Why Do Companies record annual profits for the year ended March? What are the reasons behind this?
The companies, if they start in April, must close the accounts by the end of the following month, March, to prepare for the tax calculations. The tax must be paid in the following year; otherwise, the company will incur penalties from the tax department. They close all accounts by the end of March in any given year and hand over the accounts for independent examination or auditing to verify the accounts, prepare the necessary financial reports, and submit the accounts to the relevant authorities, such as the tax department.
Additionally, they must understand the financial health of their business to enforce control over expenses. Plans should be made to grow the business, which involves increasing sales.
In accounting, a business should close its books by the end of its financial year and be prepared to begin the accounting work for the following year. It is common to start something in April and conclude it in the following year.
Precise financial statements are crucial for chasing presentations, managing cash flow, and making strategic decisions. However, these reports are only as reliable as the data on which they are based. The month-end close process ensures that all transactions from the previous month are accurately recorded, reconciled, and reviewed.
The accounting month-end close procedure often involves inputting data from various sources into your financial system. Manual entry introduces the risk of transposition errors, missed entries, or incorrect classifications that can significantly impact financial statement accuracy.
Double-check that the numbers in your accounting books align with the numbers on your bank records. If they disagree, then ensure you recognise the reason for it. Maybe it’s because a business deal was made using cash, or a different account, or perhaps the money hasn’t changed hands yet. Bank fees may also catch you out.
Whether you have a third-party accomplish your digital accounting services or you have an office-based accounting team handling the bookkeeping tasks, there’s one crucial procedure neither team should be missing: your books’ month-end closing.
Recording business transactions helps you understand the financial aspects of your business. The records are also used to calculate your taxes. If you wrongly entered transactions, there’s a danger you’ll submit a wrong tax return – and that will get messy if you’re audited. The time you enter a transaction may vary, depending on whether you use either accrual or cash accounting.
Dealings: Financial dealings start the procedure. If there were no financial transactions, there would be nothing to track. Transactions may include debt payoff, purchases or acquisitions of assets, sales income, or any expenses sustained.
Why the Month-End Close Matters
Accurate financial statements are essential for tracking performance, managing cash flow, and making strategic decisions. However, these reports are only as reliable as the data on which they are based. The month-end close process ensures that all transactions from the previous month are correctly recorded, reconciled, and reviewed. Without this meticulous process, financial statements may contain errors or omissions, rendering them less valuable—or even misleading—for decision making.