Year end closing operations | Multi-currency accounting

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.

Technical aspects and new year

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.

Tax matters

Before closing the accounting, a series of operations with tax implications must be carried out. This includes balancing the inventory account, recording depreciations, accruals (both active and passive), filing VAT declarations, determining how and on which accounts profit should be allocated, and performing various other verification and control operations.

From a program perspective, the amount of profit at the end of the year may be irrelevant, but it significantly changes from a tax standpoint. These aspects need to be reviewed with your tax advisor and accountant. If you're managing accounting for the first time, it can be helpful to consult an expert before proceeding with closures to understand the requirements. Accountants are usually very busy towards the end of the year and in the months leading up to the tax filing deadline; therefore, it may be useful to meet with your accountant or send them the accounting records a few months before closing to determine the appropriate course of action.

The Check Accounting command

Banana Accounting allows you to quickly record transactions and even leave some operations pending without interrupting the workflow

The Actions > Check Accounting command performs a series of checks, as if entering the data again from the beginning, and whenever errors or discrepancies are detected, they are reported.

It is recommended to use the Check Accounting command regularly and every time there are differences or error reports, significant changes (initial changes, VAT codes), and especially before closing the accounts.

Control and verification operations

Before printing the final financial statements it is important to proceed with the verification operations:

Checking the opening balances

• 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.
• In the Accounts table, in the Opening and Balance columns, the row 'Difference must be zero' should not have any amount. Otherwise, it is necessary to find the error and correct it to have the opening balance squared. Note: In the Movement view, in the Debit and Credit columns, it is normal to have amounts
• 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.
• Ensure that the active and passive carryovers from the previous year are closed. 
• Verify that the opening balances match the final balances of the previous year, already audited and declared to the Tax Office.
• For multi-currency accounting, refer to the specific page Opening balances for multi-currency accounting
• Detailed explanations can be found on the Double-entry accounting closing operatitions page.
• The Actions > Check Accounting command performs a series of checks and reports any differences and errors.

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 transactions, value adjustments, and adjustments related to personnel contributions. Here are the main ones: 

Import payroll transactions into the accounting file
This operation is only applicable if the payroll is managed using specific software that allows for the import of transactions into the Banana Accounting Plus file. 
The import is performed from the Actions menu > Import into accounting > Import transactions with column headers. 
Remember to include the recording of the December thirteenth salary installment if it is not generated by the payroll software.

Adjustment of the Delcredere account
Companies that include potential losses in their turnover must adjust the Delcredere account.

Detecting open invoices from customers and suppliers as of December 31st.
To streamline the process, you can quickly identify the values as of December 31st using the function for open invoices by customer and open invoices by supplier.

Closures and VAT declaration
Before submitting the VAT declaration, we recommend the following checks:

• Use the Check Accounting command. In case of errors and discrepancies, you will find messages in the information window at the bottom, in the Messages section.
• Verify that there are no differences in the Balance column of the Transactions table.
• Check bank balances to ensure they match those sent by the bank.
• Verify that the automatic VAT account after reversing the balance in the due VAT account (VAT to be paid to the tax authority) is zero. The due VAT account should show the amount to be paid or the credit amount to be received.
• Before submitting the final VAT declaration, review the VAT statements from previous quarters again to ensure that the amounts paid to the tax authority are still consistent with those displayed.
• Use the VAT Summary command to view various reports and create a PDF printout for data archiving. These will be useful in case of tax audits.

Adjust the Source tax account
After calculating and recording the December salaries, based on the calculation sent to the Source Tax Office, register the adjustment.

Reimbursements for upper-level employees
If applicable, include in the December salary the amount specified by the tax authorities as a flat-rate reimbursement.

Adjustment of Private Account
Verify the balance of the private account. In the case of debit/credit relationships between the company and the owner(s) or related individuals, record active or passive interests according to the terms of the loan agreement or prevailing tax regulations.

Adjustment of the Taxes and Duties Account
Verify that the installments paid during the year correspond to the current year. Payments of taxes related to previous years should be recorded when closing the related provisions that appear in the "Direct Taxes" account (balance sheet). If the balance of the provisions is not sufficient or is excessive, the difference should be recorded as extraordinary expense/income or related to previous periods.

Registration of AVS/AD/IPG/AD Adjustments

• Throughout the year, in the AVS contributions account, advances paid to the AVS Compensation Fund (credited) and contributions withheld from employees' salaries (debited) are usually recorded.
• If family allowances paid to employees during the year have been recorded in a dedicated account, for example, in the "Family Allowance Contributions" account, to reconcile the accounts with the AVS closing balance and record the corresponding adjustment, the balance of this account can be transferred to the AVS/AD Contributions account.

Registering Lainf, Complementary Lainf, and LPP Pension Adjustments
When recording the last salaries of December and the payment of the thirteenth salaries, it's necessary to print the list of salaries showing all gross salaries. The overall AVS gross amount must be communicated to the personnel insurance companies, which will determine any adjustments to be paid.

In multi-currency accounting, similar to double-entry accounting, certain closing accounting operations are required before moving to the new year. These include adjustment entries, value adjustments, and reconciliations related to personnel contributions.

On the Year end closing operations page in double-entry accounting, both accounting and tax-related closing operations are listed.

Below, we will address the topics related to closing entries for exchange rate 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.
  • If there are rows with dates in the Exchange Rates table (historical exchange rates), when closing the accounts, for calculating exchange rate differences, it is recommended not to activate the Use historical exchange rates (rows with dates) option. This ensures that the program uses the updated exchange rate found at the beginning of the exchange rates table, in the rows without dates (in the Rate column)

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.

Sending the file to the accountant for closures

If closures and/or checks are carried out by your trustee, you can simply send the file of your accounting created with Banana Accounting Plus via email or save the data on a USB stick.

• If your trustee uses Banana Accounting, you can simply transmit the AC2 file via email or through a USB flash drive. You can also save your file and digital documents in a shared folder with your trustee on Dropbox. You will no longer need to bring heavy binders of paper documentation to the trustee. Furthermore, the trustee will work quickly without having to search through paper documentation.
• If your trustee doesn't have Banana Accounting, you can create a PDF of the accounting data through the File > Create PDF folder menu and transmit the documentation via email. The trustee will indicate all the changes and additions to be recorded to properly close the accounting period.
  Alternatively, your trustee can open your accounting file using the Free plan of Banana Accounting Plus, downloading it from our Download page. If your file has more than 70 transactions, your trustee won't be able to add new transactions or make changes, but they can still view all the data, obtain details of each account with a simple click on the account number, etc., and advise you on possible corrections or improvements.

Once the closing and verification entries are executed, it is recommended to lock the transactions

• Actions > Lock Transactions
  The transactions rows will be numbered and will have a blockchain code that ensures their security.

End of year printouts

For end-of-year financial statement printouts, you can find the information by clicking on the following links:

• Accounts cards 
• Journal
• Enhanced Balance Sheet with groups
  • Check the tutorial video: it shows you how to create and print the enhanced Balance sheet with groups. 
• Accounting report
• VAT summary (Report)
• End of year PDF Printouts

PDF Folder

The Create PDF folder command allows you to have all the documents of the entire accounting exercise (account sheets, journal, VAT statements, monthly, quarterly, and annual reports...) in a single PDF file.

You can archive the accounting data by saving the accounting file and prints in PDF format. Optionally, make backup copies on an external disk drive.

On the Preparing documentation for the Audit page, we have published a series of notes and suggestions regarding the documentation to be sent to the auditor. The completeness of the documentation is a good basis for making the auditor's work more efficient and faster.

In Banana Accounting, the allocation of profit or loss occurs automatically at the beginning of the new year. For more information, please refer to the Create New Year page.

Normally, once the closure has been completed, there should be no recorded modifications. However, sometimes there is a need to make changes to the accounts, as in the following cases:

• Unrecorded exchange rate differences at closure
• Unrecorded missing transactions
• Errors in the transactions.

In these cases, it is recommended to proceed as follows:

• If you have already submitted the data to the authority, or if the accounts have already been audited and the balance sheet presented to shareholders or stakeholders definitively, do not make any changes to the accounts, as any modifications could be considered falsifications, with potential legal consequences.
  • Make necessary adjustments in the following year, clearly describing the issue in a document that you will need to attach to the adjustment transactions.
  • If you forgot to record exchange rate differences, follow the information on our website under Differences in opening balances.
  • Obviously, depending on the situation, there may be tax consequences, so it is better to seek advice from your accountant.
• If the legal framework allows you to make changes to a closed year:
  • Proceed with caution, limiting yourself to only the truly necessary modifications. If you forgot to record exchange rate differences, follow the information on our website under Create exchange rate differences.
  • Review the accounts and perform all necessary checks to ensure that the changes do not cause any issues.  
  • After the modifications, open the file for the following year and update the opening balances using the Update opening balances command.