For many companies, the start of a new year also marks the beginning of the process of preparing the annual accounts. The accounts for the previous year need to be finalized, the necessary documentation must be in place, and the company’s financial position should be presented as accurately as possible.
Although much of the practical work is handled by the accountant, business owners themselves also play an important role in the process. Missing documentation, unresolved questions, or transactions that have not been clarified can make the process more time-consuming than necessary.
It is therefore a good idea to prepare for the annual accounts well in advance. Here are some of the areas that are particularly important to have under control.
Start with up-to-date accounts
One of the most important prerequisites for efficiently preparing the annual accounts is having up-to-date accounts.
All invoices, receipts, travel expense claims and other relevant accounting documents should be submitted and recorded. If documentation is missing, it often needs to be requested when preparing the annual accounts. It can therefore be useful to review the accounts before the end of the year. Are all purchases properly documented? Have all sales been invoiced? Are there any transactions on the company’s bank account or corporate card that are still missing supporting documentation?
The more that can be clarified in advance, the easier it will be to finalize the accounts for the financial year.
Review outstanding accounts receivable
Unpaid customer invoices should be reviewed at year-end.
A good place to start is with the oldest outstanding receivables. If an invoice has remained unpaid for a long time, the company should consider whether the amount is still expected to be collected. There may also be invoices where the customer disputes the claim or is experiencing financial difficulties.
This is information that the accountant may not necessarily be aware of. If there is uncertainty regarding certain accounts receivable, this should therefore be discussed as part of the preparation of the annual accounts.
The review is also a good opportunity to clean up the customer ledger and follow up on payments that have been outstanding for some time.
Are income and expenses recorded in the correct period?
The fact that an invoice is paid in January does not necessarily mean that the expense belongs to January. Similarly, an invoice issued before the end of the year may relate, in whole or in part, to work that will be performed in the following year.
When preparing the annual accounts, it is therefore important to consider which accounting period the income and expenses actually belong to.
For example, if the company received a service in December but did not receive the invoice until January, the accountant should be informed. The same applies if the company has paid an expense in advance that relates to the next financial year.
Such accruals help ensure that the accounts provide a more accurate picture of the company’s financial results for the year.
Does the company have inventory?
For companies that hold inventory, its value is an important part of preparing the annual accounts.
Inventory should normally be counted at year-end and the count should be documented in a way that makes it possible to verify both the quantity and value. At the same time, the company should consider whether all items still have the value at which they are recorded.
For example, goods may have expired or declined in value for other reasons. This may affect the valuation of the inventory and should therefore be communicated to the accountant.
Review investments and assets
Has the company purchased major equipment or other assets during the year? If so, the relevant documentation should be readily available when the preparation of the annual accounts begins.
This may include anything from machinery and production equipment to computers, furniture or other investments that will be used for several years. Depending on what the company has purchased, it may be necessary to capitalize the investment and recognize the cost through depreciation over time.
It is also important to consider the opposite situation. If the company has sold assets that were previously recorded in the accounts, the accountant should be informed.
Remember payroll and employee benefits
If the company has employees, payroll-related matters should also be reviewed.
This may include outstanding bonuses, travel expense claims, reimbursements or other benefits relating to the year being closed. Holiday pay and other payroll-related liabilities are also a natural part of preparing the annual accounts.
If you are aware of employee-related costs that have not yet been processed through the payroll system or recorded in the accounts, it is important to ensure that this information is provided.
Clarify significant or unusual events
The accountant can learn a lot from the accounts, but the figures do not necessarily tell the whole story.
Perhaps the company has entered into a major agreement, taken out a new loan, purchased or sold a significant asset, or carried out other transactions that differ from its normal business activities.
Such events may have an impact on the annual accounts. It can therefore be useful to provide the accountant with a brief overview of any significant or unusual matters that have occurred during the year.
Good communication makes preparing the annual accounts easier
Efficient preparation of the annual accounts ultimately depends on good cooperation between the company and its accountant.
The accountant should clearly communicate which documentation is required, while the company should provide the necessary information as early and as completely as possible. For companies that are subject to an audit, it may also be useful to prepare documentation that is likely to be requested during the audit.
The more questions that can be clarified along the way, the less need there will be for additional follow-up and clean-up once the year has ended.
Don’t wait until it is time to prepare the annual accounts
The best preparation for the annual accounts actually takes place throughout the year.
Regular bookkeeping, reconciliations and documentation give the company a better overview of its finances at all times. At the same time, they reduce the amount of work that needs to be done when the financial year comes to an end.
Preparing the annual accounts should therefore not be viewed simply as an annual accounting exercise. It is also a good opportunity to clean up the accounts, gain a better overview, and ensure that the financial records provide an accurate picture of the business.
With good routines and early preparation, the annual accounts can be completed more efficiently, with fewer questions and less unnecessary work.
Contact us
Do you need assistance with your annual accounts, or would you like to be better prepared before the end of the year? Contact us today so we can discuss how we can help your company.
