Your 5-Step Checklist to Closing the Books for 2021 in FreshBooks

Whether it’s you or your client doing the bookkeeping, this checklist will ensure all paperwork is in order before you file.

three people seated in office looking at laptop

If you want to avoid stress at tax time, it all comes down to one thing: Preparation.

Even before you or your client (whoever is doing the hands-on bookkeeping) can get started on tax prep documents, some housekeeping is in order. That means making sure all financial data is accurate and compliant.

There are a lot of moving parts and it can be easy to overlook something, especially when you’re working in new accounting software or you’ve got clients on multiple platforms. Unless you have a handy-dandy checklist like this one that covers the steps you need to get tax ready.

Et voilà! Here are all the end-of-year processes you need to complete in FreshBooks so you’re ready to file.


First, Get Set Up With the Accountant Role in FreshBooks

First things first: In order to gain access to your client’s account in FreshBooks, you’ll need them to invite you to as an Accountant from within the platform. (Note that there is no cost to your client to do this.)

Once you accept the invite, you can get started as an Accountant in FreshBooks. In the Accountant role, you will be able to access all your client’s accounting reports and expenses. You’ll also be able to create Journal Entries and custom Sub-Accounts in the Chart of Accounts

However, only FreshBooks Accounting Partners have Admin-level Accountant permissions, which allows you to set up your client’s account for them or adjust any admin settings. (Learn how to become a partner.)

If you are a FreshBooks Accounting Partner and you need these permissions turned on, contact your Partner Consultant directly.

1. Reconcile Your Bank and Credit Card Accounts

Step one is ensuring that FreshBooks balances match up with the bank and credit card balances. If they don’t, it’s bank reconciliation time!

Start at the beginning and go month by month until you find out where a transaction was missed. Running into problems? Check out the answers to 3 FAQs about bank reconciliation in FreshBooks.

2. Check Your General Ledger’s Petty Cash Account

If you’ve done Step 1, your petty cash balance should be $0. But I recommend double-checking the General Ledger to be sure.

The only transactions you should see under the Petty Cash account in the General Ledger are transactions marked as transfers. (Transfers between connected business accounts and credit card payments, for example.)

screenshot from FreshBooks General Ledger report

3. Expense Allocation, Including Cost of Goods Sold (COGS) and Uncategorized Expenses

Run your Expense Report to ensure all expenses are categorized. Then export it as a CSV file (using the More Actions menu in the upper right corner of the Expenses Screen). The CSV file will contain a column for COGS with a Yes or No next to each Expense.

FreshBooks General Ledger export COGS

Note that any rebilled expenses would be automatically tagged as COGS. But not all rebilled expenses are COGS!

4. Calculate Owner’s Equity and Personal Expenses

Consistency is key and helps keep the business owner’s personal expenses separate from business expenses.

Run the General Ledger Report or Trial Balance Report for transactions that are in the Personal expense category or marked as Owner’s Equity in the Bank Reconciliation screen.

If business expenses paid for with the business owner’s personal credit card were added here accidentally, this will need to be fixed manually. Here’s a tutorial on how to do that in FreshBooks, from one of our Accounting Partners, Kate Josephine Johnson.

5. Run These Key Accounting Reports

You’ll want to run all of the following reports. I recommend running them in the order listed here.

Make sure you are running your reports with your preferred accounting basis: Billed (Accrual Basis) vs. Collected (Cash Basis). And be sure to set the filters consistently when you run each report.

All reports are available on Accrual and Cash Basis except for the Balance Sheet, Trial Balance and General Ledger reports, which are Accrual Basis only.

FreshBooks report filters

Profit & Loss Report (P&L)

You know it, you love it, you need it for tax filing. It’s the P&L Report. This page has general info and FAQs about how to access and run this report in FreshBooks.

Invoice Details Report

While your P&L summarizes revenue from invoices on a single line, the Invoice Details Report gets into the nitty-gritty. In this report, you can dig into which items and services make up the revenue amount, whether sales tax was applied, and more details. This report can be exported to Excel.

Expense Report

If you’ve been following the steps to this point, you’ve already run your Expense Report. Done and done!

Sales Tax Summary Report

The Sales Tax Summary Report shows the amount owing to the government in sales taxes. For each sales tax set up in FreshBooks, you can see the total sales tax collected minus sales tax paid for expenses.

These amounts can be reconciled/matched to your Invoices Details and Expense reports to see which transactions have sales tax applied.

Accounts Aging Report (and Accounts Payable, If Applicable)

Run the Accounts Aging Report to confirm whether invoices have truly not been paid, or to determine if they are due to be paid in the following period.

A Note About Payroll

Businesses with employees or contractors have additional tax requirements. Be sure you and/or your client know the deadlines and understand which forms to file. In the U.S., it’s 1099 forms for contractors and W-2 forms for employees.

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One, Two, Five…File!

Once you or your client have ticked off each box on this checklist, you’re ready to file all your paperwork. If you rely on your client to do their bookkeeping, share this U.S. tax document checklist for clients with them as a next step.

Keep in mind that FreshBooks Accounting Partners receive comprehensive training in all the platform’s business tools, accounting features, and reports. In addition, Accounting Partners get 1:1 support from FreshBooks Accounting Specialists, which can be extremely helpful during tax time. If you haven’t looked into becoming a partner yet, you can read about the benefits here.

Thanks to Kate Josephine Johnson for inspiring this post.

Laura Crean
about the author

Laura Crean, ACA, is a FreshBooks Accounting Specialist. Laura enjoys problem-solving, learning about people and their businesses, and educating users on accounting features. She has worked as an accounting professional in financial services and digital media and is a 90s music and movie superfan.