Sunday, March 30, 2014

6 accouting tips for smooth year end closing

March end seems to be very hectic for the accountants and tax professionals. Sometimes, we hear the businessman saying they are busy with the year end closing.

As startups or new entrepreneurs, you may be thinking what really needs to be done?

Here is a top 6 items to be sorted out his year end.

Provisions for Expenses
Prudent accounting thumb rule is debit expenses pertaining to a period eventhough the payments are due in next period. With this in mind all your electricity, telephone, rent, salaries, etc. till march needs to be booked even if due in next month. If actual bills are not received, prudent accounts estimate and Book those to show correct picture. There is a basic matching principle to be kept in mind wherein all expenses corresponding to income generated in that period need to be booked showing correct picture of profit or loss for that period.

Check your VAT and Service Tax Calculations
Whether all the invoices are booked and accounted before the calculation for the same is done.

Has the legitimate setoff been claimed on the purchase side. Many of us miss claiming this while it is available. This has a cash impact and hence very trivial. Taxes once paid are difficult to get refunded. The setoff gets missed in the small expenses like flight tickets, hotel bills, taxi bills, purchase of office equipments, AMC charges, and so on.

Bank Reconciliations
Completely verify your bank statement visa-a-vis the books of account. This will allow you know if there are any cheque which are received but not deposited in the Bank or cheques which are issued but not cleared. This may also throw surprises like cheque bounces not recovered, huge bank charges and so on. Very important to pass all the pending entries in the Bank before deciding on the available balance for payments at the year end.

TDS (Withholding Tax)
Here the expectation is from the payer of income to deduct taxes while doing so. Contractors, Professional Fees, Advertising, Renting broadly attract deductions before making the payments from 1% to 10%. It is necessary to do this even with respect to the provisions of expenses even though the payments would be done later in the next year. As a recipient of the services, please be careful that each and every provision for expense is Tax Deducted

Writeoff all the bad clients
You may have been raising invoices on clients all through out the year. Now is time to clean up. Check if there are any clients not going to settle these and reverse those. This will help you save unnecessary VAT, Service Tax and even the Income Tax. From the commercial point of view, you may have only the real receivable customer balances lying in the books to be recovered. Doing a bill to bill reconciliation is advised instead of account to account.

Check whether your Cash book tallies with that in Hand
It's common that the cash doesn't matches with the balance in hand. Matching the physical cash with that in the book throws up surprises like cash lying with some employees, vouchers not booked, payments made without supporting documents and even theft.

It's like taking "a stitch in time would save nine".  This would not only make the life smoother from taxation angle but also show correct picture for the financial as to what's your profile or loss, which are liabilities to be paid and assets to be collected.

People say that accounting doesn't add any value in the business but we do not tend to agree. It acts like a mirror to show how do you look. It's like a dashboard of the Car which doesn't help in efficiency or speed but it definitely measures the achieved one.

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