Year Ends and continuing into a New Year
Please note that this process is also covered by the Easy Steps component.
What do you do at year end? Well, first you need to know that it is not necessary to do anything! Just carry on using Business Accountz into your new year. At some point in the new year, you will have received all the bills and bank statements from your old year, and it is only at that point that you need to start the Year End Wizard to help you close it. This essential answer explains this in great detail. Please read on:
What is a Year End?
At the end of each financial year, some housekeeping needs to be done. This is to ensure that everything to do with that year is accounted for. Depreciation of your assets is a good example and is covered in detail here: http://accountz.com/baz/bazforum/viewtopic.php?f=8&t=305
Depreciation reduces the equity of your business by the amount that your assets have lost in value that year. That reduction obviously needs to be recorded in the books so that they reflect a ‘true and fair’ picture of your business (the basic accounting standard you should adhere to).
There may also be bills to be paid that you have yet to be billed for. Accountancy fees are a good example. if you use an accountant, they may not be able to calculate their costs until after they have finished the work, so they will add an extra estimated expense to the year. This is called an Accrual. You haven’t paid it, you haven’t received a bill, but it is a legitimate expense. As far as Business Accountz is concerned this is very easy to add using a Transfer Transaction From Unpaid Bills To Accountant Fees (or you could add a new account to Current Liabilities called Accruals and use that instead of Unpaid Bills). Next year, your accountant will add an adjustment to correct it if it turned out to be slightly different, and make another accrual for the new year.
You may also have something called Pre-Payments. If your business insurance renewal is due mid financial year, then only half of it can be accounted for as an expense this year, with the remainder accounted for in the following year. This would involve 2 transactions. The first for the full amount goes into Purchase Transactions as normal (Red book). The second accounts for the pre-payment for next year and goes in Transfer Transactions From Insurance Expense To Pre-Payments. Lets take an example of £200 insurance for the year.
Original transaction in Purchases:
From Bank To Insurance £200 Pre-payment in Transfers: From Insurance To Pre-Payments £100 Result: Bank -200 Insurance +100 Pre-payments +100
Open the pre-payments account in Current Assets.
When you are happy that the year has been fully accounted for, the Year End Wizard will do the important final step for you. It creates a number of Journal Transactions (Black book) that transfer all last year’s P&L account balances to the Retained Earnings account. This effectively zero’s all of them. In this way, they are ready to start recording your new year’s sales and expenses from scratch again.
How to do a Year End
- Before running the Year End wizard, make sure all the transactions for the year are complete. You can happily continue into your new year before running the year end wizard.
- If you have more than one year’s worth of accounts entered (there is no limit) you can run all earlier year ends one after another. Just make sure you do this starting with the first year and continuing in sequence.
After running the Year End Wizard
- Start Date check box - always leave this unticked
- Include Year Ends check box - always leave this ticked
- End Date check box - leave unticked for normal use (your P&L will always show the current year)
To look at previous P&L’s (for any period from 1 day to multiple years)
- Tick and set the Start Date check box for the first day of the year or period you want to look at (eg. 01/04/04)
- Include Year Ends check box - always leave this unticked
- Tick and set the End Date check box for the year or period end you want to look at (eg. 31/03/05)
Note: Setting the Start and End dates will directly affect your liability and asset accounts, that is, they are unlikely to make any sense to you (because you are not viewing the whole history of your accounts). The Start, End and Year End options are there purely for producing P&L’s of any earlier periods or years.