When closing the accounts, do not forget to accrue both prepaid and deferred expenses. In this way, the accounts will reflect a true and fair view of your company and declare the correct accounting result.
We are approaching the close of the 2024 corporate income tax year and, with it, the review of one of the most relevant tasks to ensure accounting and tax accuracy: the accrual of income and expenses. This process, in addition to being mandatory, allows a faithful reflection of the company’s economic situation, adjusting expenses and income to the year to which they really correspond, according to the accrual principle established by the General Accounting Plan (PGC).
Accrual principle
The PGC indicates that the effects of transactions should be reflected in the period in which they occur, regardless of when they are paid or received. This implies that, to comply with Article 11 of the Corporate Income Tax Law (LIS), taxpayers must record expenses and income in the period in which they actually accrue. However, it is possible to apply to the tax authorities for an alternative time allocation method, such as the cash method, provided that such application is submitted within the stipulated deadlines and the tax authorities do not respond negatively within six months.
In exceptional and duly justified cases, the accrual principle may be departed if this allows a more accurate representation of the true and fair view of the company.
Accruals and deferrals
When closing your accounts, we recommend that you pay special attention to the following expense and income categories:
1. Prepaid expenses
- Expenses paid in the current year belong to the following year. Examples: insurance premiums, leases paid in advance or disbursements on fairs that will occur next year.
- Recording: These expenses should be charged against account 480 (Prepaid expenses). When the expense is accrued, this account will be derecognized and charged to the corresponding expense.
2. Accrued and unpaid expenses (Deferred expenses)
- Expenses corresponding to the current fiscal year, but whose payment will be made in the next year, such as extra payments or interest on loans not yet due.
- Recording: they are posted against a supplier account or account 4109 (invoices to be received).
3. Income collected in advance
- Revenue received in the current year for supplies or services to be rendered in the following year. They should be recorded in a specific account and reflected in the future period to which they pertain.
4. Accrued and uncollected income
- Revenues generated in the current fiscal year, even though collection has not been made. Example: services rendered in December but billed in January.
- Recording: should be recognized as revenue in the current period.
Changes in estimates and accounting criteria
It is essential to identify any change in estimates or accounting criteria:
- Change in accounting estimate: to be applied prospectively, affecting the result of the current year.
- Change in accounting criteria: applied retroactively, adjusting past results in reserves.
- Accounting errors: must be regularized to reflect the correct accrual period.
Forward transactions
At year-end, forward transactions require specific treatment to adequately reflect revenue. In these transactions, the revenue is not recognized in full at the time of the sale or rendering of the service, but in installments, in accordance with the collection periods established in the contract.
- Proportional allocation: Only the portion of the revenue due in the year is recognized in the year, based on the collection periods. Outstanding revenue is recognized in the corresponding future years.
- Example: If your company sells a service in 2024 with payments in several years, only the portion corresponding to 2024 should be allocated, leaving the remainder for future years.
This method ensures that the accounting reflects the real income of each year, aligning with the accrual principle and avoiding overstatement of results at year-end.
You can contact this professional firm for any doubt or clarification you may have in this regard.
For further information, please consult with Tax consulting
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