Ready for year-end closing? Here’s what you need to keep in mind
As the financial year-end approaches, there are several steps that need to be reviewed, even if you’ve already started planning. By working systematically and in the correct order, you can avoid mistakes and create better conditions for a good outcome. In this article, we highlight some of the key points to think about.
Profit or loss affects the year-end process
Whether a company reports a profit or a loss influences, among other things, whether receivables need to be written down, whether all liabilities have been recorded, the risk assessments to be made, and whether the company holds untaxed reserves such as tax allocation reserves.
To ensure the most accurate result possible, keep the following in mind:
- Ensure the accounts receivable ledger up to date, and have you reviewed whether there are any doubtful accounts? If doubtful receivables exist, make sure to record a reserve.
- If the market value of financial fixed assets or short-term investments - such as shares or securities accounts - has declined, they must be revalued to their current value.
- Verify that all liabilities have been recorded and that reserves exist for unbilled expenses, including any accrued interest.
- Don’t forget to reserve employees’ vacation pay, accrued wages, and overtime, including social security contributions.
- Review any outstanding disputes with suppliers and assess whether there are contracts or other costs that need to be accounted for.
- If the company has reserves for warranty obligations, these may need to be adjusted in the year-end accounts.
- Remember to revalue liabilities and receivables in foreign currencies.
- Tax allocation reserves older than six years must be reversed, and you can simultaneously make new allocations to help secure the company’s future results.
When the company is profitable
- If you are an owner of a closely held corporation, check that your salary withdrawals are at the appropriate level. This affects your ability to take advantage of low-taxed dividends.
- Consider allocating to a tax allocation reserve to smooth out results, especially in cases of seasonal variations or economic uncertainty.
When the company reports a loss
If the company reports a deficit, it’s important to review previous assessments and consider actions that could improve the tax outcome. In addition to the general checks above, the following may be relevant:
Review expenses
- Assess whether certain expenses can be capitalized instead of being expensed immediately. For example, expenditures that have not yet generated revenue.
- Be careful to follow the applicable accounting framework, as the ability to capitalize costs varies (e.g., K2 vs. K3).
Handle liabilities and provisions in closely held companies
- Consider writing off liabilities owed to owners, such as vacation liabilities.
- In some cases, a liability can be converted into a conditional shareholder contribution to strengthen the company’s equity.
Review previous provisions
- Reverse previous excess depreciation if justified.
- Reversing tax allocation reserves when appropriate can be advantageous. Matching this year’s deficit with previous profits can reduce the total tax burden over time.
Formalities and key regulations
Beyond the result-dependent measures, there are several formal points that all limited companies must keep track of before closing the books. These can significantly affect both the company’s capital position and the timeline going forward.
Prepare a control balance sheet in accordance with the Swedish Companies Act (ABL)
- Ensure that the rules regarding a control balance sheet have been followed if there are indications of capital deficiency.
- If ongoing operations are not expected to restore equity, a shareholder contribution may be necessary. Raising this issue early allows owners or the parent company to plan accordingly.
Stay updated on current tax rules
- Review any regulatory changes, especially those affecting taxation of closely held corporations and periodizations.
An effective year-end closing relies on structure. With a clear timetable and regular monthly reconciliations, it becomes easier to detect and correct errors in time, saving you both work and stress. Document changes and supporting materials continuously, preferably in a digital format, to ensure everything is in place when the year-end report is due.
Do you need support in analysing your company’s performance or future outlook? Contact us and our experts will be happy to assist you.
