Annual Accounting Closure
Annual accounting closure is one of the mandatory events for every company. This responsibility falls either on the company's accounting department or an external accounting company.
The primary goal of the annual accounting closure is to analyze the differences between the set and achieved results for the past financial year. When discrepancies are found, corrections are necessary.
The conclusion process is intertwined with goal-setting for the upcoming calendar and financial year. At Balantrix, we have extensive experience in providing accounting services, including annual accounting closure.
What does the annual accounting closure involve?
The year-end closing is a complex and lengthy process as it requires summarizing the entire fiscal year’s activities of a company. According to the legislative provisions of the Republic of Bulgaria, the closure must coincide with the end of the calendar year.
What is the annual accounting closure, and why do we need it?
Also known as “closing the books”, year-end closing is necessary for various reasons, primarily related to legislation and business management. Additionally:
Legislative reasons
Many countries require companies to submit financial reports to regulatory bodies. This ensures compliance with financial legislation, standards, and accounting rules.
Tax purposes
Annual accounting is crucial for calculating and paying taxes. The submitted reports contain information about the income, expenses, and profits earned by the company, essential for tax calculations and payments.
Financial analysis
Annual accounting provides vital information about the financial state of the company to regulatory authorities. These reports are used to analyze income, expenses, profit, and overall performance. Owners can make informed decisions regarding development and management based on this information.
Steps in the annual accounting closure process
Closing revenue and expense accounts
- Preparation of annual balance sheet, statement of equity, cash flow statement, income statement, and analytical account statement;
- Preparation of a Working Capital Statement and Analytical Ledger Report;
Stages of annual accounting closure
The annual accounting closure involves five main stages.
1.
Stage 1: Preliminary preparation
The preliminary preparation stage typically begins at least a month before the end of the fiscal and calendar year. It is essential for the accountant responsible for preparing the reports to have the right to enter data into the accounting books.
The goal is for the preliminary preparation to contain all the information needed to compile the company’s reports
2.
Stage 2: Analysis of accounts
The analysis of accounts involves reviewing purchases and sales made during the past fiscal period. This analysis includes a review of periodic expenses such as electricity and internet. This helps companies facilitate the accounting of their financial activities.
3.
Stage 3: Conducting an inventory of assets and liabilities
Inventory ensures the completeness of accounting records, providing clear information about the company’s financial condition.
4.
Stage 4: Closing accounting entries
Closing accounting entries involve analyzing initial balances, debit and credit turnovers. This information is used to prepare a turnover statement.
Through this analysis, the company determines whether it has recorded profits or losses during the calendar year.
5.
Stage 5: Final stage of annual accounting closure
The Chief Accountant compiles the annual financial report, which must be signed and sealed by the company’s management.
The main function of this report is to inform stakeholders – shareholders and partners – about the company’s financial condition, as it contains all income, expense, and asset amounts. The information from this report plays a crucial role in making decisions about future investments and expenditures.
