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The ultimate guide to ending your financial year right

The ultimate guide to ending your financial year right

Palak Jamuar
June 3, 2024

As  the financial year draws to a close, business owners. find themselves in the thick of crucial tasks – from auditing transactions and creating financial statements to making tax adjustments, and filing returns.  This period also demands meticulous attention to payroll reports and  obligation to statutory bodies. 

For seasoned entrepreneurs, this is a familiar yet overwhelming rush to meet deadlines. New small business owners, however, might tread into this phase with apprehension, facing a maze of year-end responsibilities.. This guide aims to simplify the year-end reporting process, providing a detailed roadmap to help you close the year efficiently and start the new one on a positive note.

What is a financial year?

A financial year, often referred to as a fiscal year in India, marks a 12-month period that businesses and organizations use to report and track their financial performance. In India, this period runs from April 1 to March 31 of the following year. This timeframe is crucial for preparing budgets, monitoring income and expenses, and determining tax obligations. 

Understanding the financial year is not only important for managing a business's fiscal responsibilities efficiently but also offers insights into the operational dynamics of  businesses within the Indian context. It facilitates the comparison of financial outcomes across different years, thereby aiding in strategic planning and informed decision-making.

What does closing the financial year mean?

Closing the financial year refers to the process of finalizing all accounting records for a business or organization for a financial year. This involves tallying up income and expenditures, calculating tax liabilities, and assessing the overall financial health of the entity. This essential phase allows businesses to compare their current year's financial results with those of previous years, facilitating strategic adjustments, ensuring compliance with tax regulations, and maintaining transparency and accuracy in financial reporting.

Steps to closing the financial year: A checklist

Organizing your tasks well is key to closing out your business's financial and payroll responsibilities at year-end. By breaking down what needs to be done into manageable steps, you can tackle year-end accounting with less stress. Here’s a step-by-step approach to ensure your financial records are accurate and fully up-to-date.

Reconcile all records

Imagine it's the end of a bustling month, and you're looking over your business's finances, only to notice numbers that just don't add up. Your bank statement shows a different balance than your ledger. This is where reconciling your accounts comes into play. Initiate your year-end financial closure by systematically reviewing  every transaction made through your business accounts, including bank accounts,credit cards, and loans. 

Integrating a robust reconciliation strategy ensures a comprehensive examination of every financial activity—be it the operational expenditures, the earnings accrued, or the financial charges levied on transactions.

Reconciliation ensures every transaction is accounted for, from the rent payment you make for your office space to the interest accrued on a business loan. By methodically comparing your internal financial records with external bank statements, you not only spot potential errors but also ensure the integrity and accuracy of your financial reporting.

Review accounts receivable

As the year wraps up, turning our attention to cash flow becomes imperative. Cash flow, the lifeblood of any business, hinges significantly on efficiently managed accounts receivable. Now is the time to zero in on uncollected payments.  t. Collect outstanding payments by reviewing your accounts receivable. Begin by scrutinizing your list of outstanding invoices and reaching out to clients with overdue balances before the year's end. The goal is to bolster your revenue stream by ensuring that payments for services rendered or goods sold during the year are received. 

This step is about getting a clear picture of your revenue, ensuring it reflects the hard work you've put in throughout the year. It's crucial for a healthy business to enter the new year with a clean slate, free of outstanding debts that could cloud your financial outlook.

Analyze fixed assets and depreciation

Conduct a meticulous audit of your fixed assets register at the year's end to ensure precision in your financial records. This involves not only verifying the inclusion of assets acquired during the fiscal period but also confirming the removal of those assets which have been disposed of or sold.

The accurate calculation of depreciation on these assets is imperative for two key reasons:

  • It significantly impacts your tax obligations 
  • It provides a clear picture of your business's actual net value

Depreciation accounts for the gradual wear and tear on assets, diminishing their value over time. This adjustment is crucial for presenting the true view of your business’s financial health, reflecting the realistic value of assets and their impact on your financial standing.

Review payroll and employee benefits

Ensuring  the accuracy of your payroll and employee benefits records is a critical task. This includes scrutinizing salaries, bonuses, pension contributions, and insurance details. Accuracy here is not just about compliance with tax regulations governing employee compensation; It’s about upholding a standard of fairness and transparency in employee remuneration. This process is crucial for preventing tax-related complications and ensuring that all parties understand the payments made and the reasons behind them.

Expense analysis and accruals

Take a good look at all your expenses to make sure they are listed under the right time period. Sometimes, you might have costs for things you needed this financial year but haven't paid for yet. These should be noted down as "accruals." This method, called the matching principle, helps keep your accounting accurate by lining up expenses with the income they helped create. For example, if you ordered supplies in March but the bill won't be paid until April, you still count that cost in this year's books. This step is all about making sure your financial snapshot is as clear and accurate as possible, helping you understand exactly where your money went and why.

Prepare financial statements

Turn your adjusted trial balance into key financial statements: the income statement, balance sheet, and cash flow statement. These essential reports give you a clear picture of your business's financial performance and standing at the fiscal year's close.  The income statement shows how much profit or loss you made, detailing what you earned and spent. The balance sheet gives a snapshot of what your business owns and owes, indicating its financial health. The cash flow statement tracks how cash has moved in and out of your business, helping you understand its liquidity. Putting these together is crucial for assessing your company’s financial condition and planning for the future, making it a vital step in your year-end routine. This process is about ensuring accuracy and clarity in your financial overview.

Tax preparation and filing

Calculate your business's taxes for the year, including income tax, sales tax, and any other applicable taxes, based on your financial activities. It's crucial to accurately prepare and file your tax returns on time to stay compliant and avoid any penalties. This step involves a careful review of your earnings and expenditures to determine what you owe. By completing this process diligently, you ensure that your business meets its tax obligations efficiently, maintaining a good standing with tax authorities and smoothly moving into the next financial year.

Budget for the next year

After closing your financial year and evaluating your business’s financial status, it's crucial to strategize for the upcoming year. Use the data and insights from your financial statements to draft a budget for the next year. This is an opportunity to map out growth strategies, pinpoint areas for cost reduction, and explore new investment avenues. Setting up a budget at this juncture,  lays down a roadmap for achieving your business objectives, equipping you to navigate  future challenges and capitalize on opportunities with foresight and agility. 

Challenges to closing the financial year

  • Reconciliation difficulties: Matching transactions with bank statements can uncover discrepancies, each requiring time and effort to investigate and resolve.

  • Incomplete records: Discovering missing documents or unrecorded transactions late in the process can delay closing activities.

  • Tax calculation errors: Misinterpretations of tax laws may lead to incorrect tax filings, risking penalties.

  • Deadline pressure: The rush to meet filing deadlines can sometimes lead to mistakes and oversights, compromising the quality of the closing process.

  • Software and system issues: Dependence on financial software  introduces a risk  where technical issues can significantly disrupt the efficiency and continuity of the closing process.

Key considerations:

Marking the end of the financial year is a strategic juncture ripe with potential. It's an opportunity to weave resilience into the fabric of your business, to recalibrate and fortify your strategies against the backdrop of past achievements and lessons learned. Here are some key considerations to keep in mind: 

  • Early planning
    Starting your year-end preparations early is key to avoiding the stress of a last-minute rush. By planning ahead, you give yourself ample time to thoroughly review and organize financial records, ensuring a smooth and efficient close to the financial year.

  • Regular reconciliation
    Reconciling accounts on a monthly basis is essential for maintaining accurate and current records. This regular check helps identify and correct discrepancies early, ensuring your financial statements reflect the true state of your business at all times.

  • Automate processes
    Implementing accounting software to automate and streamline tasks significantly enhances efficiency. This technology can handle repetitive financial processes, reducing the likelihood of errors and freeing up time for focusing on more strategic aspects of your business's finances.

  • Clear communication
    Maintaining clear communication is crucial, ensuring all team members are aware of their specific roles and the deadlines they need to meet. This clarity promotes teamwork and efficiency, helping to prevent misunderstandings and ensuring a cohesive approach to managing tasks and responsibilities.
  • Review tax changes
    Staying updated on tax law changes is critical to ensure your business remains compliant. Regularly reviewing these changes helps you adjust your financial planning and reporting practices in time, avoiding penalties and optimizing tax obligations based on the latest regulations.


1. What is the end of the fiscal year?

In India, the end of the fiscal year is March 31st. This marks the conclusion of a 12-month financial period for businesses and organizations, leading to the finalization of accounts and preparation for tax filing. It's a critical time for financial planning, assessment, and starting fresh for the new fiscal year beginning on April 1st.

2. What is an assessment year?

An Assessment Year (AY) in the context of taxation is the period during which the income earned in the previous fiscal year is evaluated and taxed by tax authorities. It follows the financial year for which the income was earned, allowing individuals and businesses to file their income tax returns

3. How is an assessment year different from a financial year?

In the context of Indian finance, the Assessment Year (AY) and Financial Year (FY) are two crucial terms with distinct meanings:

Financial year (FY) refers to the period over which a business or individual earns income. In India, the FY starts on April 1st and ends on March 31st of the following year. It's the time frame used for accounting purposes and for preparing financial statements.Assessment year (AY) is the year following the financial year in which your income is assessed and taxed. It's the period when the income earned in the FY is evaluated and taxed by the government. Therefore, AY is the time you file your income tax returns for the income earned during the financial year.

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