“To everything, there is a season, a time for every purpose under heaven.” – Ecclesiastes 3:1
As the year draws to a close, it's essential for Shopify store owners to set aside time for financial reflection and preparation. Closing out your books accurately doesn’t just help with tax filing—it also creates a solid foundation for a more organized and profitable 2025. In this guide, we’ll cover the exact steps you need to take to close out your Shopify store’s books, along with practical examples to make the process clearer and actionable. Let’s get started!
1. Reconcile All Bank and Credit Card Accounts
Start by reconciling all bank and credit card accounts to your books. This step involves comparing each transaction in your accounting software to your bank statements to ensure accuracy. This process not only highlights any potential errors or missing entries but also helps prevent issues during tax time.
Example: Suppose your Shopify income for December shows $10,000 in your accounting records, but your bank statement only reflects $9,800. This discrepancy could be due to Shopify fees or other deductions. Investigating these differences helps ensure all records are correct.
2. Review and Categorize All Expenses
Accurately categorizing expenses is essential for understanding where your money went and for maximizing deductions. Check each expense to ensure it’s categorized correctly (such as marketing, inventory, or supplies) and confirm that personal expenses are not mixed with business expenses.
Example: If you spent $500 on Facebook ads in November, categorize it under “Marketing” rather than “Supplies” to keep financial reports accurate and fully utilize deductions available for marketing costs.
3. Record Inventory Value Correctly
Inventory can be one of the largest assets on your balance sheet, so it’s essential to ensure accuracy. Calculate your end-of-year inventory count and adjust for any shrinkage or damaged goods. This step ensures that your Cost of Goods Sold (COGS) is also accurate, which is crucial for understanding profit margins.
Example: If your inventory at the end of December is valued at $15,000 but includes $1,000 worth of damaged goods, adjust the inventory value to $14,000. This gives you a true picture of inventory assets going into the new year.
4. Verify Your Accounts Receivable (AR)
Accounts Receivable (AR) represents money owed by customers. Confirm all AR entries are accurate, including identifying any outstanding invoices. This step helps avoid overstating revenue and provides a clear picture of pending revenue for the year-end.
Example: If you invoiced a customer $1,200 in December but received only $1,000, the remaining $200 should remain listed as AR. Verifying these balances ensures an accurate understanding of cash flow as you prepare for the new year.
5. Finalize Accounts Payable (AP)
Accounts Payable (AP) reflects what you owe to suppliers and vendors. Make sure all unpaid bills are accounted for so that liabilities accurately reflect your obligations at year-end. This also gives you a snapshot of cash flow needed to meet commitments as you start the new year.
Example: If you owe $500 to a supplier for December orders, record this in your AP. Doing so will ensure that your end-of-year liabilities are accurate and give you a full picture of the cash needed to cover outstanding bills.
6. Verify Sales Tax Liability
Sales tax liability is crucial for compliance and financial accuracy. Calculate all outstanding sales tax you collected throughout the year and confirm these amounts align with state requirements.
Example: If your Shopify store collected $2,500 in sales tax in December, ensure this amount is recorded as a liability and prepared for remittance. Double-checking helps prevent miscalculations or penalties due to underpayment.
7. Calculate Your Year-End Profit
Calculating your final profit provides a full view of your financial performance for the year. Start with gross revenue, subtract your COGS, and then subtract total expenses. This is your net income, the ultimate measure of profitability.
Example: If your total sales are $120,000, COGS is $45,000, and expenses are $50,000, your net profit would be $25,000. Double-checking these figures ensures accuracy and helps identify areas for growth.
8. Prepare Year-End Financial Statements
Financial statements give a complete view of your business’s health. Prepare an income statement, balance sheet, and cash flow statement to summarize the year. These documents also provide valuable insights into how cash is managed, your total assets, and overall profitability.
Example: If your balance sheet shows $100,000 in total assets and $40,000 in liabilities, you have $60,000 in equity. These financial statements serve as valuable resources for future decision-making and can help identify areas for strategic improvement.
9. Review Profit First Allocations
As a Profit First business, it’s essential to review your final allocations for the year. Make sure each category—profit, inventory, owner’s pay, tax, and operating expenses—is appropriately funded based on your specific percentages.
Example: If your total December income is $10,000, allocate $300 to profit, $4,000 to inventory, $2,800 to owner’s pay, $900 to tax, and $2,000 to operating expenses. Reviewing and adjusting these allocations ensures you’re set up for a profitable start in 2025.
10. Plan for a Smooth Start to 2025
Once your 2024 books are closed, take some time to prepare for 2025. Set financial goals, organize records, and update your budget. Small steps now can set a strong foundation for growth and improved cash flow in the new year.
Example: If your goal for 2025 is a 20% increase in revenue, calculate the resources needed to meet this target. This could include adjusting your Profit First allocations to ensure you have enough funds in key areas such as inventory or marketing.
Final Thoughts
Closing your books accurately at the end of the year sets you up for a successful 2025. It helps you get clear on profits, manage cash flow, and identify areas to improve in the new year.
If you have any questions or need personalized help, don’t hesitate to reach out. Schedule a call with Jacob by going to https://www.jacobcurtiscpa.com/5-strategies-calendar. We're here to help you piece together financial freedom.
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