Steps to prepare year-end financial statements for businesses in Vietnam

Preparation of year-end financial statements is one of the important and mandatory tasks for every business, regardless of the size or type of operation. Financial statements not only reflect the financial situation and business results but also serve as a basis for tax authorities, partners and investors to assess the level of transparency and management efficiency of enterprises. However, the process of preparing financial statements requires accuracy, compliance with accounting standards and current legal regulations. The following article of Viet An Tax Agent will guide customers on the steps to prepare year-end financial statements in a complete and correct manner and minimize errors, helping businesses fulfill their obligations to the tax authorities and be ready for the next business period.

Subjects who need to prepare financial statements in Vietnam

Financial statements are a mandatory part of the accounting system of enterprises, used to synthesize and comprehensively reflect the financial situation and business results in the period. According to the provisions of the Accounting Law 2015 and guiding circulars (such as Circular 200/2014/TT-BTC, Circular 133/2016/TT-BTC, Circular 132/2018/TT-BTC), all economic organizations with production and business activities in Vietnam are obliged to make periodic financial statements, especially annual financial statements.

Specifically, the subjects that need to make financial statements include:

• Enterprises of all types, including:
  • Single-member and two-member or more limited liability companies
  • Joint Stock Company
  • Sole proprietorship
  • Partnerships
• Foreign-invested enterprises (FDI), including branches and representative offices that have accounting activities in Vietnam
• Branches and affiliated units if they are assigned the task of independent or dependent accounting but have important financial operations
• Cooperatives, cooperative unions, operating in the fields of agriculture, trade, services, …
• Micro-enterprises and business households have registered to apply the accounting regime according to Circular 132/2018/TT-BTC

Full set of financial statements in Vietnam

A complete set of financial statements of the enterprise will consist of four main sections, each reflecting an important aspect of the financial situation and business results of the enterprise during the accounting period.

Balance sheet

This is the most important report, reflecting the entire financial situation of the business at a certain time. This report consists of three basic parts:

• Assets: include short-term assets (such as cash, inventory, receivables) and long-term assets (such as factories, machinery, equipment)
• Liabilities: includes short-term and long-term debts that the enterprise is obliged to pay
• Equity: is the remainder of the asset after deducting liabilities, belonging to the business owner or shareholders

Report on business results

This report indicates whether the business is making a profit or loss in a specific accounting period, through core financial indicators:

• Revenue: total income from sales and service provision activities
• Cost of goods sold: the direct cost of creating a product or service
• Gross profit: the difference between revenue and cost – an indicator of production or supply efficiency
• Operating expenses: including financial expenses, sales expenses, business management expenses
• Net profit: net profit after deducting all expenses – the final result of the business period.

Cash Flow Statement

This is a report that tracks the cash inflow and outflow of businesses in the period, divided into three main groups:

• Cash flow from business activities: Cash flow from sales, provision of services, and payments for operations
• Cash flow from investment activities: including expenditures on fixed assets, financial investments, or capital contributions to other units
• Cash flow from financial activities: recording transactions such as borrowing, debt repayment, stock issuance, dividend payment, etc.

This report helps assess the liquidity and cash flow balance of businesses – a key factor to ensure sustainable operations.

Explanation of financial statements

This section serves as a detailed explanation of the figures and indicators presented in the above three reports. Contents include:

• Basic information about businesses and business lines
• Accounting policies in place
• Detailed explanation of important items such as asset depreciation, provision for bad debts, change of equity, etc.

The handout is an indispensable part, helping readers such as business owners, tax authorities, investors or auditors understand the nature of financial figures and the actual situation of the business.

Steps to prepare year-end financial statements in Vietnam

Step 1: Synthesize, check and arrange accounting documents

The first step in the process of preparing financial statements is to collect, classify and arrange all accounting documents arising in the year scientifically, in the correct chronological order and economic content. This not only makes it easy to check and look up but also ensures compliance with legal regulations related to accounting and taxation

Documents that need to be reviewed include: invoices, receipts, receipts – payment slips, fund books, ledgers, payrolls, depreciation statements of fixed assets, loan documents, economic contracts and other relevant accounting documents. Most importantly, businesses need to carefully check the validity, legality and reasonableness of each document to avoid risks in the process of tax finalization and audit later.

Step 2: Fully account for arising economic operations

After completing the document synthesis step, the enterprise needs to fully account all economic operations arising in the year into the accounting book system. The accounting must ensure the true nature of the transaction, comply with current accounting standards and comply with tax regulations

In this step, the accountant can conduct an inspection and review of previously recorded entries, adjust errors if any, and supplement the missing operations. Accounting should be carried out in parallel with the process of checking documents to ensure accuracy and timeliness.

Step 3: Classify operations by month, quarter and allocate costs

An important part of the process of preparing financial statements is the classification of economic operations arising by month and quarter, in order to serve the aggregation of data in the accounting period. This is the basis for accurately determining the revenue, expenses, profits and tax obligations of the enterprise in the fiscal year

In addition, enterprises need to classify and rationally allocate specific expenses such as: prepaid expenses, depreciation of fixed assets, allocation of tools and tools, provision provisions, etc. The allocation must comply with the useful life and appropriate accounting principles, in order to properly reflect the actual operation and avoid the situation of accumulating unreasonable expenses in a period.

Step 4: Check, review and synthesize operations by account group

This is one of the most important steps in the financial reporting process, in order to ensure the balance, consistency and accuracy of the entire accounting system. The general inspection shall be carried out according to each group of main accounting accounts, specifically as follows:

• Inventory: it is necessary to carefully check inventory data, avoid negative warehouse conditions – a sign that the wrong operation may have been recorded. In case of detecting differences, accountants must trace the causes and make appropriate adjustments. At the same time, it is necessary to ensure that the cost price calculation is carried out in accordance with the registered method (first-in-first-out, weighted average, …)
• Receivables and payables: compare balances and incur debts with customers and suppliers to ensure that the actual situation is properly reflected. This helps businesses identify potential bad debts, thereby having an appropriate handling plan (such as setting up provisions).
• Investments: Check all documents related to financial investments (short-term and long-term), re-determine the nature and accounting method, and compare them with documents such as meeting minutes and financial statements of the investee to accurately reflect the investment efficiency.
• Fixed assets: check the historical cost, useful life, objects subject to depreciation and the applied depreciation method. In addition, businesses also need to properly handle cases of damaged, lost or liquidated assets.
• Revenue: review the revenue recorded in the year to ensure the right time and method of recognition, especially for revenue contracts that have not been performed, need to be handled separately to avoid recording in the wrong period.
• Cost price: check the recorded cost price to ensure that the value of goods and services sold is accurately reflected. If there is a cost price that has not been fully allocated or the calculation method is wrong, it is necessary to adjust it accordingly.
• Operating expenses: consider expenses incurred in the period, ensure that they are recorded in a true, valid, reasonable manner and comply with accounting principles, and at the same time evaluate the ratio of expenses to revenues to effectively control business performance.

Step 5: Perform general entries and carry forward profits and losses at the end of the year

After completing the review and adjustment of arising operations, the accountant conducts the implementation of the period-end general entry entry, especially the carryover of revenue, expenses and determination of business results. Concrete:

• Carry forward revenue and expenses to determine net profit or loss in the period
• Ensure accounts from type 5 to type 9 have no ending balance
• If the enterprise incurs corporate income tax, it is necessary to:
  • Temporary carryover for determination of taxable profits
  • Calculation of payable CIT amount
  • Recording CIT expenses in accounting books
  • Carry-over to determine profit after tax – this is the final figure that shows business performance in the financial year.

Step 6: Prepare financial statements

This is the last step in the process, when all accounting data has been fully checked, classified, and transferred. The enterprise will prepare financial statements in accordance with the form specified in Circular 200/2014/TT-BTC or Circular 133/2016/TT-BTC (depending on the applicable accounting model).

The preparation of accurate and complete financial statements not only meets legal requirements but also helps businesses understand the financial situation, business efficiency and serves as a basis for making executive decisions, financial planning, as well as building development strategies in the next year.

If you have any difficulties or questions related to the service of preparing year-end financial statements for businesses, please contact Viet An Tax Agent for the most specific advice from a lawye