extended Timeline
YEAR-END CLOSE CALENDAR
───────────────────────────────────────────────────────────
DECEMBER (Pre-Close)
Week 1-2: Complete year-end planning
Week 3: Preliminary close preparation
Week 4: December month-end close begins
JANUARY (Close)
Week 1: Complete December close
Week 2: Year-end adjustments
Week 3: Retained earnings rollforward
Week 4: Preliminary financials
FEBRUARY (Audit)
Weeks 1-4: External audit (if applicable)
MARCH (Final)
Week 1: Final audit adjustments
Week 2: Finalize prior year
Week 3-4: Tax preparation
Retained Earnings Rollforward
Automatic Roll (NetSuite Default)
RETAINED EARNINGS AUTOMATIC ROLL
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NetSuite automatically rolls income/expense to Retained Earnings
at year-end. This happens when you:
1. Create a new fiscal year's first period
2. Post any transaction to the new year
System Entry (Automatic):
Income Statement Accounts Close to $0
─────────────────────────────────────────
Revenue accounts → $0
Expense accounts → $0
Net Income (FY 2025) → Retained Earnings
Example:
FY 2025 Net Income: $500,000
Automatic Entry:
Income Summary $500,000 Dr
Retained Earnings $500,000 Cr
Verifying Retained Earnings
VERIFY RETAINED EARNINGS ROLL
───────────────────────────────────────────────────────────
Step 1: Check Prior Year Net Income
Reports > Financial > Income Statement
Period: Full Year 2025
Net Income: $500,000
Step 2: Check Retained Earnings Change
Reports > Financial > Balance Sheet
Compare 12/31/2025 to 01/01/2026
Retained Earnings 12/31/2025: $2,000,000
+ Net Income 2025: $500,000
- Dividends 2025: ($50,000)
────────────────────────────────────────────
Retained Earnings 01/01/2026: $2,450,000
Step 3: Verify Balance Sheet
Balance Sheet as of 01/01/2026
Retained Earnings = $2,450,000 ✓
Year-End Specific Tasks
Year-End Checklist
YEAR-END CLOSE CHECKLIST
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□ COMPLETE Q4/DECEMBER CLOSE
□ All monthly close tasks
□ Q4 adjustments
□ YEAR-END ADJUSTMENTS
□ Bonus/incentive accruals
□ Annual leave/PTO accruals
□ Warranty reserves
□ Bad debt allowance review
□ Inventory obsolescence reserve
□ Impairment testing
□ FIXED ASSETS
□ Full year depreciation complete
□ Asset impairment review
□ Asset disposal processing
□ Fixed asset register reconciled
□ TAX ITEMS
□ Tax provision calculation
□ Deferred tax assets/liabilities
□ Estimated tax payments reconciled
□ 1099 data review
□ RETAINED EARNINGS
□ Verify automatic roll
□ Record dividends (if any)
□ Close prior year
□ AUDIT PREPARATION
□ Trial balance finalized
□ Supporting schedules prepared
□ Confirmation letters sent
Adjustment Periods
Using Adjustment Periods
YEAR-END ADJUSTMENT PERIOD
───────────────────────────────────────────────────────────
Purpose: Record audit/year-end adjustments without
affecting monthly reports
Setup:
Navigate to: Manage Accounting Periods > New
┌────────────────────────────────────────────────────┐
│ Period Name: ADJ Dec 2025 │
│ Start Date: 12/31/2025 │
│ End Date: 12/31/2025 │
│ Fiscal Year: FY 2025 │
│ ☑ Is Adjustment Period │
└────────────────────────────────────────────────────┘
Usage:
- Post audit adjustments to ADJ period
- Monthly reports exclude adjustment entries
- Annual reports include all periods
Entry in Adjustment Period:
Transaction Date: 12/31/2025
Posting Period: ADJ Dec 2025
1099 and Tax Reporting
1099 Processing
1099 YEAR-END PROCESSING
───────────────────────────────────────────────────────────
STEP 1: Verify Vendor Setup
Navigate to: Lists > Relationships > Vendors
Review for each 1099 vendor:
☑ 1099 Eligible
Tax ID Number entered
1099 Type (NEC, MISC, etc.)
STEP 2: Review 1099 Payments
Reports > Vendors > 1099 Report
Verify:
□ All 1099 vendors flagged
□ Amounts are correct
□ No missing tax IDs
STEP 3: Generate 1099 Forms
Navigate to: Tax Reporting > 1099/Tax Forms
┌────────────────────────────────────────────────────┐
│ Tax Year: 2025 │
│ Form Type: 1099-NEC │
│ │
│ Output: ○ Print │
│ ● E-File │
│ ○ Preview │
└────────────────────────────────────────────────────┘
Deadline: January 31st for recipient copies
Tax Provision
TAX PROVISION CALCULATION
───────────────────────────────────────────────────────────
Income Tax Entry:
Book Income Before Tax: $1,000,000
Tax Calculation:
Federal Tax (21%): $210,000
State Tax (5%): $50,000
─────────────────────────────────────────
Total Tax Provision: $260,000
Journal Entry:
Income Tax Expense $260,000 Dr
Income Tax Payable $200,000 Cr
Deferred Tax Liability $60,000 Cr
Deferred Taxes:
- Book/tax timing differences
- Depreciation differences
- Accrual differences
Audit Preparation
Pre-Audit Checklist
AUDIT PREPARATION CHECKLIST
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FINANCIAL STATEMENTS
□ Final trial balance
□ Balance sheet
□ Income statement
□ Cash flow statement
□ Statement of equity
RECONCILIATIONS
□ Bank reconciliations (all accounts)
□ AR aging (detailed)
□ AP aging (detailed)
□ Fixed asset register
□ Inventory valuation
□ Debt schedules
□ Equity rollforward
CONFIRMATIONS
□ Bank confirmation letters
□ AR confirmation letters
□ AP confirmation letters
□ Legal confirmation
□ Investment confirmations
SCHEDULES & SUPPORT
□ Revenue detail by month
□ Expense analysis
□ Intercompany reconciliation
□ Related party transactions
□ Subsequent events disclosure
□ Contingency analysis
PBC (Prepared by Client) List
COMMON PBC ITEMS
───────────────────────────────────────────────────────────
Financial
├── Trial balance (beginning and ending)
├── Monthly financial statements
├── Bank reconciliations
└── Significant journal entries
Accounts Receivable
├── Aging report
├── Bad debt analysis
├── Large customer confirmations
└── Credit memo detail
Accounts Payable
├── Aging report
├── Accrual support
├── Large vendor confirmations
└── Subsequent payments
Fixed Assets
├── Asset register
├── Additions/disposals detail
├── Depreciation schedules
└── Impairment analysis
Inventory
├── Inventory listing
├── Cost analysis
├── Obsolescence reserve
└── Count documentation
Prior Year Adjustments
Recording Prior Year Adjustments
PRIOR YEAR ADJUSTMENT
───────────────────────────────────────────────────────────
When: Audit findings require prior year correction
Process:
1. Reopen prior year adjustment period
Navigate to: Manage Accounting Periods
Select: ADJ Dec 2025
Click: Reopen Period
2. Post adjustment
Date: 12/31/2025
Period: ADJ Dec 2025
Example (Revenue overstatement found):
Revenue $50,000 Dr
Retained Earnings $50,000 Cr
3. Re-close period
4. Comparative reports auto-updated
Impact:
- Prior year financials restated
- Opening RE for current year adjusted
- Comparative reports reflect correction
Multi-Year Close (OneWorld)
Subsidiary Year-End Sequence
ONEWORLD YEAR-END SEQUENCE
───────────────────────────────────────────────────────────
STEP 1: Close All Subsidiaries (December)
├── US Operations ✓
├── UK Operations ✓
├── Germany ✓
└── Japan ✓
STEP 2: Complete IC Eliminations
└── All IC balanced and eliminated
STEP 3: Calculate Final Consolidated Rates
└── Year-end FX rates applied
STEP 4: Close Consolidation
└── Parent company closed
STEP 5: Roll Retained Earnings
├── Each subsidiary rolls individually
└── Consolidated RE updated
STEP 6: Create New Year Periods
└── FY 2026 periods created
STEP 7: Verify Opening Balances
└── All subsidiaries' opening balance =
prior year closing balance
Opening the New Year
New Year Preparation
NEW FISCAL YEAR PREPARATION
───────────────────────────────────────────────────────────
BEFORE YEAR-END:
□ Create FY 2026 accounting periods
Setup > Accounting > Manage GL > Setup Periods
□ Review recurring transactions
- Update rates/amounts
- Extend end dates if needed
□ Update annual limits
- Budget allocations
- Approval thresholds
- Credit limits
AFTER YEAR-END CLOSE:
□ Verify opening balances
Reports > Financial > Balance Sheet
As of: 01/01/2026
Compare to: 12/31/2025
□ Release budgets
Transactions > Financial > Release Budgets
□ Notify users
New year is open for transactions
Year-End vs Month-End Comparison
| Task | Month-End | Year-End |
|---|---|---|
| Module locking | Yes | Yes |
| Standard adjustments | Yes | Yes + Annual accruals |
| Bonus accruals | No | Yes |
| Fixed asset impairment | Limited | Full review |
| Tax provision | Quarterly | Final |
| Retained earnings | No | Yes (auto-roll) |
| 1099 processing | No | Yes |
| Audit preparation | No | Yes |
| Adjustment period | No | Yes |
Best Practices
Year-End Close
| Practice | Recommendation |
|---|---|
| Start early | Begin planning in November |
| Calendar | Publish firm deadlines |
| Communication | Regular status meetings |
| Documentation | Save all workpapers |
| Review | Multiple levels of review |
Common Issues
| Issue | Cause | Resolution |
|---|---|---|
| RE doesn't roll | No new year periods | Create FY periods |
| 1099 missing | Vendor not flagged | Update vendor record |
| Budget variance | Prior year not closed | Complete prior year close |
| Audit adjustment | Finding after close | Use adjustment period |
Related Topics
- Month-End Close - Monthly procedures
- Period Management - Fiscal year setup
- Period Close Checklist - All close tasks