How we can close the balances and carry forward for next financial year ?
Books of accounts including vouchers and receipts are required to be maintained under different statutory laws including Income Tax, Companies Act and GST Act.
The Financial Year in India is from April to March of the subsequent year
The books of accounts to be maintained includes Records of Sales & Purchases, Records of Assets & Liabilities, Statutory Liabilities, etc
When the financial year closes, all the necessary book closure entries including prepaid expenses, Adjustment entries, provision entries, depreciation entries as per necessary Acts etc need to be passed
Adjustment entries are posted based on accrual based of accounting. Revenue & Expenses needs to be recognised for respective financial years. Any advances paid or received need to be adjusted as opening balances or advances for the subsequent financial years
Some of the items for which adjustment entries are passed as
- Closing Stock
- Outstanding Expenses
- Prepaid Expenses
- Accrued Income
- Income received in advance
- Depreciation
- Provision entries
- Bad Debts
- Bank Reconciliations
- Closing Stock
- Adjustment for capital losses carried forward
- Calculation of taxes
- Reconciliation of Statutory Ledgers (GST,TDS)
The Trail Balance will contain both debit and credit entries & both the ledgers will match
| Particular | Debit | Credit |
| Sundry Debtors | XXX | |
| Purchases | XXX | |
| Sales | XXX | |
| Sundry Creditors | XXX | |
| Taxes | XXX | |
| Share Capital | XXX | |
| Total | XXX | XXX |
The difference in the Profit & Loss Accounts will have to transferred to the Reserves & Surplus Account in the Balance Sheet
The Accounting entry for posting the transfer entry from Profit & Loss Account to Reserves & Surplus will be as below (if Profit/for loss it will be the opposite entry)
| Particular | Debit | Credit |
| Net Profit | XXX | |
| Reserves & Surplus | XXX |
The Balance Sheet will contain only items of Assets & Liabilities and the Profit & Loss Accounts will not appear
These are the closing balances of the present financial year which will get carried forward as opening balances of the next financial year
Once the books of accounts are finalized, in any ERP the books of accounts need to be split/create a database for all successive financial years
