5 Reasons Why It Is Important To Close-Books Of The Financial Year & How?

5 Reasons Why It Is Important To Close-Books Of The Financial Year & How?

“Close Book” is an important part of financial year-end procedures for every business.


# So, what is this “Close Book”?

“Close Book” is the accounting process where you clear your previous year account balances (of the income and expense accounts/ payments and receipts accounts) and you start fresh again!!!


# Why “Close Book” Is Important For Your Business?

1. Doing “Close Book” at the right time will prevent you from making accidental changes on transactions that alter account balances of the closed accounting period. 
2. Not Closing Books on time could result in a mismatch of accounts, which will bother you while filing taxes. It is for this reason companies close books on March 31st.
3. On the other hand, if it is easy to access last year’s data, which includes details of every transaction, you’re leaving the door open to all kinds of problems which may result in messing up with important business data.
(For example: Let’s say you want to compare how your company is doing in 2020-21 versus how it did in 2019-20. If you don’t close March 2020 and you’re free to make adjustments to that period, that comparison can no longer be relied upon)
4. Close financial year can be used to segregate business data in Vyapar between the financial years.
5. Moreover, it always feels fresh to start something fresh. Starting new with your accounting book is a refreshing idea after all!


# Where to find
& how to “Close Book” in the Vyapar App?

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How to Use it?

What to do before “Closing Book” in Vyapar?

When you “Close Book” for the financial year, you can no more make entries/adjustments to the older transactions.

Hence, it is good to do the following tasks before closing the book:

  • Take a backup of all your business data onto your google drive or your phone.

  • Reconcile any open cheques, unpaid/partially paid invoices, incomplete transactions to avoid confusion in the coming year.

  • It is recommended to close all the cheques before closing the accounts either by depositing/ withdrawing from/to the bank.
    (For example: you’d expect the book balance to be lower than the bank if you wrote a cheque today that hasn’t yet been cashed)

Basically, reconciliation is the process of getting the balance in your bank+cash-in-hand to agree to the (=) balance in your book, and it is done by identifying errors and making possible adjustments.


# Let’s look at the Steps to “Close Book” in Vyapar

There are two ways of closing books in Vyapar.

1.) Start Fresh: 

Users can use this option If the user wants to separate data as per financial years.

  • In order to close the financial year and start fresh click on the “Utilities” option located under main-menu > Close Financial Year > Select “Closing Date” it is recommended to choose 31st of March (Financial Year End) > Start Fresh
5 Reasons Why It Is Important To Close-Books Of The Financial Year & How?
  • Now save your old data (Close book data). Close book backup file will contain your last financial year data so make sure to store the same somewhere safe. (Don’t forget to remember where you’ve saved it!)
5 Reasons Why It Is Important To Close-Books Of The Financial Year & How?
  • Once data is saved, you will get the alert message saying “Book closed successfully” 
5 Reasons Why It Is Important To Close-Books Of The Financial Year & How?
  • Acknowledge the alert message by clicking the “OK” button. The application will get restarted and you will be able to start fresh from transaction/invoice number 1.

Example: If you will close the financial year by selecting the closing date as of 31/03/2020 then all the transactions created till 31/03/2020 will get wrapped up in the close book (a separate company). However, party balance, cash in hand, bank balance and available stocks will remain as it is and it will appear in the new company.

After the close book is done successfully, we suggest updating the company display name as per the financial year (ex: company-name 2020-21) because again if you will restore any previous data then it should not create any confusion among a company name. In order to access the data of the previous financial year (close book data), the user will have to restore the close book data. It will be restored as a separate company.

Once your Book is closed – 

  • All your sale/purchase/bank transactions and more will be cleared. Whereas all your party/ bank details will remain untouched.

  • Bill/Invoice number will be reset back to 1

  • Pending balances of all your parties from the previous financial year become the opening balance for this year

  • All left out stocks of the previous year will be carried forward to this year as an opening.

  • All Closing balances of Bank/cash from the previous financial year become the opening balance for this year

Your Vyapar App will be reset with just the necessary data while the rest is safely stored separately which you can retrieve back anytime. Now you can start your new financial fresh. You can start adding the new transactions from now on!


2.) Change Prefix:

Users can Close Financial year with a new invoice-prefix option & set a new Transactions prefix for the new financial year.

Note: Users can use this if a user doesn’t want the data of the previous financial year to be separated (as a separate company) from the data of the new financial year.

  • To set a new Transaction prefix please click on the “Utilities” option located under the main menu > Close Financial Year > Change Prefix
5 Reasons Why It Is Important To Close-Books Of The Financial Year & How?
  • Please set the prefix for multiple transaction types and click on “Done”
    (For example: in a new financial year (2020-21), user can set invoice prefix as 2020-21/)
5 Reasons Why It Is Important To Close-Books Of The Financial Year & How?
  • Now the user will be able to use a new invoice series by using a newly-created invoice prefix. The newly created prefix will be selected by default while creating any transaction.
5 Reasons Why It Is Important To Close-Books Of The Financial Year & How?
  • The final Invoice number in the first invoice post changing prefixes will appear as 2020-21/1. Where 2020-21 is prefix created and 1 is the actual invoice number.

When Business reaches the end of a Financial year, you need to “close the books.” At a minimum, Businessperson will close books annually. Most businesses, however, close their books at the end of each month. One another major purpose for closing books at the end of the year is to give you a picture of the financial status of your business. You will find it easier to do if you close your books with the Vyapar app.


 

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5. 5 Clever Ways To Prevent Billing Disputes With Your Parties & Get Payments Faster
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