Your Year-End Close— is your cake done? 

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

It’s unofficially summer!  School’s almost out.  There’s a frenzy of year-end picnics for every sports team and after-school activity.   And, amid all this, what’s coming up?  Your nonprofit’s year-end.  If your fiscal year ends on June 30, your year is drawing to a close.  Soon it will be time to wrap up your accounting for the year.  Are you ready for your year-end close?

Well, it’s a lot like baking a cake.  Before your year-end close, the transactions on your books are raw data, like cake batter.  The ingredients are there, but you wouldn’t take that cake to the picnic.  You need some baking experience in order to check the batter, bake the cake and test it for doneness.  When all these procedures are done, your cake is ready for the picnic. 

The skilled accountant is like that baker.  He or she comes in to check the year-end balances to make sure they’re accurate, complete and in accordance with GAAP, including the accrual basis.  The accountant performs various procedures, analyzing what makes up each significant account balance and comparing it to an expectation of what the balance should be.  As a result of these procedures, the accountant may adjust the books, changing the balances to get them just right.  When your year-end reconciliations and adjustments are done, your books are ready for your audit.

Many nonprofit leaders have a great deal of experience with the year-end close and they know what to pull together.  Others know, at least, that the year-end close is something the accountants have to do before the books are ready to be audited.  Some others may be new to the year-end accounting process, and want to know more about it.  

Even if you have a good monthly close, you will want to take extra care at year-end to get things in the right year, and get things in the right place.  Here are some tips to consider and questions to ask to be audit-ready.

Have we identified and recorded all pledges receivable?  You know more about your pledges than your accountant does.  Cross check your development records with your books to be sure your accountant has recorded all unconditional promises to give. 

Are recorded pledges receivable collectible?  You know these donors better than your accountant does.  If there are any pledges you’re not sure about, have your accountant record an allowance for doubtful accounts.  The auditors will be concerned with collectibility

Is all this income for the current year?  Discuss any revenue received in advance for next year’s dues, meetings, and events and be sure your accountant moves it to deferred income.

Have we recorded all our unpaid bills?  Look at all payments made after year-end to see if any are for goods or services received in the year just ended.  Think about any meeting expenses or large purchases made close to year end.  If you haven’t received the invoice, you might have to estimate to get something on the books. 

Have we paid any bills in advance for next year?  Think – hotel deposits.  No use having them in this year’s budget.  Ask your accountant to move them to prepaid expenses.

Are our accounts reasonable compared to last year and budget?  If your activities are similar every year, a two-year comparison and a budget comparison are great ways to identify accounts that might need a second look.  Your board members will ask about significant variances, so you want to discover any misclassifications before they do.

Have we complied with nonprofit GAAP?  The rules for recognizing nonprofit income require a lot of accounting judgment and interpretations can vary.  A donation may be recorded differently if it’s restricted or conditional.  Pull together your largest grant agreements and donation letters and ask your accountant to review how each material contribution or grant has been recorded, to make sure you are following GAAP before the auditors come.

The baker’s report card comes when you cut the cake.  The nonprofit leader’s report card comes in the form of audit results.  These tips can help you get straight As.

If you’re inclined to swing by the bakery and buy that cake, then outsourcing your year-end close may be for you.  Take the above questions to your outsourced accountant for starters.  Maybe that’s a FIT! TIP for another day.

Read more FIT! TIPS.

Join our 501(c)(fit!) community.   Sign up for free weekly information and never miss another FIT! TIP.

© 2018 501(c)(fit!) All Rights Reserved.