Key Points to Consider for Accounts Finalization
Finalization of accounts is one of the most crucial processes in financial reporting. It ensures that the financial statements reflect the true and fair position of the company and comply with statutory requirements. A well-prepared finalization process not only helps in smooth statutory audits but also provides management with reliable information for decision-making. Below are some key points that must be considered during the finalization of accounts:
1. Verification of Opening Balances
Ensure that all opening balances are correctly posted from the previous year’s audited balance sheet. Any mismatch in balances may lead to discrepancies in current year’s accounts and will affect the reliability of financial statements.
2. Preparation of Bank Reconciliation Statement
Prepare a Bank Reconciliation Statement (BRS) to reconcile the difference between the bank book and bank statement. This helps in identifying unpresented cheques, direct bank charges, or any missed entries.
3. GST Reconciliation
Reconcile sales, purchases, input tax, and output tax with GST returns. Proper reconciliation ensures that there is no mismatch between books of accounts and GST portal, thereby avoiding penalties and notices from tax authorities.
4. Clearance of Suspense Accounts
Check whether any balance exists in the suspense account. All pending items should be investigated and cleared to ensure accounts are accurate and free from unexplained balances.
5. Valuation of Stock
Stock should be valued at cost or Net Realizable Value (NRV), whichever is lower, in line with accounting standards. This prevents overstatement of assets and ensures conservative accounting practices.
6. Balance Confirmations
Obtain balance confirmations from vendors and customers to verify the accuracy of receivables and payables. This step strengthens the reliability of financial statements and helps avoid future disputes.
7. Recording of Bad Debts
After discussion with management, pass necessary entries for bad debts or doubtful debts. This ensures receivables are stated at their realizable value.
8. Review of Cash Expenses
Ensure that all cash expenses are within statutory limits and that there are no instances of negative cash balance in the books throughout the year. Negative balances may indicate errors or irregularities.
9. Interest Accounting
Record interest payable on loans and interest receivable on investments correctly. Any omission in recording may understate liabilities or income.
10. Provision for Outstanding and Prepaid Expenses
Make proper provisions for outstanding and prepaid expenses. For example, insurance paid in advance must be bifurcated as prepaid, and salary for March paid in April should be recorded as an outstanding liability.
11. Proper Accounting of Professional and Business Expenses
Entries for audit fees, accounting charges, and other business expenses must be correctly passed to reflect accurate expenses for the period.
Accounts Finalization Checklist
Use this checklist to ensure accurate, complete, and audit-ready financial statements:
- Verify Opening Balances
- Confirm all balances are correctly carried forward from the previous year.
- Bank Reconciliation Statement (BRS)
- Reconcile bank book with bank statements.
- Identify unpresented cheques, bank charges, and missed entries.
- GST Reconciliation
- Match sales, purchases, input, and output taxes with GST returns.
- Resolve any discrepancies to avoid penalties.
- Clear Suspense Accounts
- Investigate and clear all pending items in suspense accounts.
- Stock Valuation
- Value stock at cost or Net Realizable Value (NRV), whichever is lower.
- Balance Confirmations
- Obtain confirmations from vendors and customers to verify payables and receivables.
- Record Bad or Doubtful Debts
- Ensure receivables reflect their realizable value after management review.
- Review Cash Expenses
- Check statutory compliance.
- Ensure no negative cash balances.
- Interest Accounting
- Record interest payable on loans and interest receivable on investments accurately.
- Provision for Outstanding & Prepaid Expenses
- Record items like prepaid insurance and outstanding salaries correctly.
- Proper Accounting of Professional & Business Expenses
- Record audit fees, accounting charges, and other business expenses accurately.
Tip: Following this checklist ensures financial statements are accurate, reliable, and audit-ready, and helps management make informed decisions.
Conclusion
Accounts finalization is not just a compliance requirement but a critical step in ensuring financial transparency and reliability. By following the above checklist, businesses can ensure that their financial statements are accurate, complete, and audit-ready. Proper finalization also helps management make informed decisions and builds trust with stakeholders.
