How to Close the books of accounts for the financial year

Closing the books of accounts for the financial year is a critical process that ensures financial accuracy, audit readiness, and regulatory compliance. Below is a step-by-step guide tailored for a company operating in India, especially relevant for sectors like construction, real estate, and hospitality:

Step-by-Step Year-End Closing Process

🔹 1. Preliminary Checklist Preparation

• Prepare a Year-End Closing Checklist covering all ledgers, balances, provisions, and compliances.
• Circulate responsibilities among team members: AP, AR, payroll, GST, TDS, inventory, etc.

🔹 2. Ensure All Transactions Are Recorded

• Post all pending journal entries, supplier invoices, customer invoices, bank entries, etc.
• Ensure that:
  • Site-level purchases and expenses are fully booked.
  • RA bills and revenue recognition are completed till March 31st.
  • Hotel bookings and restaurant sales are fully accounted.

🔹 3. Bank Reconciliation

• Reconcile all bank accounts as of 31st March.
• Match transactions in books with bank statements.
• Identify and investigate stale cheques, unpresented payments, etc.

🔹 4. Accounts Receivable & Payable Reconciliation

• Reconcile customer and vendor ledgers.
• Match with external statements and confirm balances (take balance confirmations).
• Provide provisions for doubtful debts if needed.

🔹 5. Inventory & Fixed Assets Verification

• Conduct physical stock count at sites and hotels.
• Match with inventory ledgers; post adjustments for shortages/damages.
• Ensure depreciation on fixed assets is recorded as per Companies Act/Ind AS.
• Capitalize WIP appropriately (esp. in construction projects).

🔹 6. Payroll & Statutory Dues

• Post March month salaries and bonuses.
• Accrue outstanding salaries, gratuity, leave encashment, and other employee benefits.
• Reconcile and pay:
  • TDS
  • EPF/ESIC
  • Professional Tax

🔹 7. GST, TDS, PF Reconciliations

• Match books with GST portal (GSTR-2B vs ITC claimed, GSTR-1 vs revenue).
• Reconcile TDS payable vs paid and verify Form 26AS.
• Ensure no statutory dues are outstanding beyond permissible limits.

🔹 8. Provisions & Accruals

• Create year-end provisions for audit fees, electricity, legal, and other expenses.
• Ensure all known liabilities are booked, even if invoices are pending.

🔹 9. Inter-Company and Branch Reconciliations

• Reconcile inter-unit and inter-company accounts.
• Ensure mutual balances match and no open entries exist.

🔹 10. Finalization of Financial Statements

Prepare the following statements:

• Trial Balance
• Profit & Loss Account
• Balance Sheet
• Cash Flow Statement
• Notes to Accounts

Ensure compliance with:

• Schedule III format
• Ind AS or AS as applicable
• Segment Reporting (Ind AS 108 for multiple divisions like real estate/hospitality)

🔹 11. Income Tax Computation

• Compute book profit and taxable income.
• Make provisions for Income Tax and Deferred Tax (Ind AS 12).
• Book MAT if applicable.
• Calculate TDS/TCS Receivables, and reconcile with Form 26AS.

🔹 12. Review and Audit Preparation

• Internal review by CFO/Accounts Head.
• Prepare schedules for external auditors.
• Resolve audit observations (if any) from the previous year.

🔹 13. Board Approval & ROC Filings

• Once accounts are finalized, present to the Board of Directors for approval.
• File necessary ROC forms:
  • AOC-4 (Financial Statements)
  • MGT-7 (Annual Return)
  • ADT-1 (Auditor Appointment, if new)

🔹 14. Archive & Carry Forward

• Lock books for the financial year.
• Carry forward:
  • Opening balances
  • Asset register
  • Inventory master
  • Vendor/customer balances

Optional Tips for Construction/Real Estate/Hospitality Sectors

• For real estate, ensure proper recognition of revenue as per Ind AS 115 (based on performance obligations).
• For construction, match RA bills to project milestones and WIP schedules.
• For hotels, reconcile room occupancy, F&B sales, and online booking commission charges.