Contents:
10 - Year-End Procedures
This is the busy time! When you get to your accounting year-end, you need to finalise all the bookkeeping entries for the year & make all the necessary adjustments (which are recorded in the journal).
Before you make these adjustments, you should perform the reconciliations to check for errors.
The following items are covered:
- i. Accruals & prepayments
- ii. Fixed asset depreciation
- iii. Stock
- iv. Closing off "T" accounts
- v. The trial balance
Accruals & Prepayments
These were explained in Section 8.
The double-entry for each accrual is as follows:
The double-entry for each prepayment is:
Each of the previous year-end's entries will have to be reversed as well. This is simply a matter of reversing the above entries. (Top)
Fixed Asset Depreciation
As covered in Section 9, an annual depreciation charge must be made for most fixed assets.
The rate is either based on a % of the original cost or the NBV. The double-entry for this is simply to Dr Depreciation Charge & Cr Accumulated Depreciation for the relevant category of fixed assets. (Top)
Stock
If you carry stock, you must count & value it at the year-end. This figure appears in both the Profit & Loss Account & the Balance Sheet, using the following adjustment:
(Top)
Close off all the "T" accounts
This technique was demonstrated as early as Section 3. At the year-end, all the "T" accounts will be closed off, to get a Dr or Cr balance.
This is shown again here, with the brought-forward (b/f) figure from the previous year shown as well:
The c/f figure makes the account balance. If it is on the Cr side, the account must have a Dr balance, as the total of Dr entries exceeds the total of Cr entries.
For Balance Sheet items, the c/f figure is the amount to be shown in the Balance Sheet - a Dr balance is an asset, a Cr balance is a liability. At the start of the next period, this is the new b/f amount (the opening balance).
For Profit & Loss items, the c/f will be the amount transferred to the Profit & Loss account - a Dr balance is an expense, a Cr balance is income. At the year-end all Profit & Loss balances are transferred to the Profit & Loss "T" account as follows:
Note that this adjustment should only be done after the year-end trial balance has been extracted (i.e. the trial balance must include the balance for every Profit & Loss item before transfer to the Profit & Loss "T" account). (Top)
The Trial Balance
This is the end result of the year's bookkeeping. It is from the Trial Balance (TB) that your accountant will extract the final Profit & Loss Account & Balance Sheet.
It is simply formed by listing the balances from all the "T" accounts - the total of the Drs should equal the total of the Crs. If they are not equal, there has been an error in your double-entry & you need to go back to find it (cross-referencing all double-entries can be very useful!!)
The TB will look similar to this:
(Top)
The next section will show how to perform reconciliations.