January 2026 – Bookkeeping Best Practices

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January 2026 – Bookkeeping Best Practices

Bookkeeping Best Practices

Your Guide to Year-End Bookkeeping for 2025

Why Year-End Bookkeeping Matters

As we come to a close on 2025, organizing your financial records is not just a task – it is the foundation for a successful new year. Accurate and timely bookkeeping will help reduce tax-time stress, ensure compliance, and keep your business running smoothly. We have crafted this comprehensive guide with best practices and actionable tips to help you achieve a clean start for 2026.

Step 1: Reflect on 2025 and Lock the Books:

Before diving into 2026, finalize and lock the 2025 books. Here’s how:

Post Adjusting Journal Entries

  • Take the tax preparation adjusting journal entries we provided and post them dated 12/31/2025
  • Generate a 2025 Balance Sheet and compare it to the trial balance we provided. If any discrepancies arise, contact us for assistance.

Lock the File

  • Secure the file to prevent any accidental changes. A locked 2025 ensures you are building 2026 on solid starting point.

Step 2: Nail Down 2025 Monthly Reconciliations:

Reconciliation is your most powerful tool for keeping accurate records:

  • Cash and Credit Card Accounts: Reconcile monthly, with special attention to December.
  • Stale Transactions: Identify uncleared entries older than a year. These can signal issues like uncashed checks or forgotten credits. Flag them and reach out to us if guidance is needed.

Step 3: Eliminate Suspense Accounts:

Suspense accounts, such as “Ask My Accountant” or “Uncategorized,” are temporary holding zones. By year-end:

  • Reclassify these transactions to their proper accounts; please reach out to us with any questions.
  • Ensure all suspense accounts show a $0 balance.
  • If an item cannot be resolved, please leave a memo describing the applicable details for our review.

This step is crucial for keeping your financial statements accurate and precise.

Step 4: Master Payroll Reconciliation:

Ensure payroll expenses are accurate. Here are some ways to help you ensure accuracy:

  • Match payroll expenses in your books with the year-end report from your payroll provider.
  • Check that your payroll-related accounts (salaries, wages, and taxes) align with the final payroll summaries.

Step 5: Capitalize on Asset Purchases:

Large purchases such as equipment or vehicles will require special treatment:

  • Threshold: If an item costs over $2,500, it likely needs to be capitalized and depreciated over time.
  • Documentation: Provide purchase details and invoices for such items. Examples include machinery, office furniture, building improvements, leasehold improvements, intangible assets (e.g., patents, copyrights), landscaping and outdoor structures, construction projects, and even software. Proper classifications will ensure tax savings and compliance.

Step 6: Out-of-Pocket Expenses – Do Not Miss Deductions:

If you have paid for any business expenses personally, do not miss out on these deductions:

  • Summarize these expenses and include any receipts and descriptions.
  • Provide these to us so we can prepare any necessary adjustments to account for these expenses in your financials and reduce your taxable income.

Step 7: Clean Up Receivables and Payables:

  • Accounts Receivable: Run an aging report to evaluate overdue balances. Consider writing off any amounts that are unlikely to be collected.
  • Accounts Payable: Review any outstanding bills and confirm they reflect accurate balances.

This will keep your cash flow projections reliable and up-to-date and increase the accuracy of your taxable income.

Step 8: Differentiate Your Meal Expenses:

Maintain separate accounts for the following meal expense classifications:

  • 50% Deductible Meals: Business-related meals.
  • Non-Deductible Entertainment: Social expenses that are unrelated to business.

Keeping these categories aids us in properly reporting these expenses on your tax return.

Step 9: Review the General Ledger:

Take one last look at your General Ledger for the full year of 2025

  • Scan for any remaining unusual or misclassified entries.
  • Correct any errors and ensure all accounts reconcile with their supporting documentation.

Step 10: Lock 2025 and Prepare for the Future:

Once all accounts have been reconciled and reviewed and you are satisfied your bookkeeping file is finalized:

  • Lock your 2025 file to prevent any post-closing changes.
  • Provide us with a backup copy (if you use QuickBooks Desktop) or notify us that the books are ready (if using QuickBooks Online).

Please do not make any changes to the bookkeeping file after you provide us with the finalized copy – we will assist with any adjustments from there and provide you with any necessary journal entries.

This step signals that your financials are ready for tax filing and reporting.

Key Takeaways for a Stress-Free Year-End

Communication is Key

  • Please do not hesitate to ask any questions or seek guidance from us throughout the process.

Think Long-Term

  • Accurate bookkeeping is not only for tax reporting. It also helps you analyze business performance, secure financing, and plan for growth.

Remember, the goal of this is to make your year-end bookkeeping a breeze. If you have any questions or need assistance, please do not hesitate to reach out to us!