How to close the financial year of your company?
Before the end of the year, companies must complete their corporate accounting tasks and perform the well-known annual accounting close, but how is it done?
The end of the year is a time of heavy commercial and accounting activity. This is the ideal time to correct accounts, calculate positives and negatives, as well as set the groundwork for next year and set tax payments.
In this blog post, we will explain how to do it in the most efficient way. Take out pencil and paper and write down our recommendations for you.
What is the accounting close?
It is a procedure that closes the movements and annual accounts of a business within the accounting year. To be more specific, the following are balanced off for closing: revenue, sales and production costs, expenses and the balance sheet.
This allows to calculate and analyze the profits or losses the company has generated within the calendar year. The corporate accounting close is vital to present to the State the financial/legal situation of the company and it will be very useful if you have plans to request a bank loan.
Reasons to wrap up the accounting close as soon as possible
- It allows you to make decisions for next year's planning.
- With this, you can find out if the company has had a positive or negative outcome.
You can also ensure that you will have the availability of cash to make the required tax payments and thus minimize interest.
- It is very important to keep your company's bookkeeping up to date, so that when it is time to perform the accounting close, it does not become a headache.
How to make an accounting close?
Trial balance: This is used to determine whether the accounting is balanced out.
- Review the overall account map: make sure that there are no accounting errors or that a wrong valuation has been entered. It also works to resolve balance matching.
- Inventory: You have to count everything that has not been sold and in case there are products, assess their expiration date.
- Consideration of losses and gains: Fundamental point to differentiate total annual income and expenses.
- Record outstanding debts and credits: Consider all the economic outstanding accounts payable of the current year that will be paid in the future and the accounts receivable that are in process.
Note that common errors often occur in the accounting closing process. A very common one arises when the received invoices are organized; at this point, often the utility bills are wrongly assigned to the following year, when they really apply to the current financial year and they are accounted for as expenses.
Corporate tax return
Simultaneously with the accounting close of the year, the tax return is due. All companies must submit it. These are mandatory actions established by the State.
The documents you must have at hand are:
- Asset amortization
- Corporate financial statements
Once this is done, you are ready to complete the accounting close. We recommend that you keep a copy of all your documents and files to back up the entire process.
If you are planning 2021, we recommend watching this video (in Spanish).