From accounting package to annual accounts

Your records have been kept in an accounting package all year, and now the annual accounts have to be prepared. The package supplies the figures, that is what you have it for. What comes on top are the choices and the texts that turn a set of figures into annual accounts, and those are not in your package.

What your accounting package does supply

A well-maintained package gives you everything you need for the figures:

• •The general ledger with all transactions of the financial year.
• •Debtors and creditors, with what is still outstanding.
• •The VAT returns you have filed.
• •The bank transactions and the reconciliation of those.
• •A trial balance per period, and at the end of the year the final trial balance for the whole financial year.

That is the basis, and you need nothing more for the figures. That is also why the step to the annual accounts is often underestimated.

What your accounting package does not supply

• •The accounting policies: the rules you follow when valuing your assets and liabilities.
• •The notes per item: why an amount is what it is.
• •The reconciliation of equity, the check that finds almost all errors.
• •The publication documents for KVK, if you are a legal entity.

This is where the work people underestimate sits. It is not calculation work, it is choices and texts.

Step 1: closing and reconciling your records

Closing means: all transactions of the financial year have been processed, the bank has been reconciled, and no outstanding item is left without an explanation. Annual accounts built on records that have not been closed always produce correction work, usually only at the moment you wanted to file them.

Step 2: from trial balance to line items

The trial balance is a list of accounts and amounts. The balance sheet and the profit and loss account contain the same amounts, but grouped: this item belongs under fixed assets, that one under current liabilities, and so on. You clear the suspense accounts, and you decide which items you want to show separately. How those two statements hang together is set out at balance sheet and profit and loss account.

Step 3: the items you must assess yourself

Four items are almost always manual work:

• •Depreciation. Which fixed assets do you have, what was the purchase price and over how many years do you depreciate? See depreciating a company car for the worked example.
• •Inventory. Which method do you use, and which parts are obsolete? See valuing inventory.
• •Debtors. Which receivables are you probably not going to be paid? See debtors and uncollectible receivables.
• •Private drawings and contributions. For a sole trader, private money runs through the business; where you record it determines whether your profit is correct. See private drawings and contributions.

Step 4: the reconciliation of equity

The check that finds almost all errors: the opening balance of your equity, plus the result for this year, plus what you put in, minus what you took out, must equal the closing balance on the balance sheet. If that does not match, there is almost always an item in the wrong place. How that works is at opening and closing equity, and you can work it through with calculate equity.

Step 5: the documents for KVK

Only if you are a legal entity. What goes with it depends on your size class, and the publication documents are a separate set alongside your own annual accounts. See filing annual accounts with KVK and micro, small or medium-sized.

Step 6: checking and downloading

Two checks decide whether you are done: the balance sheet must balance (assets equal liabilities) and the equity must reconcile with the result. Then follows the signing with place and date, and you keep the final version in your records.

When a separate annual accounts tool is handier than your package

Sometimes your package does not produce complete annual accounts: the figures yes, but the accounting policies, the notes and the publication documents no. Then you have two options: outsource it, or use a separate tool in which you take over the figures from your package and prepare the documents yourself. How the latter works is set out at annual accounts software, including what to look out for when choosing.