The accounting period identifies the transactions that economically affect the company, using periods of time. This will allow the company to disclose the financial situation and the results of its operations periodically. In other words, the accounting period refers to the fact that the economic operations of a company must be recognized and recorded within a certain time.
As a general rule, in legislation such as the Colombian one, this time is one year, which runs from January 1 to December 31, although it is also possible to work with different periods of time such as monthly or quarterly, etc.
What is the accounting Period Concept? In this period of time, all the entity’s results must be rendered and recorded, generally as indicated above, it is a twelve-month (1 year) exercise in which income and expenses must be accumulated, regardless of the date they are paid. This basic accounting principle establishes that the life of an entity is divided into uniform periods for the purposes of recording operations and information thereof.
Accounting entries, the key to closing the year
Inconsistencies in the results of the company’s activity do not work in your favor. To control them and prevent them from affecting the company, make accounting entries on these areas:
- Incoherence in balances with customers and suppliers
- Reclassification of debts and balances
- Stock control
- Provide the company with provisions (they are the mattress of your company in the event of any eventuality)
- Provide amortizations
Steps to follow for a successful (and smooth) accounting period
Do you already have the above controlled? So what follows is to give way to the accounting period. To do this, the most recommended by accounting advisors is to run the estimate of the taxes you are going to pay. Keep in mind that they are the clearest indicator of how your company has performed.
The taxes that you have to include in this approximate calculation are:
- Corporate tax and/or Personal Income Tax (IRPF)
- Wealth tax
Once done, we would go on to review the most common accounting operations in the company (amortizations, income, expenses, debts, and provisions), and also in the tax area (amortizations, dividends, deductions).
Procedures for closing the company’s accounting period
Now your company is ready to carry out the accounting closing. To do this, you must complete the following procedures:
1. Register of treasury accounts
They show whether your company has liquidity from its own activity. That is, check that the bank statements of the company as of December 31 correspond to what should be due to your business activity.
2. Accounting for fixed assets and depreciation
The assets (all assets employed by the company for its activity and that are not consumed at the time of use) and the amortization of the investment in these assets should not be recorded in the balance of the expenses of the company.
One of the elements that generate the most problems for companies, especially small ones, is the control of stocks and their management with respect to accounting.
4. The Billing
It is not uncommon to find that there are bills that are lost and no one knows where they have been stored; or not getting our records do not match by not posting an invoice correctly.
Invoices are the official proof of the status of your accounts with clients, suppliers, and creditors. Any of these situations opens ways to be required by the Tax Agency.