Accurate financial statements are the backbone of good governance, investor trust and regulatory compliance. This guide walks you—practically and sequentially—through preparing financial statements for a company: planning and data collection, books closing, accounting adjustments, preparing the Statement of Profit & Loss, Balance Sheet, Cash Flow Statement, notes and disclosures, review and audit readiness. Use this as a repeatable checklist to make month-end, quarter-end and year-end closes faster and cleaner.
1. Planning & kickoff (close calendar & roles)
- Set the financial close calendar and final reporting date (monthly/quarterly/yearly).
- Assign owners for each task: accounting, payroll, tax, fixed assets, inventory, reconciliations, and controller.
- Prepare a deliverables list and deadlines (trial balance date, adjustments, draft P&L, draft balance sheet, notes).
- Confirm accounting policies (revenue recognition, capitalization thresholds, depreciation methods, FX policy) that will apply for the period.
2. Data collection (source documents & ledgers)
Collect and centralize all source data for the reporting period:
- Sales invoices, credit notes, receipts.
- Purchase invoices, vendor statements.
- Bank statements (all accounts).
- Payroll reports, statutory contribution reports.
- Fixed asset additions/disposals.
- Inventory counts and valuation support.
- Loan agreements, interest schedules, lease contracts.
- Any one-off contracts, grants or government receipts.
Ensure each file is dated, indexed, and tagged to the relevant GL account.
3. Reconciliations (bank, creditors, debtors, intercompany)
Complete reconciliations as the foundation for reliable statements:
- Bank reconciliations — clear outstanding cheques and deposits in transit; reconcile to GL cash balances.
- Receivables — confirm AR ledger vs. sub-ledgers and run ageing; obtain credit notes/collections details.
- Payables — vendor statement confirmations; match GRN/PO to invoices where applicable.
- Intercompany — reconcile intercompany balances and agree with counterparties.
- Loans & interest — reconcile principal and interest to lender statements and amortization schedules.
Document reconciling items with aged lists and assign owners/timelines to clear long-standing items.
4. Accruals & cut-offs (period accuracy)
Make accrual and cut-off adjustments to ensure revenues and expenses are recorded in the correct period:
- Accrued expenses (utilities, professional fees, commissions).
- Accrued income and unbilled revenue (work in progress).
- Prepayments and deferred revenue (recognize amortization for the period).
- Inventory cut-off adjustments after physical count and valuation (FIFO/LIFO/WAC as per policy).
- Revenue cut-off: ensure last period sales shipped/recognized per revenue policy.
Prepare supporting schedules for each accrual/prepayment.
5. Fixed assets & depreciation / amortization
- Post additions and disposals to the fixed asset register (FAR).
- Compute depreciation / amortization using the company’s policy (straight-line, WDV) and prorate for partial periods.
- Impairment checks: review indicators and perform impairment tests where necessary.
- Reconcile FAR to the general ledger and prepare a fixed asset reconciliation schedule.
6. Tax & statutory adjustments
- Compute current income tax provision and deferred tax movement per accounting standards.
- Review GST/VAT/other indirect tax reconciliations and accruals for liabilities or refunds.
- Provision for withholding taxes / TDS liabilities and compliance with deposit dates.
- Confirm tax filings status and note any exposures or disputes to disclose.
7. Preparing the Trial Balance & adjusting entries
- Pull the trial balance as of the reporting date.
- Post adjusting journal entries (accruals, prepayments, depreciation, provisions, FX revaluations).
- Reconcile suspense/unallocated items and clear or classify them appropriately.
- Rerun the trial balance and ensure debit = credit. Document every adjustment with a rationale and supporting schedule.
8. Prepare Primary Financial Statements
Statement of Profit & Loss (P&L)
- Classify income and expense lines per the company chart of accounts and applicable accounting standard.
- Present operating vs non-operating items, finance costs, share of profit/loss (if any), and tax expense.
- Reconcile P&L items to management reports and variance explanations.
Balance Sheet
- Present assets, liabilities and equity in the required format.
- Classify current vs non-current items.
- Include reconciliations for cash, receivables, payables, provisions, borrowings and equity movements.
Cash Flow Statement
- Prepare cash flow using the direct or indirect method (indirect is common): reconcile net profit to cash from operating activities; separately present investing and financing activities.
- Verify opening and closing cash balances reconcile to bank reconciliations.
9. Notes to Accounts & disclosures
- Draft note schedules: significant accounting policies, share capital, reserves, borrowings, fixed assets, investments, trade receivables/payables aging, provisions, contingent liabilities, related party transactions, leases, earnings per share, segment reporting (if applicable).
- Include supporting schedules (e.g., movement in provisions, breakups of deferred tax).
- Ensure disclosure language is clear, consistent with figures, and cross-referenced to the primary statements.
10. Management review & variance analysis
- Prepare a variance analysis (actual vs budget/forecast/previous period) for key P&L and balance sheet line items.
- Circulate draft statements with supporting schedules to management for review and comment.
- Capture management explanations and adjust only where supported by documentation and accounting policy.
11. Audit readiness & internal controls review
- Compile the audit pack: trial balance, journal listing, reconciliations, bank confirmations, fixed asset register, board minutes approving significant transactions, tax computations, and statutory returns.
- Ensure internal controls around revenue recognition, payroll, procurement and treasury are documented and any exceptions noted.
- Prepare schedules for auditor requests in advance to speed the audit.
12. Finalization, approvals & filing
- Obtain sign-offs from finance head, CFO and CEO, and the Board where statutory approval is required.
- After final approval, prepare signed copies of the financial statements with directors’ report (if year-end), auditor’s report (post audit) and relevant annexures.
- File statutory returns and financial statement filings with authorities/ROC/stock exchange as required, within prescribed deadlines.
Practical checklist (copy-paste into your tracker)
- Close calendar & owners assigned.
- All source documents collected and indexed.
- Bank, AR, AP, intercompany, and loan reconciliations complete.
- Inventory count completed and valuation support available.
- Fixed asset register updated and depreciation posted.
- Accruals, prepayments, deferred revenue posted.
- Tax provisions and GST reconciliations completed.
- Adjusting journal entries posted and documented.
- Trial balance balanced and reviewed.
- Draft P&L, Balance Sheet, Cash Flow prepared.
- Notes to accounts drafted & cross-checked.
- Management review completed; explanations captured.
- Audit pack compiled and shared.
- Final approvals obtained; statements filed and archived.
Common mistakes and how to avoid them
- Late or missing reconciliations — enforce deadlines and gate the close on reconciliations being complete.
- Poor documentation of adjustments — require a one-page rationale for each non-routine entry.
- Mixing one-offs into recurring budgets — tag one-off adjustments separately for clarity.
- Ignoring cut-off rules — institute clear cut-off procedures for revenue and purchases.
- Inadequate disclosure — run a disclosure checklist mapped to applicable accounting standards and statutory requirements.
Suggested internal controls to implement
- Mandatory dual sign-off for manual journal entries above a threshold.
- Monthly reconciliation sign-offs with aging limits for AR/AP.
- Restricted access to accounting master data and period-close locks.
- Quarterly internal review of accounting policy application (revenue, leases, capitalization).
- Automated exception reports for stale items and large one-time transactions.
Sample closing journal entries (illustrative)
- Accrual for professional fees:
Dr Professional Expense
Cr Accrued Liabilities - Depreciation entry:
Dr Depreciation Expense
Cr Accumulated Depreciation - Prepayment amortization:
Dr Prepaid Expense (expense portion)
Cr Prepayment Asset
(Always include a supporting schedule and reference number for each journal.)
Timeline — typical month-end close (example)
- Day 1–3: Collect source documents, bank reconciliations.
- Day 4–6: AP/AR reconciliations, inventory adjustments.
- Day 7–9: Fixed asset posting, depreciation, tax provisions.
- Day 10: Post adjusting journals, finalize trial balance.
- Day 11–13: Draft financial statements & notes.
- Day 14–15: Management review and finalization.
Adjust timelines to company size, transaction volume and regulatory deadlines.
Conclusion
A disciplined, repeatable close process reduces errors, improves stakeholder confidence and shortens audit cycles. Use the step-by-step approach above: plan, collect, reconcile, adjust, prepare, review and finalize. Saving Mantra can help you implement automated reconciliation workflows, prebuilt closing checklists, document management, and dashboards so your finance team closes faster and with higher accuracy.
The information provided in this blog is for general informational and educational purposes only and should not be construed as legal, tax, or professional advice. While every effort has been made to ensure accuracy and compliance with the applicable provisions of the Companies Act, 2013 and related rules, laws and regulations may change over time and interpretations may vary based on specific facts and circumstances.
All services are subject to applicable laws, rules, and government approvals prevailing at the time of execution.