The result of the financial year is an essential part of each of the financial statements that form part of the annual accounts.
The application of the result has both legal and accounting consequences.
For a long time, profit was considered the main objective of companies. Today, there is much greater awareness that there may be many other objectives, mainly linked to the personal aspirations of their managers and to various social and environmental commitments. But this has not meant that accounting for profit has lost one iota of its importance.
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Every entrepreneur should be clear about some key aspects of the mechanics of profit accounting . This way, he will have a better understanding of the evolution of czechia email list his company. In addition, he will better understand some legal obligations . And let us not forget the importance of the accounting result in the projection of the company's activity towards interested third parties.
Closing of accounts and the result of the financial year
Throughout the accounting period , we will have been recording the company's operations in the journal . This will have meant that the income accounts will grow with a credit balance and the expense accounts with a debit balance.
At the end of the financial year, we must make a series of regularization and closing entries. Fortunately, modern management solutions allow us to automate this and other processes .
Among all these entries, one of them will lead to the consolidation of all income and expense accounts into one . To do this:
We will charge the accounts of groups 6 and 7 (normally the latter) that present a credit balance at the end of the year with a credit to account 129 (result of the year).
We will credit the accounts of groups 6 and 7 (normally 6) that present a debit balance at the end of the year by charging account 129.
This will ensure that, at closing, all income and expense accounts are zero. The result will be reflected in the corresponding account , 129. A similar process will occur, in parallel, with the accounts of groups 8 and 9, but in this case they are credited or debited to accounts of subgroup 13.
The result of the year in the annual accounts
When we draw up the accounts, the result of the financial year will be a key part of the different financial statements . In fact, its reflection is one of the main objectives pursued by the annual accounts .
In the balance sheet , it will appear under net worth and, within that, under shareholders' equity . However, the item referring to the profit for the year is placed below those referring to shareholders' equity. The reason is that, despite being part of the company's long-term financing, normally, during the year it will have to be applied to one or other purposes.
Obviously, the profit and loss account is where the result of the year takes center stage. It constitutes the balance sheet and the information contained therein breaks down the categories of income and expenses that have contributed to its formation.
The result is also very important in the statement of changes in equity . It plays the following role in the two documents that make it up:
In recognized income and expenses, it is one of the items taken into account to calculate that amount.
The total statement of changes in equity reports all changes in equity arising from various sources, including the result of the year and previous years.
One of the objectives of the report is to provide additional information and comments aimed, among other things, at conveying a true image of the company's results .
Finally, the cash flow statement also starts from the result of the year. It then makes a series of adjustments that allow us to understand the origin and use of monetary assets representing cash and other equivalent liquid assets.
Application of the result of the exercise
A key aspect is what to do with the result . This question is answered by the application of the result , which is an action with both legal and accounting consequences.
Legal implications of accounting results
From a legal point of view , depending on the legal form adopted by our company, obligations may arise related to the application of the result. For example, in capital companies it is one of the points on which the ordinary general meeting of shareholders must resolve during the first six months of the financial year.
