Closing your financial year

Closing the financial year means making the books final for the year. After the closing, the profit or loss of the year moves into equity, and the periods of the year are locked. The result is a set of figures that you can use for the annual report. This lesson lists the steps in the order they usually happen.

Before the closing

• Every bank line for the year is matched to a document or to a transaction.
• Every supplier invoice and sales invoice for the year is in the books.
• Depreciation for the fixed assets has been posted.
• Any amounts that belong to the year but are paid later have been recorded.

The steps

1. Check the trial balance. Debits and credits must be equal.
2. Post the year-end entries: depreciation, accruals and any corrections.
3. Review the profit and loss report for the year. Check each big figure against the source.
4. Run the closing entry. It moves the profit or loss of the year into retained earnings.
5. Lock the periods of the year, so that no entry can change them.

Mistakes after a closing

A closed year is not changed by editing. A correction is posted as a reversal in the current period, with a note that says which year it belongs to. This keeps a record of what changed and why.

Next step

Once the year is closed, the figures feed the annual report. The annual report has its own deadline, and the next lesson explains the form for a micro-entity.