Short answer: The year-end close includes the normal month-end close plus additional reviews, adjustments and closing procedures required at the end of the fiscal year. For property companies, these typically include a full-year accrual review, confirming prepaid rent balances, reconciling security deposit liabilities, reviewing completed capital work, finalizing recoverable expenses for CAM reconciliations, agreeing intercompany balances, closing income and expenses to retained earnings, locking the year and opening the next.

The month-end close is routine work. Year-end uses the same routine, then adds steps that affect more than one month: balances that roll into the new year, expense figures tenants will be billed on, and numbers auditors and tax preparers will rely on. A year-end error can affect balances carried into the next fiscal year, tax reporting, CAM reconciliations or audit support, which makes the final review especially important.

This guide covers those year-end accounting adjustments. For the November-to-January timeline, W-9 collection, 1099s and annual owner summaries, see the companion calendar below.

Must Read: The Year-End Close Calendar: November to January, Week by Week

Table of Contents

1. Month-End vs Year-End at a Glance

2. Full-Year Accrual Review

3. Prepaid Rent at Year-End

4. Security Deposits

5. Fixed Assets and Capital Projects

6. Finalizing Expense Data for CAM Reconciliations

7. Intercompany Balances Before the Year Closes

8. Closing the Year to Retained Earnings

9. Audit Support Schedules

10. Opening the New Year

11. Year-End Adjustments Checklist

12. Common Mistakes

13. FAQs

Month-End vs Year-End at a Glance

Not every year-end task is performed only once. Depreciation, security deposit reconciliation and intercompany reconciliation may already be part of the monthly close. What changes at year-end is the depth of the review, the final adjustments, the closing entries and the need to support figures for the full fiscal year.

Full-Year Accrual Review

Monthly cutoff rules still apply at year-end (RIOO's guide to the owner statement cutoff covers how they work). What year-end adds is a review across the whole year:

• Accrue invoices received after year-end for work performed before it, especially repairs, utilities billed in arrears and contractor work in progress.

• Reverse prior-year accruals that have since been invoiced, so expenses aren't counted twice.

• True up annual accruals, such as property tax, against actual bills or the best available estimate. RIOO's guide to property tax accruals covers how to reconcile the bill against the accrual.

For commercial properties, accrued recoverable expenses also feed the CAM reconciliation, so cutoff errors can affect what tenants are billed.

Prepaid Rent at Year-End

Tenants often pay January rent in December. Rent received before the period it covers is typically held as a liability until earned, through the deferral process covered in How to Set Up Deferred Revenue Schedules and Prepaid Rent Recognition.

At year-end, two checks matter:

1. The balance is right. The prepaid rent liability at year-end should agree with the detail of rent received for future periods.

2. The tax difference is recorded. Under IRS guidance on rental income, advance rent is included in rental income in the year it's received, regardless of the period it covers or the accounting method used. When the books defer a December payment that tax rules treat as income that year, record the difference so the tax preparer has the figures.

Security Deposits

Security deposits held for tenants are generally a liability, not income. At year-end:

• Reconcile the deposit liability in the ledger to the deposit register.

• Reconcile the register to the bank or trust account where deposits are held.

• Post interest owed to tenants where state or local law requires it.

• Record amounts retained from deposits according to the applicable lease and accounting treatment, and clear deposits that are properly returned.

The IRS treats deposits differently depending on what happens to them. Its rental income tips say a deposit you plan to return isn't income when received. Any part you keep because the tenant didn't meet the lease terms is income in the year you keep it. A deposit to be used as the final month's rent is treated as advance rent and is income when received.

Fixed Assets and Capital Projects

Capital projects completed during the year need reviewing at year-end. At year-end:

• Review completed projects for capitalization, and begin depreciation when the assets are placed in service, meaning ready and available for their intended use.

• Record disposals of replaced assets, such as an old roof or HVAC unit.

• Confirm the repair-versus-improvement classification for large expenses.

• Agree the asset register to the general ledger before the year is locked.

The setup and posting steps are covered in How to Post Fixed Asset Depreciation for Real Estate.

Finalizing Expense Data for CAM Reconciliations

For commercial properties, the year's actual recoverable expenses become the basis for reconciling what tenants paid in monthly estimates. Before that data is used:

• Confirm recoverable expenses are coded to the right property and expense pool.

• Post late accruals and reclassifications.

• Exclude expenses each lease treats as non-recoverable.

• Agree the recoverable totals to the general ledger.

Once reconciliation statements go out, later changes to the underlying expenses can require revised calculations or tenant communication, so finalize the recoverable expense data before statements are prepared.

Intercompany Balances Before the Year Closes

Intercompany reconciliation and eliminations are part of every month-end, as covered in How to Handle Intercompany Eliminations for Real Estate Groups at Month-End. The year-end step is narrower but has a hard deadline. Before each entity's year is locked, confirm that intercompany receivables and payables agree on both sides, including management fees, expense reimbursements, loans between entities and owner distributions, and settle or document any differences. Once one entity's year is closed, unresolved differences are much harder to fix.

Closing the Year to Retained Earnings

Once all adjustments are posted and reviewed:

1. Close income and expense accounts to retained earnings, or the equivalent equity account, for each entity, so the new year starts with zero income and expense balances.

2. Lock the year in the accounting system so entries can't be posted to it by mistake.

3. Set a policy for later adjustments,
   covering who can approve entries to a closed year, how they're documented, and when they're reflected in reports already issued.

Audit Support Schedules

If the year will be audited or reviewed, prepare supporting schedules during the close rather than afterward. These usually include bank and deposit reconciliations, the fixed asset rollforward, accrual support, prepaid rent detail, intercompany reconciliations and debt schedules. Ask auditors for their request list early, so the close produces what they need.

Opening the New Year

• Set up the new fiscal year's periods and recurring entries.

• Apply any chart of accounts changes before January activity is posted.

• Load the approved budget with monthly phasing, so budget-versus-actual reporting works from the first close.

• Update rates that change annually, such as deposit interest rates where required, management fee schedules and the new year's CAM estimates.

Running operating data, property ledgers and entity accounts in one property accounting system means the year-end adjustments use the same figures as the monthly close, rather than reconciling separate sources.

Non-calendar fiscal years: These adjustments happen at your fiscal year-end, whenever that falls. Tax reporting deadlines and CAM reconciliation periods may still follow the calendar year or each lease's own definition, so track those separately.

Year-End Adjustments Checklist

• Full-year accruals reviewed, including late invoices for work done before year-end

• Prior-year accruals reversed where invoiced

• Annual accruals such as property tax trued up

• Prepaid rent liability agreed to its detail; any tax differences recorded

• Deposit liability reconciled to the register and the account holding the funds

• Deposit interest posted where required; retained amounts recorded according to the lease and accounting treatment

• Completed projects reviewed for capitalization; depreciation started when placed in service

• Disposals recorded; asset register agreed to the ledger

• Recoverable expenses coded, adjusted and agreed to the ledger for CAM reconciliations

• Intercompany balances agreed on both sides before each entity's year is locked

• Income and expenses closed to retained earnings for each entity

• Year locked, with a policy for later adjustments

• Audit schedules prepared during the close

• New year opened with periods, budget and updated annual rates

Common Mistakes

• Treating year-end as just another month-end. The extra reviews and adjustments take time, so plan for them in the close calendar.

• Not recording the book-tax difference on prepaid rent. The books and the tax return can treat the same December payment differently.

• Not reconciling deposits to cash. A deposit liability that doesn't agree with the account holding the deposits is far easier to fix before the year is locked.

• Leaving completed projects in construction in progress. Depreciation then starts late, and the asset register drifts from the ledger.

• Changing expense data after CAM statements go out. Late adjustments can require revised calculations and tenant communication.

• Locking one entity before intercompany balances agree. Differences become much harder to resolve afterward.

• Locking the year without an adjustment policy. Decide in advance who approves entries to a closed year and how they're recorded.

Frequently Asked Questions

1. What is the difference between a month-end close and a year-end close?
The year-end close includes everything in a month-end close, plus additional reviews and procedures for the full fiscal year, such as a full-year accrual review, fixed asset updates, closing income and expenses to retained earnings, and locking the year.

2. How should prepaid rent be handled at year-end?
Confirm the prepaid rent liability agrees with its detail. For tax purposes, the IRS treats advance rent as income in the year it's received, so record any difference between the books and tax.

3. Are security deposits income at year-end?
Generally not, if you plan to return them. The IRS treats any part you keep as income in the year you keep it, and a deposit to be used as the final month's rent as advance rent.

4. When should completed capital projects be capitalized?
Review completed projects at year-end. Where they qualify for capitalization, depreciation begins when they're placed in service, meaning ready and available for their intended use.

5. What does closing the year to retained earnings mean?
It transfers the year's income and expense balances into retained earnings, or the equivalent equity account for each entity, so the new year starts with zero income and expense balances.

6. Why does the year-end close matter for CAM reconciliations?
The year's actual recoverable expenses are the basis for tenant reconciliations, so they need to be complete, correctly coded and agreed to the ledger before statements are prepared.

7. What should be done with intercompany balances at year-end?
Confirm they agree on both sides before each entity's year is locked, and settle or document any differences.

8. Does a non-calendar fiscal year change these adjustments?
The adjustments happen at your fiscal year-end, but tax reporting and CAM reconciliation periods may still follow the calendar year or each lease's definition.

Conclusion

The year-end close adds deeper reviews and final adjustments to the normal month-end routine: full-year accruals, prepaid rent, security deposits, capital projects, expense data for CAM reconciliations, intercompany balances, closing to retained earnings and opening the new year. Pair those adjustments with the timeline in the year-end close calendar, and both the books and the January deadlines are covered.

Note: This article is general information, not accounting, tax or legal advice. Accounting treatment and tax rules depend on your entity, accounting method and jurisdiction. Confirm specific treatment with your accountant or tax adviser.