It has been proven that the end of the financial year is the time when the most accounting errors are made, and also when some circumstances are ignored that could save us money on the corporate tax bill.
These are some of the circumstances that you should take into account.
Review the entries made
To begin, you must carry out an exhaustive review of the accounting carried out throughout the year, since, once the year is closed, any error that is not corrected will be carried over to the next year, if it affects balance sheet accounts. For its part, if the error is found in the expense or income account, it will have an impact on the result and fiscal repercussions, which can generate problems with the Tax Agency and lead to responsibilities for the administrators if the result is significantly altered.
For the accounting review, the trial balance of sums and balances at the closing date of the accounting year will be of invaluable help, since with it we can check inconsistencies in the balances, or see accounts that should appear with a zero balance and not They are, and some adjustments may be necessary to eliminate posting errors.
Accounting adjustments
Before closing the year, a series of accounting adjustments must be made, the most common being the following:
Reclassification of debts from long-term to short-term, unless this reclassification is already carried out month by month with the payment of loan installments, something that may be operationally impractical, but which, however, indicates to us face short-term debts to intermediate accounts at all times.
Variation in inventories to correct the result of the year based on the merchandise consumed, since the expenditure on inventories does not correspond to purchases, but rather to consumption. Thus, unconsumed stocks must be subtracted from the purchases made, using account (61) or stock variation account (71) for this purpose; Or, on the contrary, it may happen that during the year more inventories were consumed than those purchased, and said benefit must also be reflected through the inventory variation account.
Amortization provisions for fixed assets to reflect the wear and tear of assets and record the corresponding expense.
- Providing all types of provisions is something that must be reflected in the accounting so that the contingencies foreseen for depreciation of assets, risks, etc. are recorded.
- Periodization of certain income and expenses, such as insurance, where the expense is adjusted to the part corresponding to the year that is closing. With the accrual of income and expenses, we are making a real distribution in the income statement of the income and expenses that we have in a year, but that cover one or several years.
- We must see if there are also income and expenses to distribute over several years.
- Making the corporate tax entry once all the previous adjustments have been made.
- Entry for regularization of income and expenses and year-end closing. Once all the operations for the year have been accounted for, all income and expense accounts are canceled, obtaining a single account that includes the profit (credit balance) or loss (debit balance), and then make the closing entry, settling all the open accounts. , debiting accounts that have a debit balance, while those that have a credit balance will be credited.
What mistakes can we make?
Regarding the errors that we can make, it is important to review the following aspects:
Product valuation adjustments in progress
Not accounting, or doing so incorrectly, the warehouse stock adjustment. At the end of the year we must have an inventory at cost price not only of the merchandise but, and here is the biggest mistake, of the products in progress.
Badly calculated amortization dates.
We must be careful with the start-up date of the asset and not depreciate the entire year by default or not even depreciate it if the purchase is at the end of the year. We must depreciate even if it is a few days and from the date on which the asset is in operating condition.
Undifferentiated accounting and tax amortization.
The amortization established in the tables of article 12 of the LIS is tax and does not have to be accounting. Although it is true that most of the time we can adjust the accounting amortization to the tax one and thus avoid problems with extra-accounting adjustments, it is also true that sometimes we confuse tax criteria with accounting criteria. This can occur in cases such as accelerated depreciation or freedom of depreciation, which are only tax and not accounting.
Delinquent clients.
Once again the problem is confusing tax requirements with accounting requirements. Many accountants wait for the tax circumstances to be met before they can deduct a valuation correction for a delinquent client (declaration of bankruptcy, 6 months have passed since the client became delinquent...) and this is not correct. In accounting, we must adhere to the principle of prudence and provide correction when we have doubts that a client is going to pay us and we do not have to wait for the tax requirements to be met.
Corporate tax accrual
Although the corporate tax must be settled and, if applicable, paid, on July 25 of the year following the year to which its accrual relates, its accounting must be done at the end of the financial year. Both the current tax will be accounted for (reflecting in a debtor or creditor account whether they should refund us or whether we have to pay ourselves) and the deferred tax caused by temporary differences, negative tax bases or deductions pending application.
Errors from previous exercises
Errors from previous years should not be recorded as an expense in group 6 of the current year, but should be done by debiting the reserves account.
The use and abuse of the 551 account
It is true that throughout the year this account will be a kind of “wild card” that we use both debiting and crediting it for operations in which we have doubts about the account to use or that we consider temporary. At the end of the fiscal year we must regularize it and not leave it with an open balance.
Advance accounts.
It is common to find accounts from suppliers, creditors or clients at the end of the financial year with a sign contrary to their nature. The error comes from recording the advances given or received directly in these accounts, instead of using the accounts that exist for this purpose in the PGC's chart of accounts. Its use will prevent us from meaningless balances in the aforementioned accounts.
Lack of periodification.
Normally expenses such as insurance, leases, etc. They are not periodized. We must allocate to the year those expenses and income that accrue at the closing date, which may involve adjusting part of them since they do not correspond to this year but to subsequent years.
Lack of imputation.
Also related to the accrual principle, it is possible that invoices received in the following year but that correspond to purchases from the year we are closing, must be recorded as an expense in the current year using 4009 as a counterpart. Remember that VAT is not accrued in this moment but to the next exercise.
Extra payments to workers.
Again related to the accrual principle, we must remember that extra payments must be recorded at the end of the year, prorating the corresponding months.
Lack of imputation to results of subsidies
It is possible that during the year we have treated the subsidies well and have taken them to the company's net income, but we cannot forget to record the corresponding part of said subsidy to results. Likewise, you have to be careful with their deferred tax.
Reclassification of deadlines
It is still very common not to make long-term changes to short-term changes in those accounts that require it. We must keep in mind that this change is necessary for possible analyzes of solvency, liquidity, etc.
In short, you must consider the moment of accounting closing as a crucial moment to avoid any surprises due to errors made, or decisions not made on time. If you have any questions, it is best to consult our tax advisors who will make the recommendations that interest you most.
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