The accounting closing is a fundamental instrument to know the result of your business in the corresponding period. The financial year of the companies starts on January 1 and ends on December 31 of the same year; therefore, the accounting closing is carried out between January 1 and March 31 of the following year.
In the proper language of accounting, accounting closing is defined as follows;
“The accounting closing is the process of canceling the income statement and transferring these figures to the balance sheet accounts. This closing allows to know the economic result of the period and quantify the gains or losses”.
This means that in the accounting closing the expenses and income that were obtained as result of the exercise are determined. When performing this activity, it is possible that various problems arise due to previous errors in the movement records. Among the most common errors are; the appearance of wrong values , placement of expenses and income in erroneous accounts, among others.
Nine Tips for Closing Your Company’s Accounts
- At the end of an accounting period, the result accounts must be closed to determine the result of the fiscal year; which will be loss, or else, a utility. To be useful, it is necessary that costs and expenses are exceeded , since if the costs and expenses are greater than the income, losses are present in the company.
- When the accounting closing is made, the respective closing accounting entries must be prepared. These accounting entries are aimed at the cancellation of profit and loss accounts , that is, leaving them in zeros.
- The income statements that must be reviewed at the time of closing are: the accounts of income, expenses, sale costs and production costs . As well as asset, liability and equity accounts in the balance sheet.
- The final result of the cancellation of the accounts must be taken to the equity account. If the result is a loss, the equity will be reduced, and if this is not the result, the equity account will increase .
- Before canceling the result accounts, the necessary adjustments and reconciliations must be made . Among the most important adjustments that must be made is; the depreciation of fixed assets, the amortization of intangible and deferred assets, the provision of the portfolio and the necessary adjustments in the inventories.
- It is also important to reconcile bank accounts , which will allow you to make the necessary adjustments to these accounts. All these adjustments required as part of the accounting closing are very simple to obtain if you have ClickBalance in your company .
- Re-classifying accounts is an important process that must also be carried out …Mainly the accounts of banks, clients, suppliers, and in any other account that results with a balance in red or negative.
- Another important aspect that should not be forgotten is the adjustments to the different assets to recognize their valuation or devaluation.
- At the time of closing , elements and variables of the following period must be taken into account ; the planning must be constant, and not at all improvised.
You and I know that to carry out an accounting close with the minimum of errors, it is necessary to keep a healthy electronic accounting throughout the year; that way you can deliver your accounting information to the tax authorities without any problem
The best option you have is to use an ERP system that integrates your commercial process and your accounting process ; In this way , your accounting policies will be registered automatically and you will only have time to attend to more clients