The end of the year is not only a time for reviewing performance but also the peak period for accounting and financial responsibilities for most businesses. However, the rush and pressure typically associated with December can be significantly reduced if certain tasks are prepared well in advance. This is why it is advisable to review upcoming obligations early, explore available options, and consciously plan the remaining months of the year.
What should businesses prepare for before year-end?
Year-End Closing in Accounting: The Key Role of Inventory Counts
One of the most important elements of year-end accounting is taking
inventory. This includes reviewing raw materials, merchandise, intangible
assets, and tangible fixed assets. According to accounting regulations, a full
inventory count of intangible assets and tangible fixed assets must be
performed at least once every three years.
For software recorded as intangible assets, special attention should be
paid to whether all required documentation is available, whether the software
is still usable, whether it can still operate within the existing IT
environment, and whether it continues to support the company’s operations.
Obsolete or unnecessary software may need to be written off. This review does
not have to be postponed until the last days of the year and can be completed
earlier.
The company’s entire asset portfolio should be reconciled with accounting
records. In the case of real estate, it is advisable to review title deeds to
ensure that any previously registered mortgage or other encumbrance has not
been overlooked. The existence of tangible assets should be verified through
physical inspection, visual checks, and stocktaking. If asset shortages are
identified and it can be demonstrated that they could have been prevented with
adequate care, the value of the missing assets may increase the corporate tax
base.
Inventory counts should be carried out around the balance sheet date,
typically during the final or first days of the year. The process can be made
significantly easier if the warehouse is reorganized beforehand, inventories
are properly categorized, and damaged or non-saleable items are separated in
advance.
Work-in-Progress and Returnable Packaging: Common Challenges
Valuing work-in-progress and semi-finished products is often a complex
task. Businesses must determine the stage of completion and assign an
appropriate value accordingly. Companies dealing with such products should
review their costing policies and post-calculation procedures and update them
where necessary.
Returnable packaging should not be overlooked either. These assets often
represent substantial value, making accurate records and inventory counts
particularly important.
For assets stored outside the company’s premises, at so-called third-party
locations, it is advisable to request a storage confirmation and photographic
evidence from the partner verifying the existence of the assets.
Write-Offs and Impairment: What to Watch Out For
As a general rule, inventory write-offs and impairment losses recognized on
inventories that can no longer be sold at full price but remain usable are
considered tax-deductible expenses and therefore do not, in themselves, create
an additional tax liability. The extent and method of impairment are determined
by the company’s accounting policy.
However, inventory shortages exceeding the level normally expected within a
given industry may result in tax consequences and therefore require special
attention.
Year-End Financial Reconciliations
As part of the year-end closing process, receivables and liabilities
recorded in the accounting records should be reconciled with actual balances.
This process does not have to be performed at year-end and may be scheduled as
of an earlier reporting date, such as 30 November. This allows sufficient time
to process confirmations received from business partners and resolve any
discrepancies identified.
Restoring Equity: Why Early Action Matters
For companies operating at a loss over an extended period, reviewing the
status of equity is particularly important as year-end approaches. If restoring
equity becomes necessary, several options may be available, including
supplementary capital contributions or capital increases. Both solutions can be
implemented either through cash contributions or through contributions in kind.
Early planning is crucial in this area as well. Restoring equity is not merely a matter of legal compliance but also a fundamental prerequisite for maintaining a company’s financial stability.
With the integrated service model of LeitnerLeitner and LeitnerLaw, we not only reduce your administrative burden but also provide a strategic advantage for your business through a consistent, high-quality, one-stop-shop approach. Our team manages your accounting, financial and related legal matters in a coordinated manner. Through practical advice, we help you identify both risks and opportunities in taxation and accounting. For equity restoration projects, it is worth involving the legal experts of LeitnerLaw, who support businesses with the legal and administrative steps required to ensure a smooth and compliant process.
Year-End Decisions: Foreign Currency Accounting and Tax Payments
The end of the year is not only a time for closing the books but also an
ideal opportunity to make important strategic decisions. Companies whose
operations are significantly influenced by foreign currency revenues and
expenses should assess whether a HUF-based accounting system continues to be
the most appropriate solution.
Switching from HUF Accounting to Foreign Currency Accounting
Transitioning to accounting in a foreign currency is typically implemented
at the end of the financial year, making early preparation essential. This
option may be particularly beneficial for businesses whose revenues and
expenses are predominantly generated in euros or other foreign currencies and
whose profitability is significantly affected by exchange rate fluctuations.
However, changing the accounting currency is not merely an accounting
decision. The company’s articles of association or deed of foundation must be
amended, and the relevant provisions of the accounting policy must also be
updated.
The transition also involves administrative requirements. The company must
prepare two separate sets of financial statements: one in the previous
accounting currency, namely Hungarian forints, and another in the newly
selected currency, such as euros or US dollars. As part of the process, the
financial statements must also be audited.
Paying Taxes in Foreign Currency: An Increasingly Popular Option
Businesses may choose to pay corporate income tax and local business tax in
euros or US dollars instead of Hungarian forints. This option is available
regardless of the currency used for bookkeeping, meaning the choice is
independent of the accounting currency.
It is important to note, however, that taxpayers must notify the tax
authority in advance of their intention to pay taxes in a foreign currency. The
choice applies to the entire following tax year, making the notification
deadline particularly important. The declaration must be submitted no later
than the first day of the month preceding the first day of the tax year. For
taxpayers following the calendar year, this deadline is 1 December.
Who Can Benefit from Foreign Currency Tax Payments?
This option is particularly advantageous for businesses that keep their
books in a foreign currency or generate a significant portion of their revenue
in foreign currencies. In such cases, unnecessary currency conversions can be
avoided, resulting not only in simpler administration but also in savings on
transaction costs.
Before making a decision, businesses should carefully evaluate their
individual operating model, revenue structure, and exposure to exchange rate
risks. Foreign currency accounting and tax payments can have a long-term impact
on the efficiency and predictability of financial processes.
