Closing the books after year-end can be more complicated for a nonprofit than for a for-profit entity, with assurance needed not only for accurate financial reporting but also for compliance with donor, grant, and regulatory requirements.
While most of the financial activities nonprofit organizations should undertake are the same as those taken at the end of every month, an extra layer of review should start well before Dec. 31 to avoid a fire drill in January. Before diving into the details, it’s helpful to remember that preparation is the key to a smooth close – especially when it comes to clearing up outstanding questions and open items.
Clear through the backlog first by confirming all transactions are recorded, categorized correctly in the same time period, and supported by proper documentation. Reconcile all bank accounts and investments, record payroll and invoices, amortize prepaids, and depreciate fixed assets.
If you’ve reconciled your Nov. 30 cash balance, you’re a step ahead of the game. It’s a much shorter jump getting to year-end successfully if you’re not spending time in January cleaning up activity from the last couple of months.
Take the Opportunity to Review Accuracy and Completeness
Year-end is the time to do a full assessment to ensure that the accounting records are complete and accurate. Once your preliminary reconciliations are complete, shift your focus to confirming that every balance and transaction ties out cleanly.
You can ensure accuracy by:
- Matching all supporting schedules (cash, investments, assets, payables, net assets, leases, etc.) to the general ledger and trial balance.
- Confirming that supporting schedules align with external reports, such as bank statements for balances, payroll records for accruals, and investment or IRS documents for relevant amounts.
- Verifying that all activities, especially major ones, correspond to backup documentation (e.g., grant revenue in the general ledger matches the award letter; equipment purchases align with invoices; restricted contributions agree with donor documentation).
Beware of Appropriate Cutoff Between Fiscal Years
After verifying accuracy, the next step is to make sure those accurate records reflect the right timing. Year-end processes should pay special attention to ensuring transactions are recorded in the correct fiscal year. For example, expenses related to work performed in December must be recognized in the general ledger for that year – even if the invoice arrives in January and payment is made in February.
Similarly, if your organization receives payment in December for services to be provided by your organization in January, that amount should be recorded as unearned revenue at year-end. For projects or activities spanning fiscal years—like building repairs that begin in mid-December and continue into January – costs should be allocated between years based on the portion of work completed before Dec. 31. In these cases, it may be necessary to reach out to vendors to estimate the percentage of completion as of year-end.
Look Forward as Well as Backward
Once historical accuracy and timing are nailed down, it’s equally important to look ahead. Finance staff can sometimes work in a silo, separate from their operational counterparts. Communication among the finance team, department heads, and external accountants or auditors is key to identifying outstanding items or complex transactions early.
If the accounting team is in the loop on the status of ongoing activities, it’s less likely activity goes unrecorded, such as new equipment or furniture or a new lease that will be signed in mid-December. This also gives the accounting team the knowledge and context to know what activities might impact the year-end accounting and reach out to collect the information they need to close the books accurately. Set yourself up for success with good business planning.
Other example considerations:
- Are contributions (donations, grants, in-kind) expected soon? If so, have they been recorded as promises to give with proper documentation for receivables? At year-end, review all contribution dates, restrictions, and conditions to determine correct revenue recognition.
- Are any subscriptions (HR platforms, news, tech services, etc.) set to renew soon? Which active subscriptions will not be renewed? Update the prepaids schedule and amortize as needed
Planning for the Year Ahead
All of these steps ultimately prepare the organization for a stronger start to the new year. If processes are working well, the year-end close shouldn’t be much more complicated than the normal end-of-month activities, but even with the best systems and smartest finance staff, extra attention to detail can pay off. Accounting for investments, conforming to lease accounting rules, and following specifications for multi-year grants can be especially tricky.
Finally, November and December are good times for a “meeting of the minds” between accounting and operations. Not-for-profits should use the year-end close as an opportunity to evaluate internal controls, refine processes, and ensure their accounting system supports timely, accurate reporting, laying a stronger foundation for next year’s operations and financial transparency.
Year-end close doesn’t have to be stressful. With clear planning and the right checks in place, your nonprofit can move from cleanup to confidence—ready to start the new year with accurate records and renewed focus. Use our Year-End Close Checklist to stay organized through every step, and connect with the CBM Not-for-Profit team for personalized guidance to strengthen your financial operations in the year ahead.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region.
