How we can close the balances and carry forward for next financial year ?

- tpblogadm

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

  1. Closing Stock
  2. Outstanding Expenses
  3. Prepaid Expenses
  4. Accrued Income
  5. Income received in advance
  6. Depreciation
  7. Provision entries
  8. Bad Debts
  9. Bank Reconciliations
  10. Closing Stock
  11. Adjustment for capital losses carried forward
  12. Calculation of taxes
  13. 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 finalised, in any ERP the books of accounts need to be split/create a another data base for all successive financial years

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