Closing the books
Closing is defined as the completion of accounting records, collecting supporting papers, and all transactions that potentially affect a company’s balance sheet in the accounting dictionary.
Accounting programs and accounting software allow you to freeze an account and carry it over to the following year.
When is the business account going to be closed?
Aside from freelance labor, businesses have the freedom to determine the end of their fiscal year. When a company is formed, the directors decide on the start and end dates of the fiscal year. Each financial year must be 12 months long. Startups, which may have more or fewer financial years, are exceptions.
Every year, the fiscal year’s end date must be the same. Companies with seasonal events can use this flexibility to determine a more appropriate period than the calendar year. Practical concerns usually dictate the choice not to choose a fiscal year that runs from January 1 to December 31.
All businesses required to file balance sheets with the government are affected by the accounting closure. Although micro-entrepreneurs (previously auto-entrepreneurs) are exempt from this procedure, financial statements must nevertheless be prepared to examine all activities.
Balancing the books and amending tax returns
Taking inventories and accounting for all financial transactions that influenced the company last year is part of closing accounting entries. A balance sheet and income statement can be created using the information in the company’s books. Prepare a tax return that details the company’s net income. It is how taxes are computed, and the amounts vary depending on the tax system used.
The stage of editing these documents is crucial. It is a detailed depiction of a company’s financial situation. Before being deposited in the Arbitration Court’s Register, all these items will be presented to the General Meeting of Shareholders for approval. All records and ledgers are frozen if VSE, SME, or MGE accounting software is closed. After then, you must archive them along with the necessary supporting documentation.
Examine the company’s financial situation at the end of the reporting period
Comparisons between financial years are possible thanks to a company’s accounting records. An entrepreneur can track the growth of his revenue and expenses and their impact on the company’s financial status. It is an analysis that may be done during the year, for example, using BI reports to compare the current quarter’s turnover to the prior years. As a result, the company’s strategy was tweaked during the fiscal year. The box office verifies the strategy decision’s outcome. The keys are then in the hands of entrepreneurs to establish their following objectives and put in place the necessary measures to attain them: investments, recruiting, advertising campaigns, changes in inventory management procedures, and so on.
The close can calculate the profit announced to the manager and publish the balance sheet and income statement at the end of each financial year.
Complete all stages of the annual closure successfully
The balances of revenue and spending accounts, the closing of ledger accounts, and the termination of journal entries are steps in closing an account. Checking the consistency and consistency of all charges that make up the income statement is part of the income statement balances. This phase allows you to calculate the balance (positive or negative) between the account’s assets and liabilities or profit and loss.
The movement of balance accounts is halted when the main accounts are closed. The total balance for each account is calculated once they are added together. The comparison of the debit and credit columns of the journal (buy, sale, bank, etc.) with the final accounting balance after the inventory is the posting stop in this situation. They must be on an equal footing.
Here are the specific steps you should do every year at the end of the fiscal year:
- Gather all supporting documentation that attests to the presence of each accounting entry and transaction.
- If you haven’t already, keep track of all your entries in a journal. To make reading and typing easier, sort them by month and category.
- Separate accounts payable and receivable to meet the chart of accounts’ requirements.
- Post-sales data and new acquisitions data to summarize your assets and liabilities.
- Do the same thing with your stock.
- Calculate and record depreciation charges, as well as obey the requirements.
- Determine the final tax and record it.
- Go over all your accounting documents with a fine-toothed comb.