As year-end approaches, ensuring accurate financial reporting is critical. Even small oversights can create significant ripple effects, impacting cash flow, financial performance and stakeholder confidence.
Below we share some of the most common red flags and overlooked items that can slow or complicate the year-end close process, along with tips to address them before they become bigger issues.
Red Flags in Receivables at Year-End
- Concentration of Receivables: When a large portion of outstanding accounts receivable is tied to only a few customers, the company’s liquidity can become overly dependent on their payment behavior. Monitoring customer concentration helps mitigate the risk of cash flow disruptions if one key customer delays or defaults on payment.
- Aging Receivables: As receivables age, the likelihood of collection decreases. Regularly reviewing the aging schedule helps prioritize collection efforts and flag potential problem accounts before they turn into write-offs.
- Bad Debt Risk: Unpaid invoices that require write-off reduce profitability and strain cash flow. A proactive review of receivables and timely allowance adjustments help maintain accuracy and avoid surprises later.
Beyond receivables, several other areas of the year-end close often go unnoticed. Reviewing these areas carefully helps prevent errors that can affect financial accuracy or audit readiness.
Commonly Missed Items in Year-End Closing
- Accruals for Uninvoiced Services: Expenses incurred by year-end should be recorded, even if the vendor’s invoice hasn’t been received. Reviewing open purchase orders and service agreements can help identify missing accruals.
- Deferred Revenue Review: Customer billings should align with contract terms to ensure revenue is recognized when earned, not necessarily when billed. Reviewing deferred revenue accounts can help prevent premature revenue recognition.
- Allowance for Doubtful Accounts: Reassessing the adequacy of the allowance for doubtful accounts based on the current receivables aging ensures a realistic reflection of collectability.
- Inventory Adjustments for Obsolescence: Inventory should be reviewed for obsolete or slow-moving items. Making necessary adjustments at year-end ensures accurate valuation and a clearer picture of available resources.
How to Spot and Prevent Oversights
Even the most experienced accounting teams can overlook critical details under time pressure. Building structure and accountability into your close process can minimize risk and improve accuracy.
- Establish a standardized year-end accounting checklist for recurring tasks and deadlines
- Reconcile key balance sheet accounts before final close
- Conduct periodic reviews of receivables, payables and inventory balances
- Involve cross-functional team members to gain fresh perspectives and catch potential issues early
Looking Ahead
For a step-by-step guide to managing your close process, read our companion article, Mastering Year-End Close.
Navigating year-end financial reporting requires diligence and attention to detail. Withum’s accounting professionals can help identify potential risks, strengthen internal processes, and ensure your financials reflect an accurate and compliant picture of performance.
Your Year-End Tax Strategy Simplified
With recent tax policy changes, individuals and businesses should take proactive steps now to maximize deductions and minimize liabilities. Withum’s Year-End Tax Planning Resource Center provides timely insights, planning tips and compliance reminders tailored to your needs.
Contact Us
Connect with our Outsourced Accounting Systems and Services Team to learn how we can support your year-end close.
