At the end of the accounting year, before moving into the New Year, in addition to checking for errors and differences in the accounts, it is necessary to perform a series of closing operations. These are very important because they give a correct and complete overview of your business, and they also have fiscal implications.
With Banana Accounting each accounting year has its own separate file; technically there is no concept of accounting closure:
- When a New Year starts a new file is created with the Create New Year command.
- You can keep working on both the New Year's file and the previous year file at the same time. Once the closing operations are complete, you can update the opening balances of the New Year's file.
Control and verification operations
Before printing the final financial statements it is important to proceed with the verification operations:
- Detailed explanations can be found in the Double-entry Accounting Closures page.
- The Actions menu → Check accounting command performs a whole series of checks, and when errors or differences are detected they are signaled.
You can find down below the most important checking and settling operations:
- Differences in opening balances
Current year opening balances must correspond to previous year's final balances, and there must be a balance between the Assets and Liabilities payable, otherwise the accounting is not correct.
- Differences in opening exchange rates
As a rule, opening exchange rates are set at the beginning of the year. It may happen however that some verification procedures have been left pending; therefore before closing the accounting it is important to make sure that:
- The exchange rates at the beginning of the year are the same as the final ones on 31.12 of the previous year,
- The exchange rates used are the ones provided by the Federal Administration, as indicated below.
- Differences between bank balances on bank statements and account balances (CheckBalance function)
It is important to check the correspondence of bank, postal, credit card, and other account balances that have to be included in your tax returns.
- Differences in the Transactions table
In the Information window at the bottom of the screen, no difference must be shown. Banana Accounting Plus, in the Transactions table, also offers the possibility to view the Balance column, which allows you to detect all the rows where differences are created.
Closing accounting transactions
In a multi-currency accounting, as in double-entry accounting, before moving on to the New Year, some closing accounting operations are necessary. These are adjustment entries, value adjustments, and adjustments related to personnel contributions.
In the Year end closure in Double-entry accounting page, you will find a list of closing operations for both accounting and tax purposes.
We hereby discuss closing entries for exchange rates differences.
Year-end exchange rates and unrealized gains/losses
In order to obtain financial statements, foreign currency accounts must be converted to the base currency at the current or historical exchange rate. Exchange rates variations result in unrealized exchange rates gains or losses. These must be recorded with the following command from the Actions menu:
- Create transactions for exchange rate differences
- Please refer to this page for the entire subject of setting exchange rates and calculating unrealized gains and losses.
- Please note that the closing exchange rates must be entered in the Exchange rate table in rows without a date. These exchange rates are taken over by the program for the calculation of the opening balances of the New Year. If exchange rates with dates are entered, there will be differences in the opening balances of the New Year.
After the recording of the exchange rate differences, the balances in basic currency are updated according to the closing exchange rates entered in the Exchange rates table (rows without date). In the Chart of Accounts, the balances in the Balance column are equal to those in the Calculated Balance column.