The financial year-end is right around the corner & a crucial step in getting ready for it is closing the accounting books. It helps you generate a summary of all the financial statements that will help you understand your business’s financial health and make strategic decisions to unlock new growth opportunities.
How to close your accounting books
Calculate the yearly revenue & expenses
You should keep track of the total revenue made during the year, along with the cost incurred for running your business. Also, ensure that the revenue and expenses are recorded in the accounting books accurately. This helps you prepare a Profit & Loss statement for your business while finalising the financial reports.
Raise all sales invoices for FY 2020-21 before 31st March 2021
All startups need to follow an accrual accounting system, which means you need to issue invoices once services are rendered or work order is executed.
Update the fixed asset register
All businesses are allowed to claim depreciation on Fixed Assets. Hence, it is important that you maintain a Fixed Asset register that provides the details of when the asset was used, and accordingly, calculate the depreciation.
An updated fixed asset register will not only ensure that your business is compliant but will also help with long and short-term business planning.
Make a provision for depreciation
Businesses are allowed to calculate depreciation on Fixed Assets as per the Income Tax Act and Companies Act, depending on the entity type. But, only depreciation calculated as per the Income Tax Act is tax-deductible.
However, depreciation under the Companies Act 2013 has to be calculated for financial reporting purposes by businesses. So, you should calculate & make a provision for depreciation before closing your accounting books.
Make a provision for expenses for which vendor bills are not received
Since businesses have to maintain accounting books on an accrual basis, it is important for expenses where bills are not received by the year-end, you make a provision for those expenses in March itself.
Closing the accounting books is just one step in getting ready for the next financial year.
In our latest e-book, we have compiled everything you need to do to close the financial year seamlessly.