What is closing?
Year end Closing generally means, Year-end closing, also referred to as "closing the books," involves thoroughly reviewing, reconciling, and verifying all financial transactions and aspects of a company's ledgers for the past fiscal year. This process includes calculating business expenses, income, revenue, assets, investments, equity, and more to ensure accuracy and completeness.
Boring, Right?
The Actual process of “Closing” involves, reviewing whether all transactions have been recorded, Books have been reconciled. For eg. Year end closing amount with bank as per bank statements matches your books, and verifying transactions eg. Debtors Confirmation and preparing the financial statements along with calculation of tax liabilities.
If you are an experienced entrepreneur or have a accountant, there is no need to scratch your heads.
But we will be taking from the perspective of a new Entrepreneur with a small business and the bare minimum obligations for you at the year end.
1. Closing Stock - Count your stock as at 31st Ashadh. As this amount is reflected on your balance sheet. Doing a thorough physical verification will help you tremendously in audit process. The format need not be anything fancy. The bare minimum being, the name of the stock and the number of physical units in your stock. You can also include the cost if you don’t want to give too much headache to your auditor.
2. Get balance certificate/statements from bank – It is always good from a documentation point of view to get a balance certificate as on year end from the bank. If not, Bank statements would also suffice. If you are availing Bank loans, it is recommended to get balance confirmation from banks.
3. Confirmation – Prepare a list of Debtors and creditors and their balances as on year end. The process of receiving and sending out confirmations can be done thereafter. Sending out confirmations to parties with transactions above 100000 is very crucial as these are also to be reported to the IRD while filing out income tax returns.
4. Payment of tax – 90% of tax should be paid by the year end. So, calculate your estimated tax liability and pay taxes to avoid penalties. The income tax return can be filed later at Ashoj end or Poush end after extension.
5. Filing VAT Returns and ETDS – Make sure to file your VAT returns Monthly or Trimester. Normally, you should file these returns within 25 days from the end of the month/trimester. But if you haven’t, its time to, If you want to avoid a lot of fines.
6. Year Split in your accounting software – Most of the accounting software use year-split feature to record the transaction of multiple financial years. It’s a simple process and usually takes a couple of clicks. Be sure to properly close the running financial year first, otherwise you will find yourself reverting back the previous financial years to correct mistakes.
7. Preparation of Financial Accounts – If you are a small business, of course your auditor/accountant handles it for you. But ideally, the process should be – You prepare your financial statements along with proper documentation, and get it audited with an independent Auditor.
Apart from these, you should make sure you have no unrecorded bills, unbilled expenses etc. Also, take care of the payroll. Prepare a Salary Sheet. If you have multiple Staffs crossing the exemption limit, Tax authorities may ask you the calculation of tax as well.
If you are still confused, which you still are. Call us at +977 9769323931. If not, Kudos to you. We are always available for Free consultation.
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