Year-End Accounting Close: A Checklist to Avoid Nasty Surprises in Corporate Income Tax

Closing the year is not just “entering what’s missing and generating the balance sheet”. It is the moment when your books become the basis for Corporate Income Tax (Form 200), and any error you carry forward turns into a miscalculated tax bill, an amended return or a tax audit. This checklist is useful both for small and medium-sized businesses and for self-employed professionals who keep the books of a company, or of companies where they act as directors.

What the accounting close is and why it determines your Corporate Income Tax

The year-end close is the set of adjustments and checks carried out at the end of the period (normally the calendar year) so that the annual accounts give a true and fair view of the company. The accounting result you obtain is the starting point for Corporate Income Tax: tax adjustments (non-deductible expenses, outstanding tax losses, reserves, etc.) are applied on top of it.

That is why the order matters: first you close and reconcile the books; then you calculate Corporate Income Tax, and only at the end do you record the tax expense and post the closing entry. Doing it the other way round, or “fixing” the return so that a particular figure comes out, is a recipe for books and tax return that don’t match.

The checklist, step by step

1. Preliminary reconciliations. Before touching anything, check that the journal balances (Debit = Credit), that the trial balance has no odd-signed balances (customers with credit balances, suppliers with debit balances, negative cash) and that no suspense or transitory accounts are left with a balance. Also cross-check the VAT ledger against the input and output VAT accounts, and the filed Forms 303 and 111 against what was booked in each quarter. A mismatch here often points to a duplicated invoice, an unrecorded withholding or an entry with the wrong date.

2. Bank reconciliation. Reconcile each bank account at 31 December against the statement: the book balance must match the real one, except for items in transit that are clearly identified. Review receipts and payments with no entry, fees, interest and loan instalments (separating principal and interest). A bank account with a negative balance in the books almost always means missing payments or receipts.

3. Depreciation. Check that every fixed asset has its record, acquisition date, value and rate, and that the year’s depreciation charge has been booked. Check assets bought during the year (depreciation starts when they are put into service) and make sure you are not depreciating assets that have already been disposed of or are fully depreciated. For tax purposes, the deduction is subject to limits and tables, so it is worth comparing the accounting charge with what is deductible.

4. Accruals and deferrals. Expenses and income are allocated to the year they relate to, not when they are paid or collected. Review insurance paid in advance that covers part of next year, subscriptions, rents, December invoices that arrive in January, and services rendered but not yet invoiced. Each one is adjusted with its own accrual entry (and its reversal when the next year opens).

5. Inventory, provisions and impairment. If you hold stock, value it with a real inventory count. Review doubtful receivables and any litigation or contingencies that require a provision; remember that their tax deductibility has its own requirements.

6. Accounts with shareholders and directors. Balances with shareholders, loans and remuneration must be documented and consistent with contracts and payroll. They are a common source of discrepancies and of related-party transactions that are handled incorrectly.

Recommended order and common mistakes

A working order that works well: (1) reconciliations and VAT, (2) banks, (3) depreciation, (4) accruals, inventory and provisions, (5) calculation of Corporate Income Tax with the tax adjustments, (6) the entry for the tax expense and (7) the closing and regularisation entries. Then the following year is opened with the final balances.

The mistakes that cause the most trouble:

• Calculating the tax before the adjustments are finished, so the result changes afterwards and the return ends up out of date.
• Not checking the applicable tax rate and the type of company: start from the previous return, not from assumptions.
• Forgetting outstanding tax losses or applying them without checking the limits currently in force.
• Closing with an unreconciled bank account or with unexplained shareholder accounts.
• Changing the books after filing without amending the return, leaving the books and Form 200 different.

An example with round numbers: a company closes with an accounting result of 50,000 euros. If in January it discovers an unrecorded December invoice of 10,000 euros, the result drops to 40,000 and the tax base changes by the same amount. Catching it before filing is a routine step; afterwards, it means an amendment.

And remember that the filing deadlines for Form 200 and for the deposit of annual accounts depend on each company’s year-end: always check them against current regulations or with your advisor, and never take them for granted.

At Zythos Business we treat the close as a process with order and verification: we reconcile the books and the filed returns, review depreciation and accruals, and only then calculate Corporate Income Tax, so that what you declare matches what your accounting says. If you want to reach your next close without surprises, we can support you starting now, not just at the last minute.