Closing the Books of Accounts – the last ritual of an accountant.

Closing the Books of Accounts – the last ritual of an accountant.

Today is 31^st March’2017. Like every year, all accounting professionals call it an executive or CFO would be thinking about how to close the books? How to handle Audit? Some do it with proper planning and some let it happen as a routine. Just sharing basic tips on books closure that might help accounting professionals to prepare their check list and complete the closure of books without any stress. As it it said this is not skilful who wins, but the one who is prepared.

1.       Don’t let history repeat : Read last year’s audit report, auditors queries or advices, management letter  and check if there were any serious query, material qualification and management’s response or commitments. Ensure all points have been taken care, and not the same issues exist as on today.

2.       Today’s Task: Make a list of tasks to be completed today/tomorrow. Some of the tasks:

a)      Cash Certificate. (Cashier/Accountant to issue, to be verified and signed by someone senior from the management – better if by Head of Accounts/CFO)

b)      To collect certificate from Banks against Balances in Bank, FDR in Banks. (Now a days in most of the banks available online)

c)       RBI Rates- Check RBI Website for exchange rates (If company engaged in international transactions) and Interest Rate for Actuarial Valuation.

d)      Last Numbers: Just note or take Screen shots  from system last invoice number issued, challan no., GRN No., JV No., Cash/Cheque Receipt No., Last cheque number issued (Including PDC’s), Cheques in hands etc.

3.       Assets & Stock Verification: In some organisations internal staff, in some auditors/third party and in some both together conduct physical verification of fixed assets and inventory. Items on have no access, take confirmation letter from holder e.g. Items sent on display/repair/held by third party or employees. Items in transit check the status on portal of dispatch agency. Inventory includes all items from raw material to by/joint products, promo material, packing material, samples, consumables like diesel etc and finished goods.

4.       Correspondence: To send /reply confirmation request as required under MSMED Act, 2006. Balance Confirmation letter and statement of accounts from top vendors/customers. (Including foreign parties and 100% in case of related parties). Send Notice if there is recoverable from a customer.

5.       Closing Entries: Depreciation, Foreign Exchange Gain or Loss, Provisions (including payroll entries, Auditors Fees, Incentives/Commissions payable), Prepaid Expenses, Deferred Revenue etc.

6.       Documents: Ensure all important documents are in place. Minute Book and other Statutory Registers required under company and labour laws. All important agreements duly signed. Accounting Vouchers & Invoices. All correspondence with Banks/Govt/Auditors/Consultants/Tax Departments.

7.       Statutory Compliances: For all applicable taxes, payments and periodic returns. Keep copies of challan and returns ready.

8.       Scrutiny of Trial Balance: 100% - Take Care of following points:

a)      Disputed Parties. (Evaluate the Risk, if show, you admit the liability, if no, may be prior period item next year, contingent liabilities, to take care)

b)      Accounts to be reconciled: All Banks/Branches/Related Parties/Top Vendors & Customers/Review All open items PO/GRN/SO/Advances/Imprests etc. Tax Credits with 26AS, All Tax Liabilities and Tax Credits (Cenvat/Input Tax Credit) Accounts with respective returns.

c)       Write off: Small differences on account of rounding off. Bad Debts not recoverable after all efforts.

d)      Regroup or reclassify the entries where there is change in nature e.g. revenue to capital or vice-versa.

e)      Capitalize revenue items – Intangibles or related to fixed assets.

f)       Issue all invoices- Goods/services have been delivered in terms of agreement.

g)      Chart of Accounts – Some people believe in small chart of accounts, in ERP Environment using multiple cost centres and reason codes etc could help to extract reports but in traditional software’s, Make it big, e.g. instead of one Repair Account, you can use Office Repair, Computer Repair, Printer Repair, Furniture Repair etc. It will help only in cost monitoring, as in financials all will be grouped in one heading.

9.       Provisional Financials: Will be generated in most of accounting softwares, check for Project/Product wise profitability – Gross Profit, Right Cost Allocation among all functions and departments.

10.   Others. These are general points, I have mentioned above. Apart from these check if there is specific requirement for the company or industry e.g. if company is NGO or SEZ. Thanks.