Financial Year closure activities for Business Owners & Accountants – March 2023
As we approach the end of the financial year 2022-2023, it is essential for business owners and accountants to take a comprehensive look at their business’s financial records and ensure that they are in order. This process is crucial in helping businesses prepare accurate financial statements and stay compliant with regulatory requirements of the financial year closing. In this article, we will discuss some of the key compliance, accounting and bookkeeping areas that businesses should focus on before the end of the financial year.
Things to keep in mind for the financial year closing
One of the first steps in preparing for the financial year closing is reconciling all year-end accounts. This process involves comparing bank statements, invoices, and other financial records to ensure that they match. Reconciliation helps identify any discrepancies and ensures that financial statements are accurate.
Moreover, many companies often overlook the deduction of TDS on year-end provisions for expenses such as audit fees and annual filing charges. Companies need to deduct the appropriate TDS and pay the same in such cases.
For businesses that carry inventory, it is important to take stock of all inventory items and reconcile them with the books at the financial year closing. This process will help identify any discrepancies, such as missing or damaged inventory items. Additionally, it will help businesses determine the cost of goods sold, which is an important factor in calculating profits during financial year closing.
Reviewing Accounts Receivable and Payable at financial year-end:
Businesses should also review their accounts receivable and payable to ensure that they are up-to-date. Several things are involved in this process: checking that all invoices were sent and received, and checking that payments were made or received accordingly. By doing so, businesses can ensure that they are not carrying any unnecessary debt or missing out on potential revenue.
Additionally, accountants usually deduct TDS based on the investment declarations filed by employees at the start of the financial year. However, it is important to verify that employees have actually invested as per their declarations. To do this, accountants should collect evidence of investments mentioned in the declaration and re-calculate the tax liability by the financial year closing. Companies must deduct any balance TDS while processing the March salary payment.
Depreciation and Amortization:
Depreciation and amortization are financial accounting methods used to spread the cost of assets over their useful lives. Businesses should review their depreciation and amortization schedules during the financial year’s closing to ensure that they are accurate and up-to-date. This process will help ensure that financial statements accurately reflect the value of assets and liabilities.
Tax Planning for financial year closing:
As the financial year ends, businesses should start planning for their tax obligations. This process involves reviewing income and expenses for the year to determine the tax liability. An important thing to keep in mind and stay up-to-date about is advance tax payments. You must check if there were any payments on which no TDS was charged; for such payments, you need to pay advance tax on or before March 31, 2023.
Taxpayers should also keep in mind to do tax planning or tax savings investments on or before 31st march 2023 to claim it while filing ITR after FY 2022-23. The old tax regime allows for a deduction of INR. 1,50,000 under section 80C by way of investment in PPF, NSC, ELSS, and Tax savings FD. Additionally, section 80D allows medical insurance payments up to INR 2500 as deductions.
Finally, businesses should prepare financial statements for the financial year closing. This includes the balance sheet, income statement, and cash flow statement. This is something that all companies, especially new companies should keep in mind. Financial statements provide a snapshot of the business’s financial health and are required for compliance with regulatory requirements.
GST for financial year closing:
If a company has recorded GST inputs but hasn’t made payment for more than 180 days, it must reverse these inputs and pay the corresponding tax liability along with interest. Additionally, you must double-check instances where no GST was paid on income or was paid at a lower rate. It is advisable to consult with a consultant to confirm the correct GST payment during the financial year’s end. Companies must have a proper Letter of Undertaking (LUT) in place if they engage in GST-exempt import supplies.
All Goods and Services Tax (GST)-related inputs must be correctly recorded in the financial year closing accounts. And that they are appearing in the relevant GSTR-2B forms for the financial year 2022-23. All concerned parties must be promptly informed if any discrepancies are found. Also, request them to rectify them in their returns before the specified deadline (i.e., before filing the return for September 2023 or the Annual Return, whichever is earlier).
Additionally, be mindful of the ITC restriction of 10% or 5% as per section 36(4) of the GST Act. Diligently perform all reconciliations and promptly make any necessary adjustments in books and returns. Furthermore, ensure remittance of GST for advance payments received or recorded as of March 31, 2023, pertaining to services.
Balances related to Foreign Parties:
If there are any outstanding or pending balances related to foreign parties, assets, or investments, it is important to determine their foreign currency value as of March 31, 2023. You must do this in accordance with AS-11 accounting standards. Moreover, any fluctuations in currency value should be recorded accurately. If needed, seek the assistance of a consultant.
To keep in mind for Business Owners at financial year closing:
In companies, particularly in startup companies, often founders and directors do not receive regular salaries throughout the year. Instead, they decide on the final amount before filing their income tax return after the end of the financial year. Consequently, the company ends up paying their TDS component with interest. To avoid this, accountants should discuss this matter with founders and directors beforehand. It’s best to record the final amount in March 2023 itself. They should then pay the TDS accordingly.
The end of the financial year is a critical time for businesses to take stock of their financial accounting records. It’s vital that they are accurate and up-to-date to avoid penalties. By focusing on the areas outlined above, businesses can prepare accurate financial statements, and have updated balance sheets. This can help them stay compliant with regulatory requirements, and plan for their tax obligations. Taking these steps can help ensure that the business is in good financial health and positioned for success in the coming year. Therefore, it is crucial for businesses to take care of these business accounting areas before the financial year’s closing.
Monjima is a lawyer and a professional content writer at LegalWiz.in. She has a keen interest in Legal technology & Legal design, and believes that content makes the world go round.
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