Today, we are talking about one of the most important phases for SMEs within the accounting process and with greater prominence in these blows of the year: the accounting closing.

Accounting Close

What is Accounting Close?

The accounting closing can be defined as the process through which we will determine what the result of the year has been. That is if at the end of the year we have obtained losses or benefits. This process of closing accounts is much more than pressing a button; It implies reviewing the accounts of our company, to detect errors and duplications, as well as to make the necessary adjustments in such a way that our accounting reflects the reality of our business. Therefore, if it causes you more than one headache, don’t worry and leave your accounting and tax closing in the hands of expert advice such as Infoautónomos.

But what must be taken into account when closing. Let’s do it.

What Aspects should be Reviewed in the Accounting Closing of a Company

So let’s roll up our sleeves, and see in general terms what are the basic aspects that we must watch out for when closing the accounts of our SME:

  1. Treasury accounts

They are the accounting accounts in which we record the movements of the bank accounts and the cash of the company and, therefore, the reflection of the liquidity of our company.

In the case of bank accounts, the first thing we must do is check that the balances shown by our accounting correspond to the balances as of December 31 that reflect the bank statements. If there are differences, they must be accounted for and clarified. In the case of cash, we must do the accounting of it and account for all the cash inflows and outflows that have occurred.

Except for overdrafts authorized by our bank, these accounts should not present negative balances.

  1. Items pending application

When accounting for bank movements, we may find some inflows or outflows of money that are not easy to identify. This is a pass-through account that helps us to temporarily impute unknown accounting events, but which we must finally identify and apply to the corresponding account. Therefore, your balance at the end of the year should be zero.

  1. Loan accounts

Loans that must be paid in a period exceeding one year must be accounted for in long-term loan accounts. However, year by year, the part that will be satisfied throughout each year must be reclassified to the short term, so that our balance sheet faithfully shows our liabilities about the enforceability of our debts.

  1. Review of fixed assets and book depreciation

Fixed assets, in general terms, are made up of all those assets that we use in a lasting way in the development of our activity. Since we will use them for several years, their acquisition is not considered an expense for the year, but an investment, and their transfer to the income statement is carried out in installments, through amortization. Each year we will have to spend a percentage of each element of fixed assets, but there are accounting rules for their application and fiscal limits that should be observed, to avoid that part of this expense is not deductible.

  1. Stock accounts

Inventories are those goods that a company acquires to sell or to incorporate into its production chain. If your company makes this kind of acquisition, you must bear in mind that not everything you buy in the year should be considered an expense, but only the cost of those stocks that you have sold or consumed in that period of time. Therefore, you must carry out a physical count of merchandise at the beginning of the year, and another at the end, to know the number of purchases that you can allocate in the income statement.

  1. Review of accounts of debtors and creditors

It is also important to review the accounts of clients, suppliers, and creditors, to verify that all invoices and all collections/payments are accounted for so that the balances they show at the end of the year are correct and correspond to what we owe them owe us.

  1. Personnel expense accounts and salaries pending payment

Another check that we must carry out is that of the accounts related to personnel expenses: we must check that all payroll and Social Security contributions have been transferred to the accounts respectively. In the same way, we must check that the amounts of said payrolls coincide with what is declared for work income in the forms, quarterly withholdings, as well as in the annual summary.

On the other hand, it is convenient to verify that the account of “wages pending payment” has a balance equivalent to what remains pending payment to workers.

  1. Accounts with public administrations

About VAT accounts, we must have made quarterly the corresponding transfers to the accounts of the debtor public treasury or creditor public treasury, depending on whether the

VAT return went out to compensate or pay. Additionally, we must verify that the returns submitted match the amounts accounted for.

On the other hand, the accounts of the Public Treasury creditor for withholdings. The final balance that these accounts must show as of December 31, is that of the withholdings corresponding to the fourth quarter, pending presentation in January of the following year. It is also advisable to review the amount of the accounts, which must coincide with the sum of the withholdings that the company has borne and the installment payments that have resulted to be paid throughout the year.

Lastly, the account will contain payments made or pending to be made to Social Security. As of December 31, your balance must coincide with that of the social security corresponding to December TC1.

  1. Accounts of partners, administrators, and other related parties.

Between the partners and the company, as well as between companies of the same group, money inflows and outflows usually occur to provide temporary liquidity to one of the parties involved. The accounts of the subgroup are usually used for the accounting record of such movements. However, its indiscriminate use can cause problems with the Tax Agency.

In this sense, it is important to distinguish if the transactions have been of small amounts, for specific and specific needs, and if they plan to be returned within a few days or weeks. If this is not the case, the amounts transferred should either be registered in loan/credit accounts and consider registering interests (paying withholdings on them), or they should be contributed to the equity of the company if they are not going to be returned.

  1. Accrual of expenses

Sometimes, throughout the year, advance payments are made for expenses that may correspond to several years. This is the case, for example, of insurance whose validity ranges from half a year to half the following year. These payments must be prorated, considering only the part that corresponds to each fiscal year.

  1. Net worth

It is mainly made up of the sum of the capital stock accounts, reserves, shareholder contributions, losses from previous years, and the profit and loss account for the year. The sum of this set of accounts represents the real value of the company and, therefore, it is important that it is healthy and is as high as possible. In any case, it should never be negative or be below the amount of the share capital.

The review of our accounting will allow us to have accounts that faithfully reflect the reality of our business. Starting from this accounting result, we will start the second part of our closing, consisting of calculating the expense for the Corporation Tax and proceeding to the settlement of said Tax before the Administration; but we will tell about that in the next article.

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Aniket ChatterjeeBusiness
Today, we are talking about one of the most important phases for SMEs within the accounting process and with greater prominence in these blows of the year: the accounting closing. What is Accounting Close? The accounting closing can be defined as the process through which we will determine what the result...