You don’t necessarily need to put together documentation to perform a year-end closure in and of itself. You simply need to stop registering accounting entries for the past fiscal year.
However, as mentioned above, you must submit your year-end accounting to the tax authorities within 7 months of closing out the fiscal year.
Your year-end accounting should include three key documents:
A balance sheet
Your
balance sheet essentially sums up all your business’ activity, both active (your accounts receivable, treasury, stocks) and passive (your debt, for example). Some say that your balance sheet is
a snapshot of your company’s finances at a given moment.
A profit and loss
If the balance sheet is a snapshot of company finances, then the profit and loss sheet is the film. It contains:
- your company’s income, such as sales revenue, or any other incoming funds;
- your company’s expenses, meaning the costs of running your business.
What this document does is follow the progression and evolution of your company’s finances over the course of the fiscal year. It also allows you to calculate its net worth.
💡 A quick vocab refresher: the net worth of a company is the difference between its assets (income) and its liabilities (costs). It helps determine whether or not your company is running at a profit or a loss.
An accounting annex
Your accounting annex helps explain your balance sheet and your profit and loss statement to those who examine them. It’s like the user’s guide to your year-end accounting. More specifically, it outlines the rules and methods you (or your accountant) used to put together the year-end accounting.
Good news: as a freelancer, you are not legally obligated to write out an annex, provided you don’t surpass more than two of the three following thresholds:
- your annual turnover is €700,000 or less;
- your balance sheet is €350,000 or less;
- you have no more than 10 employees.