Close Your Books Right: A Year-End Accounting Checklist for UAE Companies

December draws to a close, it's time to ensure your books are accurate, complete, and ready for the new year. A smooth accounting close isn't just about ticking boxes - it's about understanding your business's true financial position and setting yourself up for success in 2026. Here's your comprehensive guide to closing your books properly.

Bank and Cash Reconciliation

The absolute foundation of any year-end close is making sure your cash records match reality. Start by reconciling every single bank account your business uses - your main operating account, payroll account, savings accounts, and even that petty cash drawer in the office.

Pull the bank statements for December and go line by line, matching each transaction in your accounting system to the actual bank activity. Don't just look for matching numbers, actually review what's going through your accounts. This is where you'll catch duplicate payments, unauthorized charges, or forgotten subscriptions that are quietly draining your account month after month.

Bank reconciliation checklist:

• Reconcile all bank accounts to December 31st statements

• Match every deposit and withdrawal to your accounting records

• Account for outstanding checks and deposits in transit

• Record bank fees, interest income, and service charges

• Investigate and resolve any unidentified transactions

• Clear old outstanding items (checks older than 6 months)

For credit cards, the same principle applies. Every charge on your business credit card statement needs to be recorded in your books with the correct expense category. Those "miscellaneous" charges that nobody can remember? Someone needs to figure out what they were for.

Accounts Receivable & Expected Credit Loss (ECL) Review

Your accounts receivable represent income earned but not yet collected, so year-end is the time to assess what is truly recoverable. Start by reviewing your aged receivables report as of December 31st and follow up on large or long-outstanding balances. Invoices that are unlikely to be collected should be written off with proper approval.

In addition, under IFRS 9, businesses must recognize Expected Credit Losses (ECL) on receivables using a forward-looking approach. Even if a customer hasn’t defaulted, delayed payments, financial difficulties, or adverse market conditions may require a provision.

Key year-end tasks:

• Review aged receivables and customer payment history

• Follow up on overdue and high-risk balances

• Write off uncollectible debts with documentation

• Calculate lifetime ECL using historical default rates adjusted for current conditions

• Record or update the ECL allowance separately from bad debt write-offs

• Ensure all December sales are properly invoiced

This ensures receivables are not overstated, complies with IFRS requirements, and strengthens audit readiness.

Accounts Payable Verification

Under accrual accounting, you need to record expenses when they're incurred, not when you pay them. Go through your accounts payable systematically and verify that each supplier invoice is recorded in your system with the correct amounts, dates, and expense categories.

Here's something many businesses miss: accruals for expenses incurred but not yet billed. Did you receive a shipment on December 28th but won't get the invoice until January? That needs to be accrued in December. Is your December utility bill going to arrive in mid-January? Estimate it and accrue it, because you consumed those utilities in December.

Accounts payable verification steps:

• Review all supplier invoices received through December 31st

• Verify all invoices are recorded in the correct period

• Accrue for goods received or services consumed but not yet invoiced

• Review vendor statements and reconcile to your records

• Record any year-end purchase returns or allowances

• Verify utilities, rent, and other recurring expenses are properly recorded

The same principle applies to services. If your lawyer did work for you in December but won't bill you until January, you need to accrue that expense now.

Inventory Valuation and Physical Counts

If your business carries inventory, year-end requires a physical count. Not an estimate, not a review of what your system says - an actual physical count of every item in your warehouse or store. Schedule this as close to December 31st as possible.

Once you've counted everything, compare the results to what your system shows. Differences are common and can result from theft, damage, counting errors, or recording mistakes. You need to adjust your books to match physical reality.

Beyond quantities, assess the quality and value of your inventory. Do you have obsolete products? Damaged items that can't be sold at full price? Slow-moving inventory that you'll have to discount heavily? All of these require you to write down the inventory value to reflect what you can actually recover.

Fixed Assets and Depreciation

Your fixed assets register should be a complete record of every significant piece of equipment, furniture, vehicles, and other long-lived assets your business owns. Review all the assets you acquired during 2025 and make sure each one is properly recorded with the purchase date, cost, useful life, and depreciation method.

Just as important are disposals. If you sold a vehicle, junked old equipment, or threw out obsolete computers, those assets need to be removed from your register. You'll record any gain or loss on disposal - the difference between what you received and the asset's net book value.

Fixed assets and depreciation tasks:

• Review all asset additions during 2025 and verify proper recording

• Record disposals of assets sold, scrapped, or retired during the year

• Calculate and record depreciation for the full year

• Reconcile fixed assets register to general ledger balances

• Review assets for impairment (significant decline in value)

• Document any assets under construction or pending capitalization

Make sure depreciation has been calculated and recorded for all your assets for the full year. Most businesses use straight-line depreciation for accounting purposes, which means the same expense amount each year.

Payroll and Employee-Related Liabilities

Process your final payroll of 2025 and ensure all salaries, bonuses, and allowances are properly recorded. But don't stop there - you also need to account for accrued vacation days, end-of-service gratuity, and any other employee benefits that have been earned but not yet paid.

End-of-service gratuity is a legal obligation under UAE Labor Law, and it needs to be reflected in your financial statements as a liability. Calculate what would be owed to each employee if they all left on December 31st, and ensure your books reflect this amount.

Payroll year-end tasks:

• Process final payroll for 2025 and verify all amounts

• Calculate and record end-of-service gratuity liability for all employees

• Accrue for earned but unused vacation days

• Review employee advances and loans for proper recording

• Verify all payroll tax withholdings and social contributions

• Reconcile payroll expenses to general ledger accounts

Prepayments and Accrued Expenses

Review all your prepaid expenses, things like annual insurance premiums, rent paid in advance, or prepaid subscriptions. These need to be properly allocated between 2025 and 2026 based on the actual period they cover. If you paid AED 12,000 for annual insurance in October, only three months should be expensed in 2025. The remaining nine months belong in 2026 as a prepaid asset.

Similarly, review your accrued expenses. These are obligations you have that haven't been billed yet, things like accrued interest on loans, professional fees for work performed but not invoiced, or employee bonuses declared but not paid.

Prepayments and accruals checklist:

• Review all prepaid expenses and allocate correctly between periods

• Accrue for interest, professional fees, and other earned but unpaid expenses

• Verify rent, insurance, and subscription allocations

• Record accrued bonuses and commissions earned in 2025

• Review loan agreements for any accrued interest

Revenue Recognition and Unearned Revenue

Make sure all your December revenue is properly recorded. Every invoice you issued in December needs to be in your books, even if the customer hasn't paid yet. Conversely, if customers have paid you in advance for goods or services you haven't delivered yet, that needs to be recorded as unearned revenue (a liability) rather than income.

Revenue review tasks:

• Ensure all December sales are invoiced and recorded

• Review unearned revenue for advance payments or deposits

• Verify revenue recognition matches delivery of goods or services

• Record any sales returns or allowances

• Review contracts for proper revenue recognition timing

VAT Compliance Review

Your year-end close isn't complete without ensuring your VAT records are in order. Review the tax invoices template and verify they contain all the mandatory elements required by the Federal Tax Authority : your business name, TRN, the words "Tax Invoice," invoice date, customer details, description of goods or services, amounts excluding and including VAT, and the VAT amount clearly stated. Missing even one element can result in the entire VAT amount being disallowed during an audit.

VAT quarterly checklist:

• Verify all tax invoices contain mandatory fields per FTA requirements

• Review input VAT claims for proper documentation and recoverability

• Account for reverse charge VAT on imported services from foreign suppliers

• Reconcile VAT liability accounts with your filed returns

• Review treatment of exempt and zero-rated supplies

Pay special attention to input VAT recoverability. That company car with personal use? Entertainment expenses for clients? These have specific rules about what portion of VAT can be recovered. Also, don't forget about the reverse charge mechanism for services received from foreign suppliers - many businesses still overlook this requirement for consultancy, digital services, or professional services from abroad.

Corporate Tax Considerations

With UAE Corporate Tax now in effect, your year-end close needs to account for the difference between accounting profit and taxable income. Remember, you'll pay 9% on taxable income exceeding AED 375,000, but your accounting profit isn't the same as your taxable income. Entertainment expenses are only 50% deductible for tax purposes. Fines and penalties aren't deductible at all. Tax depreciation follows different rules than accounting depreciation.

Once you've calculated your estimated taxable income for 2025, you need to accrue for the Corporate Tax liability. This isn't money you'll pay immediately, your Corporate Tax return is due nine months after your financial year-end, but it's an obligation you've incurred in 2025, so it needs to be reflected in your year-end financial statements. Calculate 9% of your taxable income above the AED 375,000 threshold and record it as a current tax liability on your balance sheet with a corresponding tax expense in your profit and loss statement.

Corporate Tax year-end tasks:

• Calculate preliminary taxable income with all necessary adjustments

• Accrue for Corporate Tax payable based on estimated taxable income

• Review entertainment expenses and apply 50% limitation for tax

• Verify non-deductible items (fines, penalties) are properly tracked

• Calculate tax depreciation separately from accounting depreciation

• Document all related party transactions with transfer pricing support

• For free zone businesses, verify qualifying income requirements are met

• Prepare reconciliation between accounting profit and taxable income

If your business operates in a free zone, carefully verify you meet all the conditions for the 0% rate on qualifying income ie, adequate substance, qualifying transactions, and proper documentation. Even one misstep can subject your entire year's income to the 9% rate instead. For businesses with related parties, ensure you have transfer pricing documentation ready to demonstrate that all intercompany transactions are at arm's length.

Preparing for Your Audit

If your business requires a statutory audit (generally companies with revenue above certain thresholds or specific license types), now is the time to start preparing rather than waiting for your auditors to show up. A well-prepared audit is faster, cheaper, and far less stressful for everyone involved.

Your auditors will need comprehensive documentation and schedules to support every number in your financial statements. Start organizing this information now while the details are fresh in your mind and the supporting documents are easy to find.

Audit preparation essentials:

• Prepare a complete trial balance with account descriptions and balances

• Create detailed reconciliations for all balance sheet accounts

• Compile bank reconciliations for all accounts throughout the year

• Organize aged receivables and payables reports

• Prepare inventory count sheets with valuation calculations

• Update your fixed asset register with additions, disposals, and depreciation

• Document any unusual transactions or accounting treatments

• Schedule a pre-audit meeting with your auditors to discuss scope and timing

The better organized you are, the more efficiently the audit will proceed. Consider designating someone as the audit liaison who can coordinate information requests and ensure timely responses. There's nothing more frustrating — or expensive — than an audit that drags on for weeks because documents can't be located or questions aren't being answered promptly.

Final Review and Financial Statements

Once you've completed all the detailed reconciliations and adjustments, prepare your preliminary financial statements: profit and loss statement, balance sheet, and cash flow statement. Review them critically. Do the numbers make sense? Are there any unusual fluctuations compared to last year? Any accounts that seem too high or too low?

This is your last chance to catch errors before you close the books and start 2026. Take the time to review everything carefully, because fixing mistakes after year-end is much more complicated than getting it right the first time.

Final review checklist:

• Prepare draft financial statements (P&L, balance sheet, cash flow)

• Review for unusual balances or unexpected changes

• Verify all adjusting journal entries are properly documented

• Ensure general ledger accounts reconcile to sub-ledgers

• Review account classifications (current vs. non-current)

• Prepare supporting schedules for major balance sheet accounts

• Document significant accounting policies and estimates used

Reach out to Arzonell.

Completed your bookkeeping for the year? Reach out to Arzonell, our experts will provide a thorough review and handle your Corporate Tax Return submission, all at the best quote in the market.

The Year-End Checklist can be downloaded from the link below.

Checklist.xlsx

Download XLSX • 38KB

Reach out to us: info@arzonell.com | +971 52 191 5973