Tips for making your next financial year-end easier
Financial year-end could be a major “headache” if you are not prepared and organized. Whether you are new in business or have been through many financial year-ends, it will always be very important to know how to read and understand your financial statements.
The Trial Balance (TB) is the first step in the preparation of financial year-end statements and is a report listing all the balances of the general ledger that are compiled into debit and credit columns of which the totals of both columns should be equal. Asset and expense accounts are on the debit side and liabilities, capital and income accounts are on the credit side. For every debit entry, a corresponding credit has to be entered in the books.
The purpose of a TB is to ensure the entries in a company’s bookkeeping system are mathematically correct. Prior to preparing the financial year-end statements, auditors and accountants will review the trial balance and prepare any adjustments. The TB is an internal document and not considered an official financial statement and cannot be presented to anyone outside of the accounting and auditing firms.
The Income Statement (IS) is a financial statement that includes the company’s income, expenses and profit and is also referred to as the profit and loss statement.
The IS is important, as it shows the profitability of a company and shows revenues, expenses, gains, and losses. The bottom line of the IS indicates the net profit/loss for the company.
The simple format of the IS is income less expense, equalling profit/loss. A negative total is net loss and positive is net profit.
The Balance Sheet (BS)is basically Liabilities (debts) plus Capital (funds on hand) equalling to Assets (current and non-current).
Be prepared and organized for your financial year-end
Create a financial year-end file (binder) for the relevant year with dividers for all the account types and sub-dividers for all the general ledger accounts.
- Ensure that every item on the bank account is processed into the books and that the bank statement is reconciled every month. Make copies of the bank statements and reconciliations for the financial year-end file.
- Regularly check that the Payables and Receivables Control accounts balance with your Accounts Payable and Receivable Age Analysis.
- Submit Vat on time every month and do not post anything in the books for that month after Vat has been submitted. Make sure the Vat control account balances every month with the VAT201. Make copies of the VAT201’s for the financial year-end file, together with a copy of the Vat control for each month.
- Submit and pay the EMP (Employee Tax, UIF and, if applicable, SDL) on time every month and make sure the Payroll control accounts balance with the EMP201. Make copies of the EMP201’s for the financial year-end file, together with the monthly Payroll control accounts.
- Ensure that all interests for long-term and short-term loans have been processed and copy each statement for the financial year-end file.
- If any fixed assets have been purchased during the financial year, make copies of all the purchase invoices and agreements for the financial year-end file.
- Ensure all stock on hand is regularly updated in the Stock control account.
- At the end of the financial year-end, process all transactions, close the books for that year and submit a Trial Balance together with the year-end file to the auditor or accounting officer.