Business & Economy - Year End accounts

Accountants

Year End accounts

To make sure you are fully prepared for the year-end, the process is well managed and low in headaches, here are some of the issues to consider in the last quarter of the year:

 Cut-off procedures

When the financial year comes to an end, it is particularly important that you take the necessary steps to have a proper cut-off point for the company's operations. Therefore, you should:

  • Ensure your suppliers provide you with the relevant invoices for the purchases and expenses for the period up to the end of December.
  • Identify your work in progress or sales delivered not yet invoiced and raise the relevant invoices for the period up to December 31st.
  • Identify all of the following to confirm that they are correctly recorded:
pre-payments received from clients
prepaid expenses to suppliers
cost accrued for which no invoices will be received before the year end
stock levels at the year end for goods or work in progress

 

Reconciliation with clients and suppliers It is important that your records, as well as those of your clients and suppliers are accurate, particularly if the trade will need to be declared as part of the compliance process of the company.

You may want to ask both your clients and suppliers to provide you with an extract from their records containing information regarding your joint transactions. This will allow you to compare their records to your own and identify any errors or misstatements.

Profits to date If your profit and loss account shows a profit for the year, you may want to start thinking about the potential tax implications of the result. For example:

  • Do you have any past tax losses to be utilized?
  • Will they lead to a tax payment next year?
  • Will your cashflow situation allow you to meet your tax obligations?

You may be able to legitimately reduce your levels of profit by: 

  • incur before the year end those extra expenses you have been delaying
  • ensure all of your costs accrued to the year end are indeed reflected in your results
  • identify potential bad debts and make the necessary provisions
  • ensure all of your fixed assets have been depreciated correctly in accordance with tax legislation
  • review your list of disallowable expenses, some of them may relate to lack of supporting paperwork, therefore you may want to put some effort into requesting the full invoices from your suppliers.

Losses to date

If your profit and loss account shows a loss for the year, you may want to start thinking about the potential business implications of the result. For example:
  • Are you likely to need to raise finance in the future?
  • Will the loss situation be sustainable in the longer term?
  • How strong are your cash reserves?
  • Are your creditor levels much greater than your debtors?

You should you start reviewing your results in depth with a view to identifying areas of improvement and taking corrective action.

We recommend that this process is followed by planning of the following year. Perhaps with a budget or cashflow forecast that can then be monitored carefully over the coming months.

You may be able to legitimately increase your levels of profit by: 

  • Ensuring any services rendered or goods delivered are invoiced before the year end
  • Delaying expenses planned until after the first of January
  • Ensure that investment items are capitalized as an asset on the balance sheet rather than treated as current expenses

Review of accounting records

Your accounting records are important to your business for a number of reasons: 

  • To help you manage your operations
  • To respond to enquiries by third parties such as the tax office
  • To reflect the performance of your business

 Your records are your responsibility, not just your accountants'. Therefore, it is advisable that you take some time out to review your detailed ledgers to date. This will allow you to: 

  • Identify potential inconsistencies between your records and your knowledge from the business
  • Identify errors and correct them before the year end
  • Obtain assurance that your records are well kept and would stand up to scrutiny if required.

You should also review your Balance Sheet in order to identify:

  • Old debtor balances which you may have failed to chase up
  • Increased levels of creditors which you may have difficulty settling
  • Balances on your director's account to identify any action required. If you owe money to the company this should be regularized before the year end, if the company owes you money you may be able to charge interest.

Compliance obligations - summary returns

Many of the returns submitted to the tax office during the year are not very detailed in nature as they just provide snap-shots of your business and your trade. Following the year end, your quarterly returns will need to be finalised with a summary returns which will confirm the final numbers to the tax authorities as well as make any adjustments to errors or misstatements made on the quarterly returns. For this reason it is particularly important that all transactions for the year are appropriately recorded.

Compliance obligations - disclosure returns

In addition to the summary returns in January, by March next year you will most likely be liable to file a return called 347. In this return your business needs to declare the volume of transactions both with clients and suppliers with whom you traded more than 3,000 euros during the tax year. This return is indeed one of the tools the tax office has to cross-reference data between companies and identify potential misstatements in the returns filed by tax payers. It is therefore advisable that during the last quarter of the year you liaise with your clients and suppliers to confirm that your accounting records match those of the businesses you trade with.

Your obligations as an administrator

It is also necessary to review the net assets of the company. If the balance sheet is likely to show net liabilities at the end of the year, and the losses reduce the net equity as at 31 December to less than fifty percent of the capital of the company. Spanish legislation states that when this happens, the company should be liquidated, unless the equity equilibrium is re-established.

The administrators of the company are obliged by Law to re-establish the equity of the company if they do not wish to be personally liable to the creditors of the company. The objective of re-establishing equity equilibrium is to protect the financial rights of the company's creditors or the shareholders themselves by setting up a system of responsibilities for the administrators in those cases where, even though they should do so, they do not take the necessary steps to re-establish the equity equilibrium.

Planning for the following year

Even if all of the above is in good order, it is always good practice to take time to reflect on your business performance and ensure that you react accordingly to any issues arising from the pre-year end preparations. The steps to take will of course depend on your particular circumstances; however these are some of the steps you may want to take to improve on your performance:

  • Prepare a budget for the coming year
  • Review your credit terms with suppliers and customers and make changes if required
  • Arrange credit facilities with your bank if you anticipate cash shortages
  • Reduce costs on areas identified as excessive in the current year
• Implement new internal control systems to address weaknesses identified

 

Are you ready?

Year-end can be a challenging and stressful time for businesses without a dedicated accounts department. Being prepared will help and following the steps above will get you ready for the end of the year and prepare you for a successful and profitable New Year. Make sure you get the right professional help if you're not sure, getting it wrong can cost your company money further down the line.

 

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