Year-End Closing

Year-End Closing

The year-end closing is one of the most important processes in accounting. At the end of each fiscal year, you must properly close your books, document the financial results, and carry forward opening balances into the new year. This guide walks you through the process step by step.

What Is Year-End Closing?

Year-end closing encompasses all the work required at the end of a fiscal year to formally close the accounting records. Under CO Art. 958, entities required to keep accounts must prepare annual financial statements consisting of a balance sheet, income statement, and notes.

The fiscal year typically corresponds to the calendar year (1 January to 31 December) but can be set differently (e.g. 1 April to 31 March).

Step 1: Preparatory Work

Before creating closing entries, ensure your books are complete and accurate:

Account Reconciliation

• Bank accounts reconciled with bank statements (see Bank Reconciliation)
• Accounts receivable verified -- do open items match the receivables ledger?
• Accounts payable checked -- are all supplier invoices recorded?
• Cash book reviewed -- does the balance match the physical cash on hand?

Completeness Check

• All income and expenses for the fiscal year recorded?
• VAT returns reconciled with the bookkeeping?
• Wages and social contributions correctly booked?

Step 2: Closing Entries (Accruals)

Closing entries ensure that income and expenses are allocated to the correct fiscal year (accrual accounting):

Prepaid Expenses and Accrued Income

Revenue attributable to the current year but received in the next year. Example: Work performed in December but invoiced in January.

Accrued Expenses and Deferred Income

Expenses attributable to the current year but paid in the next year. Example: December rent due in January.

Provisions

Obligations whose amount or timing is still uncertain. Example: Expected warranty costs or pending litigation.

Depreciation

Reductions in value of fixed assets (machinery, vehicles, furniture, IT equipment) are booked at year-end. Ensure you apply tax-permissible depreciation rates.

Step 3: Close the Income Statement

After all accruals, you prepare the income statement. All revenue and expense accounts (classes 3-8) are netted to determine the profit or loss:

• Gross profit = Revenue - Cost of goods
• Operating profit (EBIT) = Gross profit - Operating expenses
• Net profit/loss = Operating profit +/- Financial result +/- Extraordinary items - Taxes

Step 4: Profit Allocation

The net profit must be allocated according to the CO:

• AG/GmbH: At least 5% of net profit must be allocated to the legal reserve until it reaches 20% (AG) or 50% (GmbH) of the share/nominal capital (CO Art. 672/801)
• Sole proprietorship: Profit is credited to the owner's equity account
• Dividends: May only be declared after allocation to legal reserves

Step 5: Prepare the Balance Sheet

The balance sheet shows the financial position as of the reporting date:

The balance sheet equation must always hold: Assets = Liabilities + Equity

Step 6: Carry Forward Opening Balances

After closing, the ending balances of all balance sheet accounts are carried forward as opening balances into the new fiscal year. Income statement accounts start at zero.

Step 7: Archiving

Under the GeBüV, all accounting records and supporting documents must be retained for 10 years. This includes:

• Signed balance sheet and income statement
• Notes to the financial statements
• Journal entries and general ledger
• All supporting documents (invoices, receipts, bank statements)
• VAT returns

Common Year-End Closing Mistakes

• Missing accruals -- income and expenses allocated to the wrong year
• Forgotten depreciation -- fixed assets not depreciated
• Uncleared open items -- uncollectible receivables not written off
• No bank reconciliation -- discrepancies between bookkeeping and bank statements go unnoticed
• Missing provisions -- known obligations not accounted for

How LumaBill Helps

LumaBill supports you through year-end closing:

• Fiscal year management -- create, close, and lock fiscal years
• Closing entries -- record accruals, depreciation, and provisions as journal entries
• Automatic balance carry-forward -- opening balances are automatically transferred to the new year
• Balance sheet and income statement -- generated at the click of a button, as of any reporting date
• Locked periods -- once closed, no further entries can be made in the closed year
• Export and archiving -- export financial statements as PDF

Further Reading

• Fiscal Years -- manage fiscal years in LumaBill
• Balance Sheet -- generate and interpret the balance sheet
• Profit and Loss -- analyze the income statement
• Bank Reconciliation -- reconcile accounts before closing
• Swiss Bookkeeping Basics -- legal foundations