Nonprofit year-end closing checklist

The Essential Nonprofit Year-End Closing Checklist

If your fiscal year follows the calendar year, nonprofit organizations must conduct a thorough review of their financial records. A nonprofit year-end closing checklist is essential for ensuring accuracy in financial statements, compliance with regulations, and transparency with donors and stakeholders. An organized approach can help streamline this process, making sure your organization is ready for audits, tax filings, and the new fiscal year.

Here’s a comprehensive year-end closing checklist to guide your nonprofit through the process and set you up for financial success in the year ahead.


1. Review and Reconcile All Accounts

Begin by reconciling your bank accounts, credit cards, and other financial accounts. This ensures your records align with statements from your bank and other institutions, highlighting any discrepancies that need correction.

Steps:

  • Match each transaction in your accounting software with bank and credit card statements.
  • Investigate and resolve any outstanding items, such as uncashed checks or unrecorded expenses.
  • Verify balances for all accounts to ensure accuracy in your year-end reports.

2. Verify Accounts Receivable and Accounts Payable

Ensuring accuracy in accounts receivable (AR) and accounts payable (AP) is critical for clear financial reporting. Any unpaid bills or uncollected donations at year-end need to be recorded accurately.

Steps:

  • Review all outstanding invoices in your AR to confirm they are collectible.
  • Follow up on any overdue accounts or pledges to determine if they will be received.
  • Review AP for any outstanding bills and ensure that all invoices have been recorded.

3. Reassess Budget vs. Actuals

Reviewing your budgeted versus actual income and expenses helps you understand where your organization stands financially compared to your projections. This is also an excellent opportunity to identify areas for improvement in your budgeting process.

Steps:

  • Compare actual expenses to budgeted amounts, noting any significant variances.
  • Document explanations for variances to provide context in your financial statements.
  • Use this data to inform next year’s budget planning and make any necessary adjustments.

4. Record Year-End Accruals and Adjustments

Some expenses or revenues may need to be accrued or adjusted to ensure they are recognized in the correct financial period. This step is particularly important if your nonprofit uses the accrual accounting method.

Steps:

  • Accrue any unpaid expenses that apply to the current fiscal year, even if they haven’t yet been billed.
  • Adjust for any deferred revenue or unearned income that belongs to the next fiscal year.
  • Record any prepaid expenses, ensuring they’re allocated to the correct time periods.

5. Document and Track Restricted Funds

Many nonprofits receive restricted funds earmarked for specific purposes. Ensuring these funds are accurately documented and tracked is essential for compliance and transparency with donors.

Steps:

  • Review donations to verify proper allocation between restricted and unrestricted funds.
  • Ensure all expenses tied to restricted funds are appropriately recorded.
  • Prepare a report on the status of restricted funds to confirm no unauthorized expenses have been made.

6. Complete a Physical Inventory (If Applicable)

If your nonprofit has a physical inventory of supplies, merchandise, or assets, conducting an inventory count at year-end can help prevent loss and maintain accurate records.

Steps:

  • Conduct a physical count of all items in your inventory and compare it to records.
  • Adjust inventory records for any discrepancies found during the count.
  • Document any adjustments made to maintain an accurate valuation of your assets.

7. Review Payroll and Employee Records

Ensuring payroll records are complete and accurate is essential, as any discrepancies can affect tax filings and lead to potential penalties.

Steps:

  • Reconcile payroll records for the entire year, checking for consistency with payroll tax filings.
  • Review employee benefit expenses, such as retirement contributions or healthcare premiums, and ensure they are recorded accurately.
  • Confirm year-end tax filings and W-2s or 1099s for employees and contractors.

8. Prepare Year-End Financial Statements

Your year-end financial statements will provide a comprehensive snapshot of your nonprofit’s financial health and are essential for reporting to donors, board members, and other stakeholders.

Steps:

  • Prepare and review your nonprofit’s balance sheet, income statement, and cash flow statement.
  • Double-check for accuracy in all account balances and ensure your financial statements reflect the year’s financial activity.
  • Share these statements with key stakeholders and board members for review.

9. Organize Supporting Documentation for Audits

If your nonprofit undergoes an audit, either internal or external, organizing supporting documentation now will save you time and stress later.

Steps:

  • Collect supporting documents, such as receipts, invoices, bank statements, and payroll records.
  • Ensure these records are organized in a way that facilitates a smooth audit process.
  • Retain a digital copy of all records, as many auditors may request electronic versions of documentation.

10. Prepare for Tax Filings and Form 990

Nonprofits are required to file Form 990 with the IRS, and accurate, timely completion of this form is essential for maintaining tax-exempt status.

Steps:

  • Review Form 990 requirements and ensure you have all necessary information for filing.
  • Confirm any state-specific filing requirements your organization must meet.
  • Consider consulting a tax professional experienced with nonprofits to ensure accuracy and compliance.

11. Plan Next Year’s Budget

With your financial review complete, you can start planning your budget for the upcoming fiscal year. A well-informed budget will guide your spending and help allocate resources effectively.

Steps:

  • Use insights from your budget vs. actuals analysis to identify areas for adjustment.
  • Project income based on past trends, grants, and expected donations.
  • Engage your board members or financial committee to finalize and approve the budget.

Final Thoughts

Closing out the year with a thorough review of your nonprofit’s finances helps ensure a clean start for the upcoming year. A well-structured nonprofit year-end closing checklist streamlines the process, providing peace of mind and setting your organization up for financial health and transparency. By following these steps, your nonprofit can strengthen its financial standing, stay compliant, and build trust with donors and stakeholders.

If your nonprofit would like additional support with year-end closing or bookkeeping throughout the year, consider consulting a bookkeeping professional who specializes in nonprofit finances. A smooth year-end close is an investment in the future of your mission and the impact you aim to achieve.