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Verifying tax codes for transactions is essential because tax codes determine how each item is taxed and reported. At year end, you want every transaction coded with the correct tax code so VAT/GST is calculated accurately and the tax liability in your books matches what you actually owe. If a tax code is wrong, the tax on that transaction will be mis-stated, which can distort expenses, revenues, and the tax return, leading to errors in financial statements and potential compliance issues. Checking tax codes across the ledger helps ensure the tax reconciliation lines up with the general ledger and that year-end reports reflect the true tax position. In Xero, this matters because VAT/GST totals in reports depend on those codes, so accurate coding is a fundamental step in clean year-end data.

Archiving historical data is part of good records management, but it doesn’t verify that current year data is correct. Ignoring accruals misses the adjustments needed to reflect expenses and liabilities that aren’t yet cash-based, which skews the balance sheet and income statement at year end. Limiting review to cash balances overlooks many transactions and the accrual basis required for proper year-end reporting.