1 Confirm the Correct Closing Period

The foundation of a successful year-end closure begins with confirming you’re closing the correct period. This seemingly simple step prevents months of complications.

What You Must Verify:

• Financial Year-End Date: Confirm whether your business operates on a calendar year (January-December) or a fiscal year that differs from the calendar year. Many Nigerian businesses use December 31st, but some align with different dates based on their incorporation or industry requirements.
• Last Transaction Date: Identify the absolute last transaction that should appear in the current financial year. This is typically December 31st for calendar-year businesses. Any transaction dated after this should belong to the new year.
• Post-Dated Transactions: Run a report to identify any transactions accidentally posted beyond your year-end date. These must be reversed and re-entered in the correct period or deleted entirely if they were entered in error.
• Cut-Off Procedures: Establish clear cut-off dates for recording sales invoices, purchase invoices, payments, and receipts. Communicate these dates to your team at least two weeks before year-end.

2 Bank Reconciliation Is Non-Negotiable

Bank reconciliation is the single most critical control in your accounting system. If your bank accounts aren’t reconciled, your entire financial statement is questionable.

Complete Reconciliation Process:

For Each Bank and Cash Account:

• Obtain Final Bank Statements: Request statements for all accounts as of December 31st (or your year-end date). Some banks may take 2-3 days to generate year-end statements, so request early.
• Match Every Transaction: Go through every debit and credit on your bank statement and match it to entries in your accounting software. Don’t skip even small amounts—a ₦500 discrepancy can indicate a larger systemic issue.
• Investigate Unpresented Cheques: These are cheques you’ve issued and recorded in your books but haven’t been cashed by the recipient. List them by date and cheque number. Cheques older than 6 months should be investigated—contact the recipient or consider reversing and reissuing.
• Identify Uncredited Lodgements: These are deposits you’ve made (and recorded) that haven’t appeared on your bank statement yet. Common in the last few days of the year when banks are processing high volumes. Verify these clear in early January.
• Find and Fix Duplicates: Sometimes the same payment or receipt gets recorded twice—once when processed and again when it appears on the statement. Use your accounting software’s search function to find potential duplicates.
• Resolve Bank Charges and Interest: Ensure all bank charges, transfer fees, and interest earned are recorded in your books. These often get overlooked but can add up to significant amounts over a year.

3 Review and Lock Down Receivables & Payables

Your receivables (what customers owe you) and payables (what you owe suppliers) must be completely accurate before year-end. These balances appear on your balance sheet and directly affect your working capital calculations.

Accounts Receivable (AR) – Detailed Review

Customer Balance Confirmation:

• Generate Aged Receivables Report: Run this report as of your year-end date. It should categorize outstanding invoices by age: Current, 30 days, 60 days, 90+ days.
• Send Customer Statements: Email year-end statements to all customers with outstanding balances. Request confirmation of the amount they agree they owe. Discrepancies must be investigated immediately.
• Match Invoices to Receipts: Ensure every payment received is properly allocated to specific invoices. Unallocated payments create confusion and make your AR balance unreliable. In Zoho Books, use the “Apply Credits” feature to match payments to invoices.
• Review Credit Notes: Verify that all credit notes issued are legitimate and properly supported by documentation. Credit notes reduce your revenue, so they must be justified.
• Bad Debt Write-Offs: For invoices you’ve concluded are uncollectible (customer went bankrupt, disputed the invoice and you agreed to waive it, etc.), write them off formally. Document the reason for each write-off. This affects your tax computation, so maintain proper records.

Accounts Payable (AP) – Detailed Review

Supplier Balance Verification:

• Generate Aged Payables Report: Similar to AR, this report shows what you owe suppliers by age. Overdue balances may indicate cash flow issues or disputed invoices.
• Reconcile Supplier Statements: Most suppliers send monthly statements. Compare their December statement to your records. Any differences must be investigated—missing invoices, unrecorded credit notes, or payment timing differences.
• Capture All December Invoices: This is crucial. Often, supplier invoices dated in December arrive in your office in early January. These MUST be accrued (recorded) in the December year-end even though you haven’t received the physical invoice yet. Look at December delivery notes, goods received notes, and email confirmations.
• Review Expense Accruals: For recurring expenses where the invoice hasn’t arrived yet (utilities, rent, professional fees), create accrual entries. For example, if your December electricity invoice typically arrives in mid-January, estimate the amount based on previous months and create an accrual.
• Verify Payment Allocations: Every payment made to suppliers should be allocated to specific invoices. Unallocated payments in your AP system create reconciliation nightmares.

Common AP Issues to Address:

• Unreconciled Debit Balances: If a supplier account shows a debit (negative) balance, it usually means you’ve overpaid them or recorded a payment twice. Investigate and request a refund or apply to future invoices.
• Old Outstanding Items: Payables older than 90 days without payment should be investigated. Is there a dispute? Cash flow constraint? Document the reason.
• Missing Credit Notes: If you returned goods or received discounts, ensure credit notes were received and recorded. These reduce your payables balance.

Do NOT carry unresolved balances into the new year. Every receivable and payable balance should have clear supporting documentation and a valid business reason for being outstanding.

4 Inventory Verification (Where Applicable)

For product-based businesses, inventory is often the largest current asset on the balance sheet. Errors here cascade through your cost of sales and gross profit calculations.

Physical Stock Count Procedures:

• Schedule the Count: Most businesses count on December 31st or the closest non-trading day. Some count on December 30th and adjust for movements on the 31st. Choose a time when inventory movement is minimal.
• Organize the Warehouse: Before counting, organize inventory by category, SKU, or location. Clear aisles and ensure all items are accessible. This reduces counting errors.
• Use Count Teams: Assign teams of two—one to count, one to record. This provides a check and balance. Rotate teams to different sections for the second count (if doing double counts).
• Count Everything: Count finished goods, raw materials, work-in-progress, and even damaged or obsolete items (mark these separately). Include goods in transit if you own them before delivery.
• Record Count Data: Use count sheets with pre-printed inventory lists or blank sheets for manual recording. Note item code, description, location, quantity, and unit of measure. Modern businesses use barcode scanners or mobile apps.

Post-Count Reconciliation:

• Compare Physical vs System: Compare your count sheets to the quantities shown in your accounting software. Investigate any variances greater than your tolerance level (e.g., 5% or ₦10,000 value).
• Identify Variances: Common causes include:
  • Theft or pilferage
  • Unrecorded sales or purchases
  • Counting errors
  • Damaged goods not written off
  • Returns not processed
  • Unit of measure confusion (boxes vs individual items)
• Adjust System Records: After investigating variances, create stock adjustment entries to align your system with physical reality. These adjustments affect cost of sales, so document the reasons thoroughly.

Inventory Valuation Review:

• Obsolete Items: Identify items that are outdated, expired, or unlikely to sell. These should be written down to net realizable value (what you can actually sell them for) or written off completely. Keeping obsolete inventory at full cost overstates your assets.
• Damaged Goods: Items damaged during storage or handling should be valued at their current saleable value, not original cost. If completely unsaleable, write them off.
• Slow-Moving Items: Review your inventory aging report. Items that haven’t moved in 12+ months may need to be discounted or written down. Consider selling at clearance prices.
• Negative Stock Balances: These should NEVER exist. A negative balance means you’ve recorded more sales than purchases for an item—indicating missing purchase entries, wrong quantities, or system errors. Investigate and correct immediately.

5 Review All Expense and Income Accounts

This is where you clean up the general ledger and ensure every naira is in the right account. Misclassifications make your financial analysis unreliable and can trigger tax issues.

Expense Account Review:

Common Misclassification Issues:

• Personal vs Business Expenses: Go through expense accounts like fuel, meals, travel, and office supplies. Personal expenses wrongly charged to the business must be reclassified to drawings (for sole proprietors) or directors’ current account (for companies). This is a common area of scrutiny during tax audits.
• Capital vs Revenue Expenditure: Purchases of assets (computers, furniture, vehicles) should be in the fixed assets register, not expensed immediately. Repairs to existing assets are expenses, but major improvements that extend asset life should be capitalized. Understanding this distinction affects your depreciation and profit calculations.
• Client Reimbursable Expenses: If you paid expenses on behalf of clients (courier fees, travel costs, etc.) and plan to bill them back, these should be in a receivable account, not expensed. Create a “Recoverable Expenses” account under current assets.
• Wrong Expense Categories: Bank charges recorded as office expenses, vehicle repairs in travel costs, stationery in marketing expenses—these might seem minor but they distort departmental budgeting and expense analysis. Use your Excel skills to sort and analyze expense patterns for anomalies.
• Duplicate Expenses: Sometimes the same invoice gets entered twice—once from the supplier invoice and again from the bank statement. Sort expense accounts by amount and date to spot suspicious duplicates.

Income Account Review:

• Revenue Recognition: Ensure all December sales are recorded in December, even if payment hasn’t been received. Similarly, ensure no January sales snuck into December. Revenue belongs in the period when goods were delivered or services rendered.
• Unearned Revenue: If customers prepaid for goods/services you’ll deliver next year, this isn’t current year revenue—it’s a liability called “Deferred Revenue” or “Unearned Revenue.” Move these amounts out of income.
• Non-Operating Income: Separate operating revenue (from your core business) from other income (interest earned, asset sales, forex gains, rental income). This makes your financial analysis more meaningful.
• Discounts and Returns: Sales returns and discounts should be in separate contra-revenue accounts, not buried in expense accounts. This gives you clean gross revenue figures.

Correct ALL misclassifications BEFORE closing the year. Once the year is closed (especially in Sage 50), corrections require journal reversals and can create audit trail complications.

6 VAT, WHT, PAYE & Statutory Reconciliation

Statutory compliance is non-negotiable in Nigeria. The Nigeria Tax Act 2025 has introduced stricter enforcement, making accurate statutory reconciliation more critical than ever.

VAT (Value Added Tax) Reconciliation

Control Account Verification:

• VAT on Sales (Output VAT): Every vatable sale should have 7.5% VAT calculated and posted to your VAT Output account. Run a sales report filtered for vatable transactions and verify the total VAT matches your control account.
• VAT on Purchases (Input VAT): Every vatable purchase should have VAT recorded to your VAT Input account. Ensure you have valid tax invoices for all input VAT claimed—FIRS requires documentation.
• Net VAT Position: Calculate Output VAT minus Input VAT. If positive, you owe FIRS. If negative, you have a refund due (though VAT refunds in Nigeria can be challenging to obtain). This balance should match what you’ve reported on your VAT returns.
• Reconcile to Filed Returns: Compare your accounting records to the VAT returns you filed monthly throughout the year. Any discrepancies indicate either wrong reporting or wrong recording. Document which is correct and file amendments if necessary.
• Exempt vs Zero-Rated vs Vatable: Ensure you’ve correctly categorized sales and purchases. Common errors include charging VAT on exempt items or failing to charge VAT on vatable services.

WHT (Withholding Tax) Reconciliation

Deductions vs Remittances:

• WHT Deducted from Customers: When corporate customers withhold tax on your invoices, record this in “WHT Receivable” account. This becomes a tax credit when you file your company income tax returns.
• WHT Withheld from Suppliers: When you withhold tax from suppliers (common on consultancy fees, rent, professional fees), record in “WHT Payable” account. This must be remitted to FIRS with Form WHT 001.
• Match Deductions to Remittances: Total WHT you’ve withheld must equal total remitted to FIRS (plus any outstanding balance). Generate a detailed schedule showing:
  • Date of transaction
  • Supplier name
  • Service description
  • Gross amount
  • WHT rate applied
  • WHT amount
  • Remittance date and receipt number
• Issue WHT Certificates: Suppliers from whom you withheld tax need WHT certificates as evidence for their tax credits. Generate these from FIRS portal and distribute to affected suppliers.

PAYE (Pay As You Earn) Reconciliation

Employee Tax Verification:

• Calculate Annual PAYE: Use our PAYE calculator or bulk PAYE calculator to verify your annual PAYE computations are correct for each employee.
• Reconcile Monthly Deductions: Total PAYE deducted monthly should equal PAYE remitted to State Internal Revenue Service. Create a schedule showing:
  • Month
  • Total gross salaries
  • Total PAYE deducted
  • Remittance date
  • Payment evidence
• Employee Annual Returns: File Form A (Annual PAYE Returns) showing each employee’s annual gross income and tax deducted. This is due January 31st.
• Tax Clearance Implications: Ensure all PAYE for the year is remitted. Outstanding PAYE liabilities prevent employees from obtaining tax clearance certificates.

Pension Contributions

• Employee Contributions (8%): Verify you’ve deducted and remitted 8% of monthly basic + housing + transport for each employee to their PFA (Pension Fund Administrator).
• Employer Contributions (10%): Confirm you’ve remitted the employer’s 10% contribution. This is a liability if not paid.
• Schedule Creation: Prepare a detailed schedule showing employee name, PEN number, contribution amount, PFA name, and remittance evidence.

NHF (National Housing Fund)

• 2.5% Deduction: For employees earning ₦3,000 or more monthly, verify you’ve deducted and remitted 2.5% of basic salary to NHF.
• Reconciliation Schedule: Match total deductions to remittances. NHF is often overlooked but penalties for non-compliance can be severe.

7 Fixed Assets & Depreciation Review

Your fixed asset register is a detailed record of all long-term assets owned by the business. Year-end is when you verify its accuracy and post annual depreciation.

Fixed Asset Register Verification:

• Physical Verification: Conduct a physical check of major assets—vehicles, equipment, furniture, computers. Ensure they exist and are in the recorded locations. Missing assets should be investigated and written off if stolen or lost.
• Review Asset Categories: Common categories include:
  • Land (not depreciated)
  • Buildings (2% straight-line typically)
  • Motor vehicles (25% reducing balance typically)
  • Furniture & fittings (20% straight-line typically)
  • Computer equipment (33.33% straight-line typically)
  • Plant & machinery (varies by type)
• Verify Asset Details: Each asset should have:
  • Description and asset tag number
  • Acquisition date and cost
  • Useful life and depreciation method
  • Accumulated depreciation
  • Net book value
  • Location and custodian

Depreciation Calculation and Posting:

• Review Depreciation Methods:
  • Straight-Line: (Cost – Salvage Value) ÷ Useful Life. Same amount charged each year.
  • Reducing Balance: Depreciation rate × Net Book Value. Higher depreciation in early years.
• Pro-Rata Depreciation: Assets purchased during the year should be depreciated for the portion of the year owned. For example, asset bought on July 1st gets 6 months depreciation (6/12 of annual amount).
• Calculate Annual Depreciation: For each asset category, calculate total depreciation for the year. Your accounting software may automate this, but verify the calculations.
• Post Depreciation Journal: Create a journal entry debiting depreciation expense and crediting accumulated depreciation for each asset category. This journal MUST be posted before year-end closure.

Asset Disposals and Write-Offs:

• Identify Disposed Assets: List all assets sold, scrapped, or donated during the year. These must be removed from the register.
• Calculate Disposal Gain/Loss:
  • Net Book Value (Cost – Accumulated Depreciation) at disposal date
  • Minus: Sale proceeds (if any)
  • Equals: Loss on disposal (or Gain if negative)
• Post Disposal Entries: Record the removal of asset cost and accumulated depreciation, recognition of disposal proceeds, and profit/loss on disposal.
• Update Asset Register: Mark disposed assets as “Disposed” with disposal date and method. Don’t delete them—maintain the history for audit trails.

Depreciation must be posted BEFORE closing the year. Forgetting depreciation understates expenses and overstates profit, leading to inflated tax liabilities.

8 Implement All Audit Journals (CRITICAL)

This step is particularly critical and often misunderstood. Audit adjustments are corrections and reclassifications identified by your external auditors during their year-end audit.

Understanding Audit Adjustments:

• What They Are: Audit adjustments are journal entries recommended by auditors to correct errors, reclassify items, or adjust for items you missed during your internal closing process.
• Common Types:
  • Reclassification entries (moving amounts between accounts)
  • Accrual adjustments (recording missed expenses or revenue)
  • Correction entries (fixing errors in amounts or dates)
  • Depreciation adjustments (if your calculations were wrong)
  • Inventory adjustments (based on auditor’s sample counts)
  • Provision entries (bad debts, warranties, legal claims)
• Materiality Concept: Not every small error requires adjustment. Auditors focus on material items—those that could influence financial statement users’ decisions. Immaterial items may be noted but passed for adjustment.

The Audit Journal Implementation Process:

• Receive Audit Adjustment Schedule: Your auditors will provide a schedule of proposed adjustments, usually called “Proposed Audit Adjustments” (PAJ) or “Adjusting Journal Entries” (AJE).
• Review Each Adjustment: Don’t blindly post them. Understand why each adjustment is needed. If you disagree, discuss with the auditor. You may provide additional information that changes their recommendation.
• Categorize Adjustments:
  • Must-Post: Corrections of clear errors
  • Should-Post: Material reclassifications
  • Optional: Immaterial items passed for adjustment
• Post in the Correct Period: Audit adjustments for year 2024 MUST be posted in 2024 before you close the year, even if you’re already in March 2025 when the audit is completed.
• Document Everything: For each audit journal:
  • Maintain the auditor’s reference number
  • Write a clear narration explaining the adjustment
  • Attach supporting documentation
  • Note the impact on profit and balance sheet

Impact Analysis Before Posting:

• Profit Impact: Calculate how adjustments affect net profit. Significant changes may require explanation to stakeholders or revision of tax estimates.
• Equity Changes: Some adjustments affect retained earnings directly. Understand how this impacts your statement of changes in equity.
• Tax Implications: Adjustments that increase profit may increase tax liability. Ensure you’ve provided for the correct amount of income tax.
• Ratio Effects: If you’ve shared interim financial ratios with banks or investors, check how adjustments affect those ratios (current ratio, debt-to-equity, profit margin, etc.).

Do not open a new year in Sage 50 until auditors sign off and all adjustments are implemented. This single mistake has cost businesses thousands in consultant fees trying to unravel the mess.

9 Management Review & Final Reports

Before finalizing your year-end, senior management should review comprehensive reports to ensure everything makes sense. This is your final quality check.

Essential Reports to Generate:

Trial Balance (Detailed)

• Purpose: Shows all account balances as of year-end. The foundation of your financial statements.
• What to Check:
  • Total debits = Total credits (fundamental accounting equation)
  • No suspicious round numbers (might indicate estimates not yet finalized)
  • No accounts with unusual debit/credit balances (e.g., assets with credit balances)
  • All accounts reconciled (attach reconciliation schedules)
• Comparison: Run a comparative trial balance showing current year vs prior year. Investigate significant variances.

Profit & Loss Statement

• Review Revenue Trends: Compare monthly revenue throughout the year. Unusual spikes or dips need explanation.
• Gross Profit Margin: Calculate gross profit as a percentage of revenue. It should be consistent with prior periods unless there were known pricing or cost changes.
• Operating Expense Ratio: Total operating expenses as a percentage of revenue. Track trends to identify cost control opportunities.
• Net Profit Margin: Final profit as a percentage of revenue. Compare to industry benchmarks and prior years.
• Expense Analysis: Identify your top 10 expenses. Are they reasonable? Any surprises?

Balance Sheet

• Asset Composition: Review the mix of current vs fixed assets. Ensure it reflects business reality.
• Liability Review: Check current vs long-term liabilities. Calculate current ratio (current assets ÷ current liabilities). Should ideally be above 1.0.
• Equity Section: Verify retained earnings calculation: Opening retained earnings + Current year profit – Dividends paid = Closing retained earnings.
• Working Capital: Calculate working capital (current assets – current liabilities). Positive working capital indicates short-term financial health.

General Ledger (Selected Accounts)

• High-Volume Accounts: Review detailed transactions for bank accounts, receivables, payables, revenue, and major expense accounts.
• Look for Patterns: Unusual transaction patterns might indicate errors or fraud. For example, multiple transactions of identical amounts, round numbers, or transactions on unusual dates.
• Audit Trail: Verify all transactions have proper supporting documentation references.

VAT and Statutory Reports

• VAT Summary Report: Shows total VAT collected and paid throughout the year.
• PAYE Annual Schedule: Employee-by-employee breakdown of annual tax deducted.
• WHT Schedule: Detailed listing of all withholding tax transactions.
• Pension Remittance Schedule: Employee contributions and employer contributions for the year.

Management Review Questions:

Confirm that opening balances for the new year make sense. Your closing balance sheet becomes next year’s opening balances. If these are wrong, the entire next year starts on a bad foundation.

10 Backup Before Year-End Closure (MANDATORY)

This is your insurance policy. No matter how confident you are in your process, things can go wrong. A comprehensive backup is non-negotiable.

Why Backups Are Critical:

• Human Error: Someone might accidentally delete transactions, post wrong journals, or corrupt data during the closing process.
• Software Glitches: Even reputable software can have bugs. A corruption during year-end rollover could destroy your data.
• Hardware Failure: Hard drives fail, servers crash, computers get stolen.
• Cyberattacks: Ransomware attacks are increasing. Your accounting data is valuable to criminals.
• Audit Requirements: Auditors may request to review your pre-close data. Without a backup, you can’t provide it.
• Rollback Capability: If you discover a major error after closing, a pre-close backup allows you to restore and correct.

Backup Procedures by Software:

For Sage 50 (Desktop)

• Create Full Company Backup: File > Backup > Create backup file. Don’t use “Quick Backup”—do a complete backup.
• Label Clearly: Name the backup file descriptively, e.g., “CompanyName_PreYearEnd2024_31Dec2024.bak”. Include the date in the filename.
• Verify the Backup: After creating the backup, try opening it in Sage to confirm it’s not corrupted. Better to discover a bad backup now than when you need to restore.
• Multiple Locations: Save the backup to:
  • External hard drive (take it off-site)
  • Cloud storage (Google Drive, OneDrive, Dropbox)
  • Network drive (if different from main computer)
  • Email it to yourself (if file size permits)

For Zoho Books (Cloud)

• Export All Data: While Zoho maintains backups, export your own copies:
  • Chart of Accounts (Excel export)
  • All transactions (CSV exports by module)
  • Customer and vendor lists
  • Trial balance, P&L, Balance Sheet (PDF and Excel)
• Screenshot Key Reports: Take screenshots of critical year-end reports. PDFs can be re-generated, but screenshots provide additional verification.
• Use Zoho’s Snapshot Feature: If available in your plan, create an organizational snapshot before year-end closing.

For QuickBooks (Desktop & Online)

• Desktop: File > Create Backup > Local Backup. Save with clear labeling and multiple locations like Sage 50.
• Online: Export key reports and data. QuickBooks Online maintains automatic backups, but having your own exports provides additional security.
• Accountant’s Copy: Consider creating an Accountant’s Copy before year-end as an additional safeguard.

Backup Best Practices:

• 3-2-1 Rule: Maintain 3 copies of your data, on 2 different media types, with 1 copy off-site.
• Test Restoration: Periodically test restoring from backups to ensure they work. A backup you can’t restore is useless.
• Document the Process: Write down step-by-step instructions for creating and restoring backups. Don’t rely on memory.
• Secure Storage: Password-protect backup files if they contain sensitive data. Use encryption for cloud storage.
• Retention Policy: Keep year-end backups permanently. Keep monthly backups for at least 2 years. Keep weekly backups for at least 3 months.
• Backup Log: Maintain a log showing:
  • Backup date and time
  • File name and size
  • Storage locations
  • Person who created the backup
  • Verification status

If something goes wrong, your backup is your only safety net. Take this step seriously—it takes 10 minutes and could save you months of reconstruction work.

11 Software-Specific Notes

Each accounting platform has unique features and limitations for year-end processing. Understanding these prevents costly mistakes.