Year-end closing deadline approaching, a step-by-step guide. Are you ready?

07.03.2023

The year-end closing is a challenging process for the entire accounting department. The accounting team has to put in extended hours to meet deadlines along with year end like annual wage statements, VAT returns, annual corporate tax filings. As a founder or CFO of the company, you are responsible to present the yearly financial statements giving a true and fair view to the board and investors. These statements also become a source document for annual filing of corporate taxes in Switzerland.

Make sure you check these steps off your year-end accounting closing checklist before the year officially comes to a close.

👇YEAR-END ACCOUNTING CHECKLIST👇

Below detailed guidelines will help you in set up, planning and close the year end in an efficient and effective manner:

1. Set up a closing schedule 

List out tasks keeping in view of the following:

• Detailed heads of  assets and liabilities appearing on the draft balance sheet,
• Detailed heads of Revenue & expenses appearing on draft statement of profit or loss and
• Applicable accounting regulations as per size of your business and type of entity. 

Organise this list, create tasks and action items with timelines and delegate wherever possible. Discuss this schedule with your team to incorporate their feedback and to clarify any questions or doubts they may have. 

Your list will cover the following topics.

2. Start early enough 

Request for inhouse desired information by sending emails to all concerned may be one month in advance (with follow up mails every 10 days till year end) clearly describing the desired actions and the timelines. For e.g.:

• Coordinate with the sales team for the following:
  • To get the invoicing done for projects completed and services rendered by 31st December.
  • To get details of unbilled revenue as on 31st December.
  • Update on latest status with remarks for action taken and further steps for overdue debtors lying in books as on 31st December. Also request them to share recommendations for write off  or creation of provision for bad debts, if any.
• Request all vertical heads and employees to start following up and ensure submission of the pending purchase and expense invoices relevant to the year pertaining to their vertical to the accounts team within 5-10 days from the end of the year. 
• Request all the employees to submit their reimbursement claims involving use of their personal and business credit cards or wallets towards official expenses incurred by them like travel claims, phone reimbursements with supporting documents i.e. payment proof and bills within 5-10 days from end of the year.

This exercise will ensure timely submission of the maximum information to the accounting team and its processing within the last month of year leaving you with more time to deal with other year end finalisation tasks.

3. Collate third party statements

Request for the third party statements as on the last date of the year like;

• Download and collect bank statements for all bank accounts, wallets & credit cards in use by the company like Paypal, Stripe, Revolut, Credit cards, Post Finance etc.
• If you have investments in equity, debt, mutual funds, crypto on the balance sheet, collect the statements from the respective funds, brokers and companies to arrive at the fair value of your investments as at the year end and to compute and book fair value gain/loss for the year.
• Write for balance confirmation to respective parties for validation of balance lying in accounts receivable and accounts payable in your books as on the last day of the year.
• Proactively engage with management, auditor and colleagues to swiftly close open issues requiring their inputs.

4. Standard operating procedures (SOP), checklist and templates

Create standard operating procedures, detailed checklists and templates customised as per needs of your business. This will help your team in quick and correct execution without missing out on any important steps and details.

5. Get the accounting entries completed for the year

Based on the information collated, get the accounting entries completed for all invoices for sale, purchase, expenses, cash, bank, credit card transactions pertaining to the year.

6. Review draft P&L

To finalise all income and expenses, start review of your draft P&L and cross check the following aspects if applicable to your entity. You have to pass the necessary closing and adjustment entries on the basis of your findings.

• Revenue  

Revenue shall be recognized as per terms of the contracts with customers and applicable accounting regulations as per size and type of your company.  

Pass the required entries for deferred revenue ,if any

If you are a SaaS company and have a revenue from subscription business, it needs to be ensured, revenue in P&L does not include any deferred revenue.

What is deferred revenue?

Revenue invoiced in the current year but belongs to the future year. For e.g. You have sold an annual subscription plan to a customer for $1200  on Dec 1, 2022 for the period Dec 1, 2022 to Nov 30, 2023.

Therefore, P&L for the year 2022 shall only reflect revenue of  $100 pertaining to year 2022 and the remaining $1100 shall be accounted for as deferred revenue pertaining to next year. $1100. Following entry needs to be passed in the books and deferred revenue will appear as  liability in the balance sheet:

Dr Revenue $1100

Cr Deferred revenue $1100

Another important step is to reverse the relevant opening  deferred revenue if it belongs to the current year. Continuing with the above example, in the year 2023, we’ll reverse the deferred revenue of $1100 to make it reflect as revenue in P&L for the year 2023 by passing the following journal entry:

Dr Deferred revenue $1100

Cr Revenue $1100

Calculate deferred revenue for all customer contracts  and post entries accordingly in books to reflect correct revenue pertaining to the current year only

Pass the required entries for unbilled revenue, if any

What is unbilled revenue?

Unbilled revenue is revenue accrued but not invoiced due to one or more reasons. 

For e.g. You are a SaaS company and you agree to provide your software to a customer  for 1 year for $1200 starting on  Dec 1 and you agree to invoice the customer at the end of every 3 months.

You will invoice $300 each quarter. However, at the end of December, you have unbilled revenue of $100. At the end of January, there is $200 unbilled. On February 28,  you send an invoice for$ 300 to the customer and now unbilled is Zero and accounts receivable is $300.

Use a template for  calculation of unbilled revenue.

Cross check revenue with VAT returns 

Revenue reported in profit and loss statements should be reconciled with the revenue reported in VAT returns and valid explanation for variation if any shall be kept in records.

For e.g. mismatch with VAT returns due to sale of one of the product and service taxable at NIL rate. Get the entries done for rectification of errors or omissions found on such reconciliations.

• Other income

Respective investment statements can be referred to cross check the  interest income, dividend income, gain or loss on sale of any investments. Check if these are accounted for in books and numbers are matching with income reported in the investment statements. Complete the entries for fair value gain/loss as per applicable accounting standards. 

• Purchases

Ensure that all purchases invoices pertaining to the year are accounted and provided for and input tax credit as per books is reconciled with VAT returns.

• Closing stock

If you are dealing with products, you have to get the physical verification of stocks done at the year end and also reconcile closing values of stock as per cost records and as per physical verification report. Review with a view to ascertain if any provision is required for loss, shrinkage, obsolete stock.

• Personnel expenses

Please ensure salaries, wages, bonus, social security benefits, pension, health insurance, accident insurance and relevant expenses pertaining to the year are  accounted for and also reconciled with annual wage statements. Withholding taxes applicable on the same are correctly deducted and accounted for.

• Product development expenses

Please check whether the product development expenses incurred by your company is to be treated as revenue or capital expenditure. Review the stand taken in this regard with your professional consultant to have a correct classification that can be supported with facts and in line with applicable accounting standards. If the basis is questioned by your investors or tax authority at a future date, you’ll be able to respond swiftly with convincing facts and justification.

• Sales and marketing expenses

Sales expenses for events, gifts, sponsorships etc. have to be accounted for the year. For marketing expenses like google ads, facebook ads, it has been observed that facebook and google ads work on prepaid models i.e. amount is deposited with these companies as advance. The same is charged to these deposits on the basis of utilization i.e. actual display of ads during a period. Therefore, only the amount charged for the year in the statement shall be considered as expense.  Unutilized amounts lying with google and facebook as on the last date of the year shall appear as prepayments on the asset side of the balance sheet.

• Legal, tax and financial consulting fee

Please check if invoices are received from the consultants as per respective agreements. If not, may follow and accrue the expenses as per terms of agreement for the year. 

• Rent, insurance, energy, telephone, internet and other expenses 

If invoices are delayed due to billing cycle or other reasons, these can be accrued on the basis of last month expense or on the basis of average expense for each head to reflect correct total annual expense for the year for respective expense heads in your P&L

• Depreciation

If a business owns fixed assets like, building, furniture, computers, vehicles, plant & machinery etc. the fixed assets schedule as prescribed under applicable accounting regulations. The schedule shall be maintained, updated and depreciation needs to be computed on the basis of estimated useful life of assets  and booked  as per applicable depreciation rates .

• Amortisation

If a business owned or acquired intangible assets like software, patents, copyrights, goodwill etc., amortisation of these assets need to be computed as per estimated useful life of each of these assets and needs to be booked as expense in P&L.

• Interest

If there is a loan from an investor, bank or any other third party for business, refer to the latest terms of the loan. Cross check the applicable interest rate, repayment terms  are correctly reflected in your interest schedule. Pass an entry for interest accrual as per final interest schedule.

• Current tax 

Once all entries are complete and profit is finalised, prepare and review the tax computation  and complete the entries for provision for tax 

7. Review of draft balance sheet

Start the review of your draft balance sheet and cross check the following aspects if applicable to your entity. You have to pass the necessary closing and adjustment entries on the basis of your findings.

• Balance with banks

Please cross check the balance as per respective bank statements and as per books. Keep reconciliation statements ready having the valid reasons for variations, if any. This exercise shall be done for all types of cash, bank accounts with post finance, credit cards, digital wallets, paypal, stripe, revolut etc.

Complete the pending entries, if any 

• Accounts receivable

Review the accounts receivable balance and ageing report . 

• Check for any credit balances lying there and find out the valid reasons or make rectification entries.

• Follow up with a concerned sales division for collection of overdue balances. 
• Create provision for bad or doubtful debts after discussion with management.

• Fixed assets register

Please update all entries for purchase or sale of fixed assets, resulting gain/loss  and also depreciation and match the balance in books with fixed asset schedule.

• Investments

Investment balance as per books and holding statements shall match if all the entries for actual gain/loss, interest, dividend, notional gain/loss are complete and correctly recorded.

• Input tax credits/ Refunds due

Match the balances appearing on the balance sheet with respective income tax or VAT returns. Latest status can also be cross-checked from respective websites.

• Prepayments

Refer to prepaid expense schedule having basis of booking and reversing of the prepaid expenses. It shall provide the detail of prepayment balance appearing on your balance sheet.

• Accounts payable

Review the accounts payable balance and ageing report. 

• Check for any debit balances lying in payable balance and look for the reasons.
• Review overdue payments with management and take necessary action to release payments or write back if not payable any more.

• Deferred revenue

Deferred revenue is revenue It appears on the liability side of the balance sheet and shall match with a deferred revenue schedule prepared for the said purpose. 

• Loans

Validate outstanding loan balance in books with statements received from respective banks or parties.

8. Lock the year in your system 

Once all the entries are passed and numbers are freezed for the year, lock the year so that no user could make the entries in the previous year inadvertently.

9. Back up 

Keeping a record of all accounting data for future reference is critical to all businesses. Hence, don’t forget to add ‘backing up of important information’ into your year-end checklist. Adopt a reliable backup system that will protect your important accounting information on your phone or computer. You can also use cloud backup in case the local system is insecure.

10. Update opening balance

After a lot of iterations, accounts are finalised and closed, don’t forget to run an update command  for carrying final balances to next year.