What is Closing Balance?

A closing balance sheet is the final balance sheet that shows a company's financial position at the end of a fiscal year . This is the balance sheet after all transactions have been recorded, adjusting entries have been made, and the year-end closing process has been completed.

What is a Closing Balance?

The closing balance sheet represents the company's final financial position on the balance sheet date and forms the basis for:

• The Annual Report: Official reporting to stakeholders
• Tax calculation: Basis for taxable profit
• Opening balance: Starting point for the next financial year
• Creditor assessment: Assessment of the company's solvency
• Investor Decisions: Basis for Investment Assessments

The closing balance sheet differs from current balance sheets in that it includes all closing adjustments and accruals that ensure correct accrual of income and expenses.

The Process for Preparing the Closing Balance Sheet

1. Raw balance

The first step is to prepare a trial balance based on ongoing accounting:

• Account balances: All accounts with balances as of the balance sheet date
• Preliminary figures: Before adjustment items and closing
• Basis for adjustment: Identification of necessary adjustments

2. Adjustment items

Critical adjustments that need to be made:

Accruals: * Accrued costs: Costs that belong to the period but have not been invoiced. * Accrued revenue: Revenue that belongs to the period but has not been invoiced. * Prepaid costs: Costs paid in advance for the next period * Advance income: Income received in advance for the next period

Value adjustments: * Depreciation : Planned depreciation on fixed assets * Write-downs: Decrease in value of assets * Revaluations: Upward value adjustments (limited)

3. Closing entries

Result closing: * All revenue accounts are reset to zero against the profit and loss account * All expense accounts are reset to zero against the profit and loss account * Profit for the year is transferred to equity.

Dispositions: * Dividends to shareholders * Transfers to/from funds * Provisions for future liabilities

Structure and Content of the Closing Balance Sheet

Assets

Fixed assets	Description	Example
Intangible assets	Non-physical assets	Goodwill, patents, software
Fixed assets	Physical fixed assets	Buildings, machinery, inventory
Financial fixed assets	Long-term investments	Stocks, bonds, loans

Current assets	Description	Example
Goods	Inventory	Raw materials, work in progress, finished goods
Claims	Payment requirements	Accounts receivable, other receivables
Investments	Short-term investments	Market-based securities
Bank deposits	Liquid funds	Cash, bank deposits

Equity and Debt

Equity	Description	Example
Contributed equity	Capital from owners	Share capital , share premium
Earned equity	Accumulated result	Other equity, profit for the year

Debt	Description	Example
Provisions	Uncertain liabilities	Pension obligations, guarantee provisions
Other long-term debt	Debt > 1 year	Bank loans, bonds
Short-term debt	Debt < 1 year	Accounts payable, public taxes owed

Differences between Opening Balance and Closing Balance

Opening balance

• Date: January 1 (first day of the fiscal year)
• Basis: Last year's closing balance
• Adjustments: Only any corrections of errors
• Purpose: Starting point for a new accounting period

Closing balance

• Date: December 31 (last day of the fiscal year)
• Basis: Current accounting + adjustment entries
• Adjustments: Extensive accruals and value adjustments
• Purpose: Final reporting of financial position

Aspect	Opening balance	Closing balance
Complexity	Easy transfer	Extensive adjustments
Insecurity	Low (known numbers)	Higher (estimates and assessments)
Audit scope	Limited	Comprehensive
Regulatory requirements	Minimal	Strict documentation requirements

Legal Requirements and Standards

Accounting Act

Closing balance requirements: * True and fair view: The balance sheet must give a true and fair view of the company's position. * Caution: Conservative valuation of assets and liabilities * Comparability: Consistent application of accounting principles * Materiality: All material items must be included

Accounting standards

Norwegian Accounting Standards (NRS): * Detailed requirements for classification and valuation * Specific requirements for notes and additional information * Requirements for comparative figures from previous year

IFRS (for listed companies): * International Accounting Standards * More detailed requirements for fair value assessments * Comprehensive note requirements

Practical Examples

Example 1: Small Limited Liability Company

Company: Handyman AS Turnover: 5 million NOK

Important closing items:

 Påløpte feriepenger:
 Debet: Lønnskostnad 150.000
 Kredit: Skyldig feriepenger 150.000

 Avskrivning maskiner:
 Debet: Avskrivning 200.000
 Kredit: Akk. avskrivning 200.000

 Periodisering forsikring:
 Debet: Forskuddsbetalt 25.000
 Kredit: Forsikringskostnad 25.000

Example 2: Trading company

Company: Import AS Turnover: 20 million NOK

Special considerations: * Inventory: Valuation at the lower of cost and net realizable value * Accounts receivable: Assessment of doubtful receivables * Currency exposure: Translation of foreign debt

Quality Assurance and Control

Internal Control

Control activities: * Reconciliation: All balance sheet accounts are reconciled against supporting documents * Analytical review: Comparison with budget and previous year * Documentation: All documentation is systematically archived * Approval: Formal approval of adjustment entries

External Audit

Audit actions: * Substantive audit: Detailed review of significant items * Analytical actions: Analysis of key figures and development trends * Confirmations: External confirmations from banks and customers * Subsequent events: Assessment of events after the balance sheet date

Digitization and Modern Tools

Accounting systems

Automated processes: * Accruals: Automatic calculation of accrued items * Depreciation: Automatic depreciation calculations * Currency conversion: Automatic conversion to the balance sheet exchange rate * Report generation: Automatic generation of balance reports

Artificial Intelligence

AI-supported features: * Anomaly Detection: Identification of unusual transactions * Predictive analysis: Expected development of key figures * Automatic categorization: Intelligent classification of transactions

Common Mistakes and Pitfalls

Typical Errors

• Missing accruals: Unrecorded accrued items
• Incorrect valuation: Incorrect valuation of assets
• Classification error: Incorrect placement of items in the balance sheet
• Lack of documentation: Insufficient documentation of assessments

Consequences of Error

• Incorrect result: Affects the year's result and tax base
• Creditor risk: Misrepresentation of the company's solvency
• Regulatory sanctions: Fines and other sanctions from authorities
• Reputational damage: Loss of trust from stakeholders

Use of the Closing Balance

For the Management

• Strategic decisions: Basis for future investments
• Financing: Assessment of financing needs
• Risk Management: Identifying Financial Risks
• Performance measurement: Evaluation of company performance

For Investors

• Investment decisions: Assessment of investment opportunities
• Valuation: Basis for valuing the company
• Risk evaluation: Assessment of investment risk
• Comparison: Comparison with other companies

For Creditors

• Credit rating: Assessment of the company's creditworthiness
• Collateral: Assessment of collateral for loans
• Monitoring: Ongoing monitoring of the borrower's financial health
• Covenant testing: Checking loan terms

Key figures from the Closing Balance Sheet

Solvency ratio

• Equity ratio: Equity / Total assets
• Debt ratio: Total debt / Equity
• Interest coverage ratio : Operating profit / Interest expenses

Liquidity figures

• Liquidity ratio 1: Current assets / Short-term debt
• Liquidity ratio 2: (Current assets - Goods) / Current liabilities
• Working capital: Current assets - Short-term liabilities

Profitability figures

• Total return on capital: (Profit + Interest expenses) / Average total capital
• Return on equity: Profit for the year / Average equity

Future Development Trends

Technological Changes

• Real-time reporting: Continuous updating of balance information
• Blockchain: Increased transparency and traceability
• Automation: Reduced manual work in the closing process

Regulatory Changes

• Increased digitalization: Requirements for electronic reporting
• Sustainability Reporting: Integrating ESG Factors
• Internationalization: Harmonization of accounting standards

Related Concepts

To fully understand the ending balance, you should also familiarize yourself with:

• Assets - The asset side of the balance sheet
• Fixed assets - Long-term assets on the balance sheet
• Depreciation - Important adjustment item in the closing
• Share capital - Part of equity in the balance sheet
• Accounting - The overall accounting system