For nonprofit organizations, January is not just the start of a new calendar year, it is the most critical month for ensuring financial accuracy, compliance, and accountability. A strong year-end close lays the groundwork for clean audits, reliable reporting to donors and grantors, and informed decision-making by boards and leadership.

Unlike for-profit entities, nonprofits face unique accounting and compliance requirements, including donor restrictions, grant reporting, and functional expense classifications. Missing or delaying key January close activities can create downstream issues that affect audits, tax filings, and stakeholder trust.

Below is a comprehensive January year-end close checklist designed to help nonprofit finance teams and CPA advisors ensure nothing is overlooked.

1. Finalize All Revenue Recognition

Revenue recognition is one of the most scrutinized areas in nonprofit audits and regulatory reviews. January is the time to ensure that all revenue is recorded accurately and in the correct period.

Expanded tasks include:

• Recording all donations received by December 31, including online gifts, mailed checks, and third-party platform contributions

• Reconciling donor management systems to bank deposits and the general ledger

• Reviewing grant agreements to ensure revenue recognition aligns with allowable costs, milestones, or time restrictions

• Recording pledges receivable and evaluating collectability

• Recognizing in-kind contributions such as donated services, supplies, or facilities at fair value

Best practice: Maintain clear documentation for revenue recognition decisions, especially for conditional grants and multi-year pledges.

2. Complete Expense Cutoff and Accruals

Accurate expense cutoff ensures financial statements reflect the true cost of operations for the year.

Expanded tasks include:

• Accruing expenses for goods and services received but not yet invoiced

• Reviewing legal, audit, and consulting fees incurred but unpaid

• Recording payroll accruals for wages, bonuses, and benefits earned in December

• Reviewing prepaid expenses and allocating the correct portion to the current year

• Ensuring grant-funded expenses are recorded in the proper period for reimbursement or reporting

Why this matters: Improper expense cutoff can distort program costs and affect grant compliance.

3. Reconcile All Balance Sheet Accounts

Every balance sheet should be fully reconciled and supported before closing the year.

Expanded reconciliation areas:

• Bank and investment accounts, including year-end confirmations

• Accounts receivable, including donor pledges and grants receivable

• Accounts payable and accrued liabilities

• Deferred revenue for conditional grants and program fees

• Payroll liabilities, retirement contributions, and benefit accruals

• Fixed assets, depreciation schedules, and disposals

Best practice: Reconciliations should be reviewed and approved by someone independent of preparation.

4. Review and Validate Net Asset Classifications

Proper net asset classification is fundamental to nonprofit reporting under accounting standards.

Expanded tasks include:

• Reviewing donor-restricted contributions to ensure restrictions are clearly documented

• Recording releases of restrictions when program or time conditions are met

• Confirming board-designated net assets are supported by board resolutions

• Verifying that net asset rollforwards tie to prior-year balances

Common issue: Restrictions not released timely, resulting in overstated restricted net assets.

5. Prepare and Analyze Year-End Financial Statements

January is the time to draft and review financial statements before external reporting.

Key statements include:

• Statement of Financial Position
• Statement of Activities
• Statement of Functional Expenses
• Statement of Cash Flows

Expanded review steps:

• Perform budget-to-actual and year-over-year variance analysis

• Investigate unusual or significant fluctuations

• Validate functional expense allocations across programs, management, and fundraising

• Prepare explanations for board and audit discussions

6. Complete January Tax and Payroll Reporting Requirements

Nonprofits must meet strict January compliance deadlines.

Expanded tasks include:

• Identifying all vendors eligible for Form 1099-NEC or 1099-MISC

• Verifying vendor information and W-9 documentation

• Preparing and filing 1099 forms by the required deadlines

• Reconciling payroll registers, quarterly filings, and year-end totals to the general ledger

Risk area: Incomplete vendor records or misclassified contractors.

7. Support Donor Acknowledgements and Annual Giving Statements

Donor stewardship and compliance go hand in hand.

Expanded tasks include:

• Providing annual donor giving statements for tax purposes

• Ensuring acknowledgements include required IRS disclosures

• Coordinating with development teams to reconcile donation records

• Correcting discrepancies before donor statements are issued

Why it matters: Errors in donor acknowledgements can jeopardize tax deductibility and donor confidence.

8. Prepare for Audit, Review, or Single Audit Requirements

January is the ideal time to prepare for upcoming audits.

Expanded audit prep tasks:

• Organizing revenue, expenses, and grant schedules

• Preparing supporting documentation for major balances

• Reviewing internal controls and segregation of duties

• Addressing prior-year audit findings or management letter comments

• Preparing Schedule of Expenditures of Federal Awards (SEFA), if applicable

Best practice: Early preparation reduces audit costs and disruption.

9. Close the Books and Lock the Fiscal Year

Once all adjustments and reviews are complete, formally close the year.

Expanded closing steps:

• Obtain management and board finance committee review

• Lock prior-year accounting periods to prevent changes

• Document key estimates, assumptions, and judgments

• Retain records in accordance with document retention policies

Final Thoughts

A structured January year-end closing is essential for nonprofit organizations seeking financial clarity, compliance, and credibility. When finance teams follow a comprehensive checklist, they reduce risk, strengthen audit outcomes, and provide leadership with reliable information to guide strategic decisions.

For CPA firms supporting nonprofit clients, helping organizations navigate the January close is an opportunity to add significant value—ensuring accuracy, efficiency, and confidence at the start of the new year.

January sets the tone for your entire financial year—and for nonprofit organizations, there is no room for uncertainty. A well-managed year-end close protects donor trust, supports grant compliance, and ensures your organization is fully prepared for audits, tax filings, and board reporting.

At HWA Alliance of CPA Firms, Inc., we specialize in guiding nonprofit organizations through every step of the January year-end close. From revenue recognition and net asset classifications to audit readiness and compliance reporting, our nonprofit-focused CPAs help you close the year accurately, efficiently, and with confidence.

Connect with HWA Alliance of CPA Firms, Inc. today! Don’t let January’s deadlines create risk or stress. Partner with a CPA firm that understands the unique financial and compliance challenges nonprofits face.