Accounting is one of the most crucial things for every business; in fact, it is a business necessity for any type of business. The primary reason why accounting is so important is that a company is accountable to its stakeholders and the government. Thus, accounting is the tool by which an organization can prove that business is being carried on fairly and no fraud is being committed by the management at any level. Usually, companies are required to present the report at the end of the year for its whole year business activities. For this, a company needs to undertake the business process known as Year-End Accounting. At Aristotle Company we outsources services like finance and accounting outsourcing , payroll services , virtual cfo and much more.
What is Year-End Accounting?
Year-End Accounting is the accounting procedure performed at the year-end. The accounts are closed for the respective financial year by carrying forward the balances of the previous year and opening accounts for the next year.
Year-end closing is a very crucial and complex activity for an organization. A slight mistake in the preparation of accounting year end procedures can cost big to the company. Also, it can affect the accuracy of the financial statements of the company which in turn can attract a penalty from the law.
What is the year-end?
The completion of an accounting period is popularly known as year-end. The accounting period does not inevitably relate to the calendar year. For the purpose of the fiscal or financial year in India, the time-period from 1st April to 31st March is considered.
Importance of year-end accounting
A company is accountable for its business activities to its stakeholders since the interest of shareholders and stakeholders is associated with it. Also, a company has to comply with the law of the land and pay various taxes which require the filing of financial reports and documentation with government organizations.
Thus, to prepare all such relevant reports, it is essential to undertake the year-end accounting process.
Following are the reasons why Year-End Accounting is so essential:
• Documented Financial Activity:
The accounting year end procedures help in the documentation of the financial activity of the business for a fiscal year. The year-end accounting provides valuable inputs in the preparation of financial reports.
• Valuable Business Insights:
The reports prepared on the basis of year-end accounting provide valuable business insights which help to analyse the business performance of the company. Also, it reveals the strengths and weaknesses of the firm.
• Tracks income & expenditure:
It helps to keep a record of income and expense of the business.
• Determine Tax estimates:
The accounts prepared at the year-end helps to determine the tax liability of the firm for the previous financial year.
• Review business finances:
The financial reports prepared on the basis of year-end accounting helps to review the actual financial status of the firm.
• Reconciliation of Bank statements:
The accounting year end procedures play a significant role in the reconciliation of the bank statements. It helps to identify any error in the bank accounts.
• Business growth:
The financial reports based on the year-end accounts reveal the actual business performance. By analysing these reports, management can design the business strategy which can boost the company’s growth.