Why is it important to do the accounting annual closing?

More from Prithvi Dodla

  • Qualities of a good accountant: Find out if you have them!
    0 comments, 0 likes
  • 5 reasons to carry out a Tax Audit in your company
    0 comments, 0 likes
  • Accountant, figures but not only!
    0 comments, 0 likes

More in Politics

  • Norton antivirus account login
    20 comments, 108,108 views
  • Liquidity Locking Made Easy
    7 comments, 78,961 views
  • Ang jili178 login ay nagdudulot sa iyo ng mga laro ng slot at karanasan sa laro ng soccer
    1 comment, 43,911 views

Related Blogs

  • Prima Capsules Nederland Prijs, Bijwerkingen, Ervaringen & Kopen
    0 comments, 0 likes
  • Diaetoxil Kapslen Kaufen- Diaetoxil Erfahrungen or Bewertungen
    0 comments, 0 likes
  • Consult with Dr. Shikha Aggarwal - Best Skin Specialist in Ludhiana
    0 comments, 0 likes


Social Share

Why is it important to do the accounting annual closing?

Posted By Prithvi Dodla     November 20, 2022    


Carrying out the annual accounting closing is not a requirement or a "cliche", but rather a fundamental process for the stability of a business because it favorably impacts both its present and future.

Although —theoretically— it could be summed up as a task that formalizes the income statement and transfers the figures to a final and general balance, its scope goes much further, thanks to the fact that it leads us to analyze in detail different key variables of a company that always we need to better understand, such as income, expenses, stock of inventory and other assets.

The accounting annual closing shows the results

The accounting close is an exercise that helps us to measure and visualize —in a tangible way— the results of a company during the year: it is impossible to have a clear picture of the performance of a business if you omit this important financial and general accounting process.

By doing it, you will obtain final values ​​on accounts, operations, investments and other variables that show the levels of profitability and the effectiveness in managing the capital of a business.

Even, as you will see within a few lines, it helps to collect qualitative information on areas as essential and vulnerable as inventory.

Presents the statements of changes in net worth

One of the stages and tasks associated with the annual accounting closing is the analysis of assets such as furniture, vehicles, premises and machinery, which are part of the company's assets.

In itself, this study seeks to determine the balance of loss of value of these assets and, at the same time, can help to project their future depreciation dynamics.

Evidently, the accounting annual closing is a way that leads to the knowledge of the net worth and its states of change, essential information for the management of a business: by being aware of the dynamics of the wealth you will be able to make much safer and more coherent decisions in the financial field, especially on issues such as access to lines of credit and investment projects.

The accounting annual close reflects the dynamics of expenses

One of the final results of this operation is the general amount of the expenses that allowed carrying out the operations in the corresponding fiscal year.

In addition, during the annual accounting closing, all expenses are broken down, which will allow you to obtain precise information on the evolution of each of these and the levels of capital they require.

On the other hand, knowing – for sure – the operating costs will also help you to better plan for future months and years.

Helps provide the company with provisions

So far we have said that the annual accounting closing reflects the results and performance of the company during the year together with the detail of its expenses and the total operating cost.

Thanks to the combination of these factors, this process facilitates and optimizes the determination of amounts and values ​​assigned to provisions, that is, those accounts protected exclusively for emergencies, risks and unexpected expenses.

As you can see, the impact of the annual accounting closing goes far beyond the financial year to be analyzed, since it additionally protects the operations and stability of a venture in the future.

Audit inventory and inventory management

The valuation of the existence of the inventory is another key and fundamental task within this important annual closing: in this way, companies can update the book value of the inventory and the expenses associated with its management.

Along with obtaining valuable data for the bottom line, it allows you to understand the quality of management of this area of ​​a business and shows you how profitable it is, allowing you to optimize decision-making and design better management schemes and policies.

It favors starting the New Year with greater order of data

As we mentioned at the beginning of the text, the accounting annual closing contributes to current and future stability.

Completing this process gives you a better organizational base to face the coming months and allows you to better understand the dynamics of the business to identify management aspects that must be improved in order to avoid risks.

It acts as an indicator of the historical evolution of the company

Beyond closing all the accounts and securities for the year itself, complying with certain tax obligations in a transparent manner, or simply evaluating the performance of the year, this process documents the evolution of a business.

Indeed, each accounting year-end is a recorded and detailed history of a company's results and, at the same time, is a point of comparison with respect to the performance it showed in previous periods.

Cool! If you read this far, you already understand what this accounting exercise consists of and you know the specific reasons for its importance.

Of course, for this type of general and transcendental processes to be much more agile, you need to have technologies that optimize the collection of information and the hosting of receipts and documents, such as accounting software.

Why consider hiring an accounting outsourcing service?

Accounting Book Keeping Company in Melbourne