The year-end bookkeeping checklist

The checklist

A year-end bookkeeping checklist is the month-end close run once more for December, plus the work that only happens once a year: forms with a federal deadline, an inventory count, and a closing date that stops anyone changing a year that has been filed. Here are the 10 steps, in the order that avoids doing any of them twice. The same list as a spreadsheet with a sign-off column: download the year-end checklist (Excel). No email needed.

1. Confirm January to November are closed. Every month reconciled and locked. A gap found now is a catch-up job, and it goes first.
2. Reconcile every account to its December 31 statement. Checking, savings, every credit card, every loan, every payment processor.
3. Clear the holding accounts. Payments to deposit (formerly Undeposited Funds), uncategorized income and expense, ask-my-accountant, Opening Balance Equity.
4. Settle receivables and payables. Write off what will not be collected, apply unapplied payments, close bills that were paid outside QuickBooks.
5. Count inventory. On December 31, if you carry stock, and adjust QuickBooks to the count.
6. Fixed assets and loans. Capitalize the year’s equipment and vehicle purchases, record disposals, and split loan payments into principal and interest from the lender’s year-end statement.
7. Owner and equity accounts. Draws, contributions, distributions and shareholder loans, each in its own account and none in expenses.
8. Tie payroll to the forms. The four quarterly Forms 941 against the W-3 and against wages on the profit and loss.
9. Contractors and 1099s. A W-9 for every vendor, then the 1099 list under the new $2,000 threshold.
10. Read the year, then lock it. Balance sheet and profit and loss against last year, then set the closing date with a password.

Steps 1 to 3 are the month-end close checklist applied to December. Steps 4 to 9 are what make a year different from a month. Step 10 is what makes it final.

The 2027 deadlines for the 2026 year

The federal dates below are for a calendar-year business filing for 2026. January 31, 2027 is a Sunday, and the IRS moves any due date that falls on a weekend or legal holiday to the next business day, so every January 31 form is due Monday, February 1, 2027.

Form	Goes to	Due
W-2, with W-3	Employees and the SSA	Feb 1, 2027
1099-NEC	Contractors and the IRS	Feb 1, 2027, paper or electronic
1099-MISC (rents, prizes, other)	Recipients	Feb 1, 2027
1099-MISC	The IRS	Mar 1, 2027 on paper; Mar 31, 2027 electronically
941, fourth quarter	The IRS	Feb 1, 2027; Feb 10 if every deposit was made on time
940 (federal unemployment)	The IRS	Feb 1, 2027; Feb 10 if every FUTA deposit was made on time
1065 (partnership), 1120-S (S corp)	The IRS	Mar 15, 2027
1120 (C corp), 1040 (Schedule C owner)	The IRS	Apr 15, 2027

Sources: the IRS employment tax due dates and the Instructions for Forms 1099-MISC and 1099-NEC. February 28, 2027 is also a Sunday, which is why the paper 1099-MISC date is March 1. State deadlines differ, so check your state’s dates separately.

There is no automatic extension for W-2s or 1099-NECs. Everything in steps 1 to 9 has to be finished by the last week of January, which is why the year-end work starts in October rather than January.

Step 1: confirm the first 11 months are closed

Open the reconciliation history for every account and look for the last statement date reconciled. Any account that stops in, say, July has a five-month hole. December cannot be closed on top of it, because every number from July onward is unproven.

Then check the closing date. If it is still set to last year, the 11 months you think are finished can still change under you. Moving it forward to November 30 before you start December protects the work already done.

If months are missing rather than unreconciled, stop here. That is catch-up bookkeeping, and how long catch-up takes sets out what a realistic timeline looks like against a February deadline.

Step 2: reconcile every account to December 31

Reconcile to the bank’s December statement, not to the feed. The feed is the data QuickBooks already holds, so agreeing with it proves nothing. How to reconcile in QuickBooks Online covers the screen itself.

The year-end list is longer than a normal month’s, because some accounts only get looked at once a year:

Account	Reconcile against	What usually turns up
Checking and savings	December bank statement	Outstanding checks from months ago that will never clear
Credit cards	Statement closing nearest December 31	Personal charges, duplicate imports, refunds booked as income
Loans and lines of credit	Lender’s year-end statement	A balance that has not matched the bank for years
PayPal, Stripe, Square, Shopify	Processor’s December report	Fees and refunds netted out of deposits, so sales are understated
Payroll liabilities	Payroll provider’s liability report	Taxes paid but booked to expense, leaving a liability that never clears
Sales tax payable	Last return filed and its payment	A balance left by an overridden rate or a return filed late

A December statement for an account that closes on the 15th does not cover the last two weeks of the year. For cards that close mid-month, reconcile to the January statement and confirm every December 16 to 31 transaction is in the file.

If an account will not tie, do not plug the difference. Find the month it broke: a bank balance that will not reconcile walks through that search.

Step 3: clear the holding accounts

These accounts exist to be empty at a close. Any balance at December 31 goes onto the return as an unexplained number, or gets sent back to you as a question in March.

• Payments to deposit (Undeposited Funds). Customer payments never grouped into a bank deposit. A balance that only grows means income is being recorded twice: how to clear Undeposited Funds, and the negative version.
• Uncategorized income and expense, ask-my-accountant. Each line needs an answer from the owner. Send the list in December, not January.
• Opening Balance Equity. It should be zero after setup. A balance means an opening entry was never finished: clearing Opening Balance Equity.
• Unapplied cash. On a cash-basis profit and loss, payments not linked to invoices or bills show as Unapplied Cash Payment Income and Unapplied Cash Bill Payment Expense.

Step 4: settle receivables and payables

Run the accounts receivable and accounts payable aging reports as of December 31 and read every line over 90 days.

On the receivables side, an invoice that will not be collected stays as income until you write it off. The choice between writing it off directly and holding an allowance is in the bad debt journal entry. Whether the write-off is deductible depends on the accounting method the return uses, so that question goes to the preparer.

On the payables side, the usual finding is a bill still open because it was paid by card or from the bank feed without being linked to the bill. The payment shows as an expense and the bill as a liability, so the cost is counted twice on an accrual report. Link the payment to the bill rather than deleting either one.

Step 5: count inventory on December 31

If you carry stock, count it at the close of business on December 31 or as close to it as the business allows, and adjust QuickBooks to the count. QuickBooks Online tracks quantities on Plus and Advanced; the adjustment is an inventory quantity adjustment, and by default the difference posts to Inventory Shrinkage, a cost of goods sold account. The entry and the reasoning behind it are in the inventory journal entry.

The count matters more at year end than at any month end, because cost of goods sold for the year is opening inventory plus purchases less closing inventory. A closing number that is $10,000 too high understates cost of goods sold, and overstates profit, by exactly $10,000.

Step 6: fixed assets and loans

Purchases. Look through the year’s expense accounts for anything that should have been capitalized: vehicles, machinery, computers, furniture, improvements. A $38,000 truck booked to repairs makes the year look worse and the balance sheet incomplete.

Many small businesses expense lower-cost items under the de minimis safe harbor. A business without an applicable financial statement (audited statements, generally) can expense items costing up to $2,500 per invoice or per item, if it had an accounting policy to do so at the start of the year and elects the safe harbor with a statement attached to its timely filed return (Treas. Reg. §1.263(a)-1(f)). The preparer makes the election. The bookkeeping job is a file that applies one rule consistently.

Disposals. An asset sold, traded in or scrapped during the year comes off the books with its accumulated depreciation; the disposal entry shows the gain or loss.

Depreciation. QuickBooks Online does not calculate it. The annual figure comes from the preparer’s tax software, and you post it as a depreciation journal entry, often after the return is done.

Loans. Each loan payment is part principal, which reduces the liability, and part interest, which is an expense. The bank feed shows one number. Ask every lender for a year-end statement or amortization schedule in early December; it shows the year’s interest and the December 31 balance. Form 1098 reports mortgage interest only, so the loan balance has to tie to the lender’s statement, not the 1098.

Step 7: owner and equity accounts

Owner money is the area where a profit and loss is most often wrong, and wrong in both directions:

What happened	Where it belongs	The usual mistake
Owner moved personal money in	Owner contribution, or a loan from the shareholder	Booked as sales, and taxed as income
Owner took money out	Owner’s draw (sole prop, partnership) or distribution (S corp)	Booked as an expense
Owner paid a personal bill from the business	Draw or distribution	Coded to the vendor’s usual expense
Corporation paid an owner’s tax	Draw or distribution for pass-through owners	Booked to taxes and licenses

For an S corporation, health insurance the company paid for a shareholder owning more than 2% belongs in that shareholder’s W-2, box 1 wages (IRS Notice 2008-1). It has to reach payroll before the W-2s are filed on February 1, so settle it in step 7, not in step 8.

Step 8: tie payroll to the forms

Add up line 2 of the four quarterly Forms 941 (wages, tips and other compensation). That total should equal box 1 of the W-3. Then compare it to wages on the profit and loss. They will rarely match, and every difference should have a name:

Source	Amount
Form 941 line 2, Q1	$44,800
Form 941 line 2, Q2	$46,200
Form 941 line 2, Q3	$47,100
Form 941 line 2, Q4	$48,300
Total, which must equal W-3 box 1	$186,400
Wages on the profit and loss	$189,600
Difference: December 27 to 31 wages, paid January 8, 2027	$3,200

The difference in the example is timing. Wages go on the W-2 for the year they are paid, so a December payroll paid in January is 2027 wages on the forms even if the books accrue it to 2026. Other common differences: pre-tax 401(k) and cafeteria plan deductions, which reduce box 1 but not gross wages on the books, and employer taxes booked to the wage account instead of a payroll tax account.

If a difference has no name, find it before February 1. A W-2 is harder to correct after it is filed than a journal entry is now.

Step 9: contractors and 1099s

Two things changed for payments made in 2026, both from the One, Big, Beautiful Bill Act.

• The 1099-NEC and 1099-MISC threshold is now $2,000 per recipient, up from $600, for payments made after December 31, 2025. It is indexed for inflation from 2027. A few categories keep their own figures: royalties at $10, and gross proceeds paid to an attorney at $600 (IRS instructions).
• Form 1099-K is back to $20,000 and 200 transactions for payment apps and online marketplaces (IRS FAQ).

Who gets a 1099 then comes down to the recipient, the amount and how they were paid:

Vendor	Paid in 2026	Paid by	Form
Freelance designer, sole proprietor	$2,400	Check	1099-NEC
Plumber, single-member LLC	$1,850	ACH	None: under $2,000
Law firm organized as a corporation	$3,500	Check	1099-NEC: legal services are reported even for corporations
Consultant	$6,000	Credit card	None from you: card payments are reported by the processor on a 1099-K
Office landlord, an individual	$24,000	ACH	1099-MISC, box 1 (rents)
Cleaning company, an S corporation	$5,200	Check	None: payments to corporations are generally exempt

Every row depends on a W-9, because the W-9 is where the vendor tells you whether it is a corporation and gives you a taxpayer ID. Collect them now for every vendor you paid this year. A vendor that will receive a reportable payment and will not give you an ID is subject to backup withholding at 24%.

In QuickBooks Online, the 1099 flow uses the vendors marked as tracked for 1099 and the expense accounts you map to each box. It leaves out card payments, but only if the payment was recorded against a credit card account. A card payment recorded as a check from the bank account will be counted.

If you file 10 or more information returns in total, W-2s included, you must file them electronically. Filing yourself through the IRS’s IRIS system needs a Transmitter Control Code, and the IRS says the application can take up to 45 days. Apply in November, not January.

Step 10: read the year, then lock it

Read the balance sheet first. Every balance should be one you can explain: cash agrees with the statements, receivables with the aging, loans with the lenders, and nothing is left in a holding account. Then read the profit and loss against last year, line by line. A category that doubled, or a vendor that was there for 11 months and vanished in December, is a question to answer now.

Then lock the year. In QuickBooks Online, go to Settings, Account and settings, the Advanced tab, and Edit in the Accounting section. Turn on Close the books, enter December 31 as the Closing date, and choose Allow changes after viewing a warning and entering password (Intuit: lock your books in QuickBooks Online). Only a primary or company admin can do this. After the return is filed, the Exceptions to Closing Date report shows anything changed in the locked year.

When the year is locked, the file is ready for the CPA handoff: the records the preparer needs that QuickBooks does not hold.

What are the four basic closing entries?

In manual bookkeeping, four closing entries reset the temporary accounts to zero for the new year:

1. Close revenue accounts to income summary.
2. Close expense accounts to income summary.
3. Close income summary (the year’s net income or loss) to retained earnings, or to owner’s capital.
4. Close dividends or draws to retained earnings, or to owner’s capital.

QuickBooks Online does the first three for you. When the new fiscal year starts, it moves the prior year’s net income into Retained Earnings, and the income and expense accounts start the year at zero. You do not post entries 1 to 3, and posting them by hand would double the effect.

It does not do the fourth. An owner’s draw or partner distribution account keeps adding up year after year unless someone closes it. Whether to move it into owner’s capital, and when, is a question for the preparer, because it changes how equity reads on the balance sheet and in the return. Where it is closed, it is one journal entry per owner at year end.

What accounts need to be closed at year-end?

Only the temporary accounts: income, cost of goods sold, expenses, and the owner’s draw or dividend accounts. They measure one year, so they start each year at zero.

Permanent accounts are never closed. Assets, liabilities and equity carry their December 31 balances into January 1, and those balances are what steps 2 to 7 exist to prove. A wrong number in a temporary account fixes itself next year. A wrong number in a permanent one carries forward until somebody finds it.

A timetable for a calendar-year business

When	What to do
October	Collect W-9s from every vendor paid this year. Close through September. Find any missing months
November	Close October. Apply for an IRIS Transmitter Control Code if you file 1099s yourself. Review the year’s asset purchases
Early December	Ask lenders for year-end statements. Send the owner the list of open questions
December 31	Inventory count. Last payroll of the year, with its pay date checked
January 1 to 20, 2027	Reconcile December. Post year-end entries. Tie payroll. Finalize the 1099 list
February 1, 2027	W-2s, W-3, 1099-NECs, 1099-MISCs to recipients, Forms 941 and 940
Mid-February	Read the year, lock it, send the handoff pack to the preparer
March 15 / April 15	Partnership and S corp returns, then C corp and individual returns

In my experience, a business with a few hundred transactions a month and no backlog needs about two working days of year-end work, spread across January and mostly spent waiting for statements. The time goes up sharply for every month that was never reconciled, because steps 2 and 3 then become a cleanup.

Behind on the year with February 1 coming?

If it is mid-January and accounts are still unreconciled, or the holding accounts still carry balances, the deadline is the problem, not the checklist. The forms due February 1, 2027 need final books behind them, and W-2s and 1099-NECs get no automatic extension.

This is what we commit to when a file comes to us:

Stage	Our commitment
File review	Free, back to you within 48 hours, with the months that need work and a day count in writing
Questions for you	Within 48 hours of accountant access, so nothing waits on us
A year of backlog cleaned and reconciled	5 business days once access and every statement are in hand
Two years behind	About 10 business days, because the months run in parallel

Work back from February 1 and the file needs to be with us, December statements included, by mid-January. Earlier if more than one year is behind. The fees are per month of backlog and published in full on the pricing page, so the number is known before anything starts. Contact us with the file’s state and the deadline you are working to.

Once the year is closed, the handoff pack for the preparer is priced per client file:

$199per client, one-time

Next year, a monthly bookkeeping client arrives at January with steps 1 to 3 already done every month, so the year end is only the once-a-year part.