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Preparing the annual financial statements: you have to consider that

For most companies, the annual financial statements mark the end of the financial year. The conclusion is an important appraisal of the economic situation of a company. The accounting department has to Prepare annual financial statementsto provide all relevant documents for the final closing.

  1. The annual financial statements - three functions
  2. Who has to prepare the annual financial statements?
  3. Basic check for the annual financial statements
  4. Checklist - About the accounting to the year-end
  5. What should be considered before handing over the documents?
  6. How are the documents for the annual financial statements handed over?
  7. What is in the notes to the annual financial statements?

The annual financial statements - three functions

When the accounting staff prepare the financial statements, they need to consider three important functions.

  • information
  • documentation
  • Finances

Information function - how is the company doing?

The Annual financial statements disclose the economic situation of the company to the company's management. In addition, it sets the course for investments and lays the foundation for possible lending.

Documentation - the company diary

In the course of the annual financial statements, the accounting department records all of the company's processes and decisions and documents them in detail.

Finance - the cash flows

The annual financial statements determine the company's profits and thus form the basis for tax returns and profit distributions.

Who has to prepare annual financial statements?

Basically, companies from three types of company have to prepare annual financial statements

Sole proprietorships and partnerships that prepare annual financial statements must prepare a balance sheet and an income statement. A corporation must add an appendix to its annual financial statements, which explains the items on the balance sheet in detail. Corporations from a medium size must also prepare a management report.

Basic check for the annual financial statements

The preparation of the annual financial statements confronts the accounting department with three central tasks:

  • Capture
  • exam
  • poll

Acquisition of the documents

When the accounting staff prepare the annual financial statements, the first step is to collect the relevant documents in order to record all the transactions for the year. This includes

In order to record the company's fixed assets, you collect all documents relating to the valuables in your company. Computers, office furniture or real systems in the warehouse are just as much a fixed asset as the company car. Also document all trade goods that are in the warehouse as well as the products that are still in production. Then make copies and an overview of the contracts with trading partners and customers. This includes insurance and loan agreements as well as employment contracts with employees. In the next step you compile all account statements chronologically. Finally, you write down the outstanding accounts receivable and invoices on a list and copy the documents.

Check documents

Not all documents receive the same attention in everyday work. A duty with a high susceptibility to errors is the keeping of logbooks. Check the logbook for consistency from the first to the last entry. You must now also subject outstanding claims to a precise control. If a loss is to be expected from a receivable, you post this in the form of a value adjustment. Finally, check whether there are still claims, for example from the energy supplier, that have to be settled.

Last stop - voting

When you have compiled all the documents, created your overviews in detail and checked them, then you finally have to coordinate the various information with one another.

The most common interface for all items are the account statements. Agree the accounting documents with outstanding claims and obligations. Then you finally check whether, for example, the customer has paid a claim that has been filed. Include the receipts for the amounts on the account statements and obtain missing receipts from suppliers or customers.

The next step when you need to prepare the financial statements is to review the financial accounting. To do this, you coordinate the inventory of the financial accounting with the cash book and the bank receipts. From the overviews you have compiled, you can determine the expected tax claim from the tax office. Compare this with the tax prepayments made. After calculating the outstanding tax burden, you ensure the corresponding financial reserves.

Checklist - About the accounting to the year-end

Even if the support of a tax advisor is used for the preparation of the annual financial statements, the Bookkeeping prepare the financial statements thoroughly. Before the documents are handed over to the tax office, all business transactions must be checked for completeness and coordinated with supporting documents. In addition, all documents that are indirectly relevant for tax purposes must be compiled, such as contracts or business letters that relate to operational incidents. In addition, private withdrawals, for example for the use of company cars or the withdrawal of goods for private use, must be recorded in the booking. As a rule, medium-sized and larger companies have to prepare receipts from the following areas for submission to their tax advisor:

  • Operating income
  • Business expenses
  • requirements
  • Failure of claims with correction of the booking
  • Provisions such as guarantees, goodwill
  • Account receipts for the occupancy of the account balances
  • Cash receipts with booking comparison
  • Wage accounts with verification of the social benefits paid
  • Remaining leave of employees with a note as a deferral
  • Inventory lists with goods and supplies
  • Traveling expenses
  • Entertainment
  • Logbooks

What should be considered before handing over the documents?

Before the documents are handed over to the tax advisor by the accounting department for the annual financial statements, the documents must not only be checked generally for their coherence and completeness. Deviations and other abnormalities must also be carefully documented:

Unusual bookings

Bookings that do not belong to the regular receipts must be examined very carefully to ensure that they are handled correctly. Postings in credit must appear in the expense accounts and postings in debit in the income accounts.

Incorrect postings

All bookings must be checked for consistency. A comparison with the amounts for certain items from previous years is helpful. In this way, discrepancies can be identified and incorrect postings can be identified.

General verification of receipts

Before handing over, all documents must be examined to ensure that they are properly executed. In addition to the document, invoice and delivery date and the document text, receipts that prove postings must also contain the correct amounts of the posting with total amount, VAT rate, net amount and sales tax amount as well as the name of the invoice recipient and the tax number or sales tax ID so that they can recognized by the tax office.

Review of accounts

The accounts must then be checked to ensure that regular payments have always been received in full. If payments are missing, they may also have been received on other accounts.

How are documents handed over by the accounting department for the annual financial statements?

When handing over the documents for the annual financial statements, the accounting department should ensure that the tax advisor receives an overview and an overview as quickly as possible. The documents should therefore be properly sorted and organized so that the tax advisor can find his way around with little effort.

Sort account sheets

Account sheets should be sorted according to accounts and easily traceable.

DATEV export

If the accounting department has created the documents itself for the annual financial statements, it must absolutely provide a separate file with the individual postings, which has been prepared for the DATEV export.

Lists

In addition, a list of totals and balances as of the balance sheet date must be created as well as a list of open items.

Reports to the tax office

For the annual financial statements, the accounting department must submit all advance sales tax returns and summary reports to the tax office.

Asset additions and disposals

All incoming and outgoing invoices must be copied and listed separately.

Vacant positions

Claims with a term of more than one year must be specified precisely.

Likewise, all liabilities that exist for more than five years and at the same time are not paid off within the coming year must be reported to the tax advisor.

What does the accounts payable department have to consider for the annual financial statements?

In order for the documents for the tax advisor to be complete, it is necessary to check whether all incoming invoices and credits have been posted. Outstanding incoming invoices must be noted separately. If receivables and payables have not been posted, a note must be made.

What is in the notes to the annual financial statements?

Certain legal forms of companies, such as corporations, have to add an appendix to their balance sheet. This contains additional information on individual items. In order to create the appendix, the tax advisor needs documents from the accounting department for the annual financial statements that relate to the following areas:

  • Total liabilities with different remaining terms
  • Contingent liabilities, for example from guarantees, warranty contracts or securities for liabilities
  • Total amount of other financial obligations that are not part of the balance sheet for assessing the financial position of the company
  • Total remuneration of the management, for example from salaries, profit sharing or commissions
  • Pension provisions and obligations
  • Advances and loans for the management or the supervisory board
  • Employed workers classified according to their responsibilities