Year-End Accounting Checklist: Essential Adjustments, Reconciliations, and Compliance Insights

The financial year is wrapping up, and now is the time to get every number in place. Checking entries, tax provisions, reconciliations—these aren’t just routine tasks; they shape the accuracy of your financials. A missed entry or an overlooked ledger can throw off reports, trigger compliance issues, or even invite penalties. This checklist isn’t just about ticking boxes—it’s about making sure your books are rock solid, your taxes are in order, and your reports hold up to any scrutiny. Let’s break it down step by step and close the year with clarity and confidence.

1. Adjusting Entries:

Adjusting entries are critical journal entries made at the conclusion of an accounting period to update and ensure the accuracy of accounts before the preparation of financial statements. These adjustments are necessary to comply with the accrual basis of accounting, which dictates that revenues and expenses must be recognized in the period in which they are earned or incurred, rather than when cash is received or paid.

By making these entries, businesses can guarantee that financial statements accurately reflect the true financial position and performance according to accrual concept of accounting, thereby enhancing the integrity of the reporting process.

Fundamentally, adjusting entries ensure a more accurate and dependable portrayal of an organization's financial condition, enabling stakeholders—such as investors, management, and regulatory bodies—to make well-informed decisions grounded in trustworthy data. They play a critical role in promoting transparency, ensuring adherence to accounting principles, and building confidence in the integrity of financial statements..

2. Inventory Valuation:

Accurate inventory valuation is essential for a company to correctly report its current assets and determine the precise cost of goods sold (COGS) in the income statement. This process is crucial in aligning COGS with the revenue generated during the same accounting period, thus ensuring compliance with the matching principle. By properly valuing inventory, companies can not only present a true reflection of their financial position but also provide stakeholders with reliable information to assess profitability and operational efficiency.

Accurate inventory valuation is essential for clear financial reporting, boosting investor trust, and facilitating efficient resource management within a business. It strengthens the credibility of financial statements and aligns with a company’s strategic objectives, paving the way for sustained growth and long-term success.

3. Comparison Between Current Year Data and Previous Year Data:

The comparison of current year data with that of the previous year provides management with valuable insights into operational performance and financial trends, enabling the identification of areas where inconsistencies or discrepancies may exist. By conducting this comparative analysis, management can pinpoint specific areas of concern, investigate the underlying causes of these inconsistencies, and implement corrective measures as necessary. This analysis is particularly vital, as shareholders and stakeholders rely on this comparative data to inform their decision-making processes, which in turn can influence the overall market perception and valuation of the company.

In essence, the comparison between current and previous year data, combined with effective fluctuation analysis, not only enhances the accuracy of financial reporting but also strengthens strategic decision-making, fortifying the company’s market position and fostering stakeholder confidence.

4.Tax Preparation and Compliance:

Ensure accurate matching of Advance Tax and Tax Deducted at Source (TDS) for the current quarter, while addressing any shortfall from the previous quarter’s Advance Tax to minimize interest under income tax act. Additionally, consider potential tax implications arising from disallowances during audits and factor these into Advance Tax computations for proactive compliance. Timely reconciliation and payment adjustments can optimize cash flow and reduce financial risks. Consult with a tax professional to validate estimates and ensure adherence to statutory deadlines. This approach enhances tax efficiency and mitigates unforeseen liabilities.

5. Review and Update Fixed Assets:

Establish a comprehensive Fixed Asset Register by assigning distinct identification numbers to each fixed asset and ensuring consistent updates to reflect acquisitions, disposals, transfers, or depreciation adjustments. This systematic approach facilitates accurate financial reporting and compliance with regulatory requirements. Periodic reconciliation with physical asset verification minimizes discrepancies and enhances accountability. Implementing a strong internal controls over the register strengthens internal audit processes and safeguards organizational assets. Leveraging automated tools for tracking can further streamline maintenance and improve efficiency.

6. Reconciliation of Sales:

By conducting  reconciliation of sales by comparing Books of Accounts with GSTR-1 and GSTR-3B filings to identify and resolve discrepancies proactively. Maintain proper documentation of any variances that cannot be adjusted in the March returns, ensuring transparency for potential future audits or litigations. This process strengthens compliance with GST regulations and enhances financial accuracy. Timely identification of differences mitigates risks of penalties Swiftly filing corrected returns upon spotting discrepancies ensures accurate tax calculations; diligent record-keeping defends against tax disputes, while regular reconciliations boost efficiency and stakeholder trust.

7. Provisions:

Making provisions is a fundamental requirement under accounting standards to ensure financial statements accurately reflect a company’s financial position. Provisions for expenses such as taxes, audit fees, salaries, bonuses, and recurring costs (e.g., electricity, telephone) must be recorded to account for liabilities within the current financial year, promoting transparency and compliance. This practice ensures that financial statements present a true and fair view of the business’s financial health. Additionally, contingent liabilities, require careful assessment and disclosure if potential obligations arise from past events, depending on their likelihood and estimation.

8. Reconciliation of Tax Deducted at Source (TDS) / Tax Collected at Source (TCS) Returns:

Businesses should file TDS/TCS returns quarterly, yet discrepancies often emerge when book entries fail to align with these submissions, typically due to post-filing adjustments or modifications impacting TDS/TCS calculations. Regular reconciliation of TDS/TCS returns is therefore imperative to detect and rectify variances before finalizing the books, ensuring compliance and accuracy. Prompt revisions to returns are essential to maintain consistency with the Books of Accounts, while reconciliation may also reveal late fees or interest on delayed/short payments, which must be duly recorded. Accurate TDS/TCS reporting is critical, as it directly influences deductees’ tax liabilities and refunds, facilitating seamless income tax return filings.

9. Reconciliation of Bank Accounts:

Reconciling bank accounts, including overdraft (OD) and cash credit (CC) accounts, with bank statements is essential to ensure accurate financial reporting and uphold management’s integrity. Discrepancies, such as expired or stale cheques still recorded in the books, may result in incorrect bank balances. Additionally, reconciling loan balances and verifying the proper accounting of borrowing costs, in line with  accounting standards , ensures compliance and transparency. To minimize errors, documenting Bank Balance Certificates and loan statements as of March 31 is critical, aiding auditors during internal and statutory audits. This practice enhances financial accuracy and supports effective oversight.

The crucial rule effective from 01.04.2023 mandates that the entities must make payments to Micro, Small, and Medium Enterprises (MSMEs) within a specified timeframe—typically 45 days—to claim tax deductions for those expenses. The goal is to ensure timely payments to MSMEs, addressing their cash flow challenges and promoting financial stability, if payment is delayed beyond 45 days, buyers must pay compound interest at three times the bank rate set by the Reserve Bank of India (RBI), calculated from the due date. This interest cannot be deducted as an expense under the Income Tax Act.

For more details, refer our detailed article: https://www.aagamshahca.com/news-detail/43B-MSME-Amendment

10. Suspense Account:

Suspense accounts temporarily hold unclear receipts or payments due to missing details or errors. Businesses must regularly clear these entries to keep financial reports accurate. Setting up a simple process to resolve them periodically avoids problems during year-end financial statement preparation.

11. Overall Scrutinizing of Various Ledgers:

A proper review of ledgers at the end of March is essential to identify discrepancies and ensure accurate financial reporting. Independent authorities like Internal Auditors should scrutinize key areas such as negative transactions in expense ledgers, unpaid creditors leading to double-booked expenses, and negative cash balances. Other common errors include recording personal expenses of business owners in the P&L account and incorrect opening balances carried forward from previous years. To mitigate these issues, implementing a strong internal control system for recording transactions is essential to guarantee transparency and precision in financial statements.

12. Set Off of GST Input /Output Accounts:

Regularly reconciling GST ledgers, such as Input IGST, CGST, and SGST, against output GST liabilities on a monthly basis is essential for accurate tax reporting. Transactions not reflected in GSTR-2B should be tracked separately in a designated ledger, to ensure proper management in the following financial year. If any entries involving blocked GST Input Tax Credit (ITC) are identified, they must be reversed in GST returns and expensed in the Profit & Loss Account. This proactive approach ensures compliance, accuracy, and minimizes discrepancies in GST reporting.

13. Analysing Profit or Loss Statement:

A year-on-year analysis of the profit or loss statement is crucial for tracking expenses and identifying unexpected increases. Management can use various ratios to pinpoint anomalies and investigate the root causes of irregular expenses. Before finalizing the books, these discrepancies should be carefully reviewed, and an action plan can be developed to control abnormal costs. On the income side, all revenue streams, including interest, income from asset disposals, and scrap sales, should be reconciled with external documents such as interest certificates, capital gain statements, and Form 26AS/AIS to ensure accuracy.

At year-end, comparing KPIs is critical to assess the company’s overall performance over the fiscal period. It helps management and stakeholders determine whether strategic goals were met, identify areas of strength or weakness, and make informed decisions for the upcoming year.

Refer our previous article on closing chapter of accounts:

https://www.aagamshahca.com/news-detail/Accounts-A-Z-Your-Closing-Chapter

Disclaimer: This material and the information contained herein is intended for clients and other Chartered Accountants to provide updates and is not an exhaustive treatment of such subject. We are not, by means of this material, rendering any professional advice or services. It should not be relied upon as the sole basis for any decision which may affect you or your business.