Financial Statements and Closing of Accounts
What the exam tests
Year-end work: closing operations, preparation and approval of the statutory statements, publication, and the link to audit. Questions often ask which entry belongs to closing, how profit is closed, and which statements are mandatory.
Core rules
- Closing operations include inventory of assets and liabilities, accruals and deferrals, provisions, exchange-rate adjustments, depreciation, income tax, and the transfer of profit or loss. They are recorded as of the balance sheet date, before the books are closed.
- Financial statements comprise the balance sheet (rozvaha), profit and loss account (výkaz zisku a ztráty), and notes (příloha); larger entities also prepare a cash flow statement and statement of changes in equity. The notes must disclose accounting policies and material items.
- Statements must be approved by the general meeting or owner, signed by the statutory body, and published in the Collection of Documents (Sbírka listin) within the statutory deadline. A statutory audit applies if at least two of three thresholds are exceeded; the thresholds are set by law, so check the current wording.
- The closing of the books transfers profit or loss to the relevant equity account; opening entries then reverse closing accounts.
Worked example
Accounting profit before tax is CZK 1,200,000. The accountant records an accrual for an unbilled electricity invoice of CZK 40,000 (debit 502, credit 389) and a provision for a pending lawsuit of CZK 60,000 (debit 552, credit 451). Taxable profit is adjusted: add the provision if it is not tax deductible, so the tax base becomes 1,300,000 before other adjustments. With corporate tax at 21%, current tax is 273,000 (debit 591, credit 341). Net profit after tax is 1,200,000 - 40,000 - 60,000 - 273,000 = 827,000. That amount is transferred to retained earnings or profit distribution after approval.
Traps
Treating a provision as an accrual; deducting a non-deductible provision for tax; omitting notes disclosure; closing profit directly to an expense account; forgetting that the cash flow statement and equity changes are part of the annual financial statements for those required to prepare them. Do not mix the balance-sheet date with the date the statements are approved.