The closing process typically includes examining your company’s transactions and ensuring that the financial information is properly classified, regardless of the type of business. Accounting services for small business for the first time can be challenging due to a lack of experience. Nevertheless, adhering to the essentials of the closing procedure might aid in its smooth operation.
In accounting, closing your books is a process that takes place at the end of the year and involves completing business reporting. A company’s transaction records are referred to as “books” in financial statements. The owner of the business can learn how much money is coming into and going out of their company through these transactions.
Procedures for Year-End Accounting For some, the term “year-end” may be confusing because it does not always refer to the calendar year that begins on January 1 and ends on December 31. To better serve their needs, many small business accounting services opt for a different 12-month time period.
Any year is considered the end of the fiscal year. A financial year that runs from January 1 to December 31 is chosen by some businesses. On the other hand, some individuals might select a different 12-month period. For instance, balancing and closing the books may be challenging for some businesses during the Christmas rush. These businesses might opt for a different fiscal year, like one that begins on February 1 and ends on January 31.
Choose the accounting service for your small business that best meets your requirements. The regular year is sufficient for some people. Some people might choose a date that is more in line with how the business works, like the end of the year after a period of high sales.
The Importance of Closing the Books If your books are properly closed, your small business accounting is in order. If you do it right, there won’t be any data discrepancies between this year’s spending and the previous year’s revenue. When you close your accounts, your accounting software can also produce annual financial statements that tell you about your business’s success. If you own a small business, timely bookkeeping services uk indicates that everything is in order. Additionally, it facilitates timely tax return filing.
Transfer Journal Entries to General Ledger: Steps to Close the Books The journal is where all transactions are first recorded. Journal entries are transferred to the ledger accounts when they are recorded to an account, like accounts payable.
To close the books, transfer the account totals from your journals of cash payments, sales, and cash receipts to the appropriate book of accounts. Any payment made in cash, by check, or via electronic fund transfer is referred to as a cash payment. The same can be said for your journal of cash receipts, except that it tracks inflows rather than outflows.
Although some small business accounting services only close their books at the end of the year, the majority of them do so monthly. As a result, you’ll have to choose which entries to include carefully. You could, for instance, pick just the January 2017 submissions or all submissions in 2017.
Total the Accounts in the General Ledger Total the transactions in each account in the general ledger. For instance, take the sum of all entries in accounts receivable. You get an estimate of the final balance for each account from this.
In small business accounting, the next step is to add all of the tentative closing balances from the previous step to create a preliminary trial balance. A statement that shows the sum of all of your company’s credits and debits is called a trial balance. You must reconcile your total credits and debits; Go back and check your entries if they don’t. Your account is balanced if the credits and debits are equal, and you are ready to move on to the next stage.
Adjusting Journal Entries: Enter Adjusting Entries: Adjusting entries are used to record items that aren’t part of daily transactions. To complete the books, these elements must be documented, such as the accumulation of depreciation or real estate taxes (called an “accrual” in accounting). In the general journal, changes are made to items.
Create an Adjusted Trial Balance In small business accounting, the next step is to consolidate your general ledger accounts once more to account for the changed entries from the previous step. Then, you put them all together to create a new trial balance, making sure that your debits and credits are back in balance. Go back and check your work if they are not identical.
Create Financial Statements If your debit and credit net balances in your trial balance are equal, you can move on to creating a balance sheet and an income statement. Your accounting software can create these reports regularly and provide a summary of a company’s accounting condition at the end of the appropriate accounting period, which could be the previous month or year.
You can zero out your revenue and spending accounts by making journal entries known as “closing entries.” Through closing entries, the balances of these temporary accounts are transferred to permanent accounts. For instance, the retained profits account gets emptied of the revenue account.
Create a Final Trial Balance The final step in small business accounting services is to create a final trial balance report. Because you zeroed out your revenue and expense accounts in the previous step, this report will only include balance sheet accounts. The sum of the debits and credits needs to be the same once more. If they do, your general ledger financial statements are accurate and you are prepared for the current fiscal year.
Conclusion Because it enables you to collect and evaluate comprehensive descriptions of your company’s financial position from the previous year, closing accounting books is an essential step in business accounting. Depending on the company’s plan, you can close your books at the end of the month or the end of the year. Experts in the field, particularly accountants, recommend balancing your accounts monthly and creating reports to keep your finances current and track your business’s success.