The year-end is the end of the financial year or a 12 months operating period. Depending upon legal framework & and company policy year end could be calendar year or fiscal year. At this time, businesses need to carry out specific procedures to close their books.
As the name suggests, year-end accounting process are carried out after the financial year ends but before the financial statements are prepared. The same process may be followed for month end closing purpose in a slightly different way.
Objective of year-end Accounting Process
An efficient year-end closing process is vital to the success and organization of your company. The basic purpose of a year-end closing process is to ensure that the financial statements accurately reflect the financial position and performance of the company. Few major objectives of year end closing process could be as follows-
- To make sure that the Financial Statements prepared after the year end procedures contain the information that is true and fair.
- To detect any errors and prevent fraud.
- To make sure that all the items of income and expenditure are recorded on accrual basis.
- To make sure that the ledger balances that are transferred from one financial year to another are accurate.
- To comply with legal requirements
- To enable an audit or independent examination to be performed
Activities to be performed in year-end closing process
Following activities are generally performed while closing the financial year
Trial Balance Report
Month end closing starts with a trial balance report. Accountant review the balance to identify any inconsistencies from what is expected, review the transaction details for any accounts he is uncertain of and note the adjustments that need to be posted.
Physical reconciliation consists of checking the physical assets. It includes checking of patty cash with cash book, physical verification of inventory (raw material, work in progress, finished goods and stock in trade) and fixed assets.
Other reconciliations include bank reconciliation and reconciliation of customers and suppliers accounts with the statements received from them. All accounts with unusual balances should be investigated for the reason.
These journal entries are passed to make the Financial Statements more meaningful, relevant and also to adhere to the accounting concepts of prudence and accrual. Normally, these adjustment entries will include the entries for
- closing inventory
- deferred revenue expenditure
- profit or loss on sale/disposal of non-current assets
- amounts to be written off (e.g. Irrecoverable debt)
- capitalization of expenditure to be allocated to the non-current assets
- creation of any allowances/reserves for provisions and other liabilities
- provision for directors' remuneration especially if based on financial performance
Closure of revenue accounts
Once, the adjustment entries are passed, all revenue accounts are closed for the accounting year and the balances transferred to the “Statement of Profit or Loss”. Net profit (or loss) arising from the statement of profit of loss is then transferred to the capital or retained earnings.
Closure of non-revenue accounts
Non-revenue accounts are closed with their respective closing balances for the year and a Balance Sheet Statement is drawn. Closing balances of non-revenue accounts become their opening balances for the next financial year.
How can “KGMC” help you in year-end closing process?
We have dedicated team of well-trained accountants and other experts who can quickly adapt to client’s specific software and processes, and at the same time ensure improvement in time and quality standards. Our services to year end closing process includes
- Scrutiny of trial balance
- Reconciliation of ledgers
- Variance analysis
- Adjustment entries
- Finalizing of financial statements
- Management reporting