For a business person, it is vital to obtain the results of their operations in a given period. The numbers from these results assist the owner to comprehend the performance of the business and plot its future path. Before beginning such calculations, there a few matters which must be manifested to obtain fast, optimum and correct results.
Given below are the top 10 points which should be unravelled before the annual calculation is performed. These pointers will direct your business in the direction of accurate annual estimates, without facing any hassle. Following these points is likely to ensure that the financial numbers of the company are obtained precisely.
Activities to be Completed While Calculating Annual Results
Calculation of Advance Tax Payable
Followed in most tax regimes is the system of ‘pay as you earn’. There are specific provisions applicable to a business under which they are required to pay their taxes in advance, after making adjustments and calculations.
You should calculate this tax as accurately as possible and include a provision for it if it remains payable, before arriving at the final income during a period.
Complete Relevant Tax Saving Investments
Businesses are permitted to obtain certain deductions from their total income, based on several investments. If you intend to avail the benefit of such schemes, you must ensure that the investments are made, or a provision thereof is maintained before arriving at the final value of income earned during a period.
Complete Count of Physical Inventory
Physical counting of various inventory, such as raw materials, finished goods, work in progress and consumables should be completed up to a specific date.
Based on this, the appropriate valuation of these items must be made to include it in the financial records. You must ensure that the assets for this purpose have been appropriately adjusted for depreciation.
It is also essential to include the correct number of such items in terms of their quantity in the final statements. Along with several other things, every such item forms a constituent of the overall value of a business.
Ascertain the amount of Capital Gains
If you have obtained any capital assets for your business such as equity shares, bonds, mutual funds options etc., it is suggested that you plot the details of the date of their purchase and date of sale, if any.
Accordingly, you may have incurred a capital gain or a capital loss, which will not only attract tax implications but also impact the earnings of the business. Further, any dividend or return earned on such investments must be taken into account while making the annual calculation.
Verify and Clean Your Loans
It is common for businesses to obtain hand loans or even to lend one. As an owner, if you have given any temporary loans or have any outstanding amount on account of such loans, try to liquidate your liability or clean the account, as the case may be.
Doing this will bring a positive impact on your overall financial position when you finalise your accounts.
Ascertain Professional Incomes and Expenses
To obtain the right position of your finances, it is suggested to settle all possible cash payments and get all cash receipts, before proceeding to calculate annual earnings. This is vital in case your business follows a cash system of accounting.
Many businesses follow the accrual basis of accounting, where this may not be necessary as long as the required adjustments are made to obtain the actual amount of cash.
File Any Pending Returns of Taxes
Depending on your business operations, it is vital to keep a clean record when it comes to filing of tax returns. You may need help with how to file gst return but make sure that you are updating all your returns on time. This will help you avoid any undue liabilities in terms of penalties for late filing of returns.
Make Calculation of GST Turnover
Many businesses have found themselves under the regime of GST based on their turnover. For this reason, you must ensure that the turnover of your business is calculated on the chargeable basis to determine aspects such as registration under GST, gst composition scheme rules, the requirement to file various returns, with accuracy.
Since penalties are awarded for not following the relevant provisions, you can ensure that your business does not face any unnecessary brunt by completing such calculations on time.
Reconcile All GST Ledgers
A business is required to make payments of GST using challans or tax credit obtained earlier. You must ensure that the cash ledger, liability ledger and credit ledger have been reconciled for this purpose. At the same time, you also need to ensure that entries in these books are completed before the end of the year.
To obtain valid results from these books, you must take into account the various debit notes, credit notes, discounts, differences in rates and more. These need to be reconciled in the books of accounts properly to obtain accurate results.
Take Account of Unabsorbed Capital Losses
In the current period for which calculation of income is being made, if your business has earned a capital gain, it can be reduced by the amount of any capital losses which you may have incurred in the eight years preceding this period.
To do so, it is important to file returns on a timely basis and book the capital gain, so that the benefit of such provision can be availed.
The task of calculating annual income is a hefty one. As a business owner, you must invest your time and efforts to ensure that the same is done systematically, within the due deadlines. There are many implications for assessing a business’s incomes and expenses for a given period.
While some help the owners avoid the incidence of attracting a heavy penalty, yet others accrue benefits for the business. Under any circumstances, it is always in the best interest for an owner to consider these points before starting the process of annual calculations.