Latest News -
Home » INCOME TAX » Guidance note on finalisation of books of accounts

Guidance note on finalisation of books of accounts

Today we are going to discuss on finalisation of books of accounts. In this topic we will discuss the closing entry to be passed at the end of the year for finalisation of books of accounts. An assessee should passed the following entry depreciation on fixed assets, provision for the expenses, provision for taxation, entry for deferred tax , entry for Accrued income on investment.

An assessee should also make the Bank reconciliation, Cash reconciliation, Stock Reconciliation etc.

In this blog we are going to explain the provisional entries which are passed on last day of the financial year i.e. 31st March & how these provisional entries are reversed back in next financial year.

Closing entry to be passed for the finalisation of books of accounts

Provision For Depreciation –

Depreciation means the charge made on Profit & loss account for the wear & tear of fixed assets. Decrease in value of fixed assets due to regular use of fixed assets. Two types of method are adopted by organization.

First method: In this method the value of fixed assets remain constant & every year the provision for depreciation increases. The entry passed at the end of year is :

Depreciation A/c. Dr.            xxxxxxxx

To Provision for depreciation A/c.            xxxxxxx

After passing this entry, transfer the depreciation a/c  to Profit & loss a/c. The entry is :

Profit & Loss A/c.                xxxxxxxxxx

To Depreciation  A/c.                           xxxxxxx

This both entry is passed at the end of every year until the value of fixed assets comes to nominal value or zero.

Second Method : In this method the value of fixed assets decreases every year. The depreciation is charged directly to fixed assets. The entry is :

Depreciation A/c. Dr.            xxxxxxxx

To Fixed assets A/c.                       xxxxxxx

By passing this entry the value of fixed assets decrease directly & then transfer the depreciation a/c. to Profit & loss a/c. as shown in above.

 Provision of Taxation:

This is just a transfer entry. At end of year, organisation has to made the estimation of tax on their income & creates an provision of taxation. When tax is paid at the time of return filling then such provision is set off against such provision. The advance tax is also set off against this provision. The entries passed are:

Profit & loss A/c.       Dr.      xxxxxxxxx

To  Provision of taxation   A/c.      xxxxxxxx

The set off entries are as follows:-

Provision for taxation A/c.  Dr.      xxxxxxxx

To  Advance Tax  A/c.                        xxxxxxxx

To  Self  Assessment Tax  A/c.          xxxxxxxx

To Excess provision  A/c.                  xxxxxxxx

 Provision for Expenses/ Statutory liabilities:

There are many expenses which relate to a particular month but paid in next month. The expense which are outstanding at the end of year are to be transferred to Provision for expenses account & this account is adjusted when such expenses are paid. We can understand the entries with the following example:

The electricity expense of March month is paid in April Month. At the end of year entry passed is:

Electricity Expenses A/c.  Dr.          xxxxxxxx

To Provision for Electricity expenses  A/c.     xxxxxx

When such expenses are paid the entry passed is :

Provision for electricity expenses A/c.  Dr.     xxxxx

To Bank/Cash  A/c.                                xxxxxxx

Accrued Income Entries:

Make the interest income entry at the end of the year, In most of organisation the interest to unsecured loan party or interest from loan & advances party entry is passed at the end of month.

Interest expenses        A/c.     Dr.          xxxxxx

To   Unsecured loan party’s   A/c.      xxxxxxx
Loans & advance party’s A/c Dr.        xxxxxx

To Interest income   A/c.                       xxxxx

Bank Reconciliation:

Cross check the balance of bank as per bank statement with balance of bank with the books of accounts and make bank reconciliation if there is any difference.

hence above explained entries are the general entries which every organisation has to follow. Hope you will get understand. If there is any query relating to this blog please type your query in comment box we are ready to solve your queries.

Stock Reconciliation:

Take physical stock at the end of the year and check the stocks in the books of account and make the  reconciliation of stock at the end of the year.

After reading this finalisation of accounts you can also read the tax planning in the month of march.


I am passionate about my work , What ever it be . Life has its own way to express , stay positive and keep going . Life doesn't go the way you want, " Learn to adapt and modify". My mantra to be happy in life " Life has always been uncertain why worry ...forget the past , live your present focus it


  1. At the time of finalization of accounts, what amount should be taken for Bank balance whether balance as per passbook or balance as per book maintained by company.

    Kindly clarify my doubts

  2. ravi chandiran s

    In the books, balance as per your book only the bank balance has to be shown but both the balances has to be
    tallied (book balance with bank statement balance and if differs proper reconciliation for the same has to be manually arrived and kept for IT purpose and accordingly the same has been closed in the next coming months entries).

Leave a Reply

Your email address will not be published. Required fields are marked *