Advanced accounting pathway

Case

Teaching example. Electronic invoice received on 12 March from a service provider for the routine maintenance of an item of plant carried out and completed on 28 February: taxable amount 1.500 €, VAT at 22% equal to 330 €, document total 1.830 €. Payment at 30 days by bank transfer.

Business event

Service completed in February and documented by an electronic invoice dated March: the cost is attributable to the financial year in which the service is completed. For services the time of supply for VAT purposes is as a rule the payment (art. 6, comma 3, d.P.R. 633/1972); here the tax is already chargeable in March only because the invoice is issued before payment, which brings the time of supply forward under art. 6, comma 4 (a case distinct from that of the module on invoices to be issued, where for services one waits for the payment).

Before posting, check

• Compare the date of the document with the date on which the service was completed: if the service is completed in one financial year and the invoice arrives in the following one, the cost remains attributable to the first year and is recorded through invoices to be received, while input VAT recovery follows the receipt of the document.
• Check business relevance and correct classification: that the maintenance is routine (a period cost) and not work increasing the value of the fixed asset, which would have to be capitalised.

Case

Teaching example. Purchase of goods for 10.000 € + VAT 22% (2.200 €), total 12.200 €, with delivery accompanied by a DDT (delivery note). The quantity check identifies non-conforming goods for 1.000 €: the supplier issues a credit note for 1.000 € + VAT 220 €. The remaining balance of 10.980 € is paid at 60 days.

Business event

Receipt of the invoice for the purchase of goods, subsequent partial return documented by a credit note as a downward adjustment, then payment of the balance.

Before posting, check

• Checking of the XML file before posting: agreement between the quantities and prices on the invoice and those on the DDT or on the order, the rate and the codice Natura shown, and the presence of the reference to the transport document in the case of a deferred invoice.
• On the credit note, check the ground for the downward adjustment and the period in which the input VAT recovery is to be adjusted: the entry is made in the period of receipt and is not backdated to the original invoice.

Case

Teaching example. Sale of goods to a customer for 20.000 € + VAT at 22% (4.400 €), total 24.400 €, with delivery and transfer of the risks taking place within the financial year. The contract provides for a year-end rebate of 3% once a turnover threshold is exceeded, which at the balance sheet date is estimated to have been met: expected rebate 600 €, recognised as a reduction of revenue. Settlement at 30 days.

Business event

Sales invoice for goods delivered (revenue attributable to the financial year) and estimate of a variable consideration that reduces the revenue of the year.

Before posting, check

• Distinguish the invoice date from the moment when the risks and rewards are transferred: if the goods are delivered in January but the invoice is dated December, the revenue is not attributable to the financial year just closed; conversely, invoices to be issued have to be recognised.
• Check that the rebate is provided for in writing (calculation basis, threshold, reference period) and that VAT is adjusted only when the credit note is issued, not at the point of the accounting estimate.

Case

Teaching example. Presentation to the bank of a ricevuta bancaria for 6.100 € salvo buon fine (s.b.f., subject to collection), with immediate crediting to the advances account net of a collection charge of 3,50 €. At maturity the bill is duly paid and clears the receivable from the customer. In the same quarter the bank charges interest of 45 €.

Business event

Collection of a trade receivable through a bill presented s.b.f., with advance crediting, bank charge and subsequent clearing of the receivable once the bill is paid.

Before posting, check

• Reconcile the book balance with the bank statement and with the interest calculation (scalare interessi), distinguishing the booking date from the value date: transactions whose value date falls across the year end do not shift the financial year to which the cost or the revenue is attributable.
• Check that the s.b.f. crediting is not treated as final collection: until the bill has been duly paid the receivable from the customer remains open, and the exposure to the bank has to be shown among payables.

Case

Teaching example. (a) Intra-EU purchase of goods from an EU supplier for 5.000 €, invoice without VAT to be completed by integrazione (self-charging on the invoice itself) at the 22% rate (1.100 €) under the reverse charge. (b) Export supply to a non-EU customer for 10.000 USD, non imponibile (VAT-free export supply): exchange rate at the time of supply 1,10 USD/EUR, hence revenue of 9.090,91 €; later collection at a rate of 1,05, equal to 9.523,81 €, with an exchange gain of 432,90 €. Assumption: no hedging of the exchange risk.

Business event

An intra-EU purchase accounted for by integrazione of the invoice under the reverse charge and an export sale in foreign currency, the collection of which at a different rate gives rise to a realised exchange difference.

Before posting, check

• Check the time limits for the integrazione and the recording of the intra-EU invoice, and the procedure to follow where the supplier's invoice does not arrive: if it has not been received by the second month following the time of supply, an autofattura (self-billed invoice, document type TD20) must be issued by the 15th day of the third following month (art. 46, comma 5, d.l. 331/1993), because late dual recording is punishable even where no tax is due. For the export, the non imponibilità is provided for by art. 8 d.P.R. 633/1972.
• Retain evidence that the goods have left the customs territory of the Union (export customs documentation with confirmation of exit) and document the exchange rate applied, which has to be the one prescribed by the rules for the date of the time of supply, not an average rate chosen at will. Differences on foreign-currency items still open at the year-end close are measurement differences and have to be kept separate from realised ones.

Case

Teaching example. Fee note from a professional enrolled in his own professional pension fund (cassa di previdenza), for advisory work completed within the financial year: fee 2.000 €, contributo integrativo due to the cassa at 4%, amounting to 80 €, VAT taxable amount 2.080 €, VAT at 22%, amounting to 457,60 €, ritenuta d'acconto (withholding tax on account) at 20% on the fee, amounting to 400 €. Net amount payable 2.137,60 €. Assumption: professional under the ordinary regime, not under the regime forfetario.

Business event

Receipt of the fee note for a completed service: the cost is attributable to the financial year and the client company acts as sostituto d'imposta (withholding agent), deducting the ritenuta.

Before posting, check

• Identify the pension fund the professional belongs to before computing the withholding: the contributo integrativo charged by the professional funds forms part of the VAT taxable amount but not of the withholding base, whereas the rivalsa of the contribution to the INPS gestione separata is treated differently and must be verified on the document, not assumed.
• Check the supplier's tax regime (regime forfetario, with a statement on the invoice that no withholding applies and no VAT is charged) and identify separately the advances made in the name and on behalf of the client, which are excluded from the taxable amount where they are documented and properly accounted for. Note the structural mismatch: for the company the cost is recognised on an accruals basis, whereas for the professional the fee is taxed on a cash basis.
• The withholding is operated by the sostituto d'imposta when the fee is paid (art. 25 d.P.R. 600/1973), not on the mere recording of the fee note: the two entries are shown together here for the sake of simplicity, but where payment falls on a date other than that of the recording, the liability to the Erario must be recognised in line with the actual payment.

Case

Teaching example. Payroll run for one month: gross remuneration 20.000 €, social security contributions payable by employees 1.900 €, contributions payable by the employer 6.000 €, IRPEF withholdings 3.500 €, net pay 14.600 €. Assumptions: simplified contribution rates, no adjustment (conguaglio) in progress, TFR (Italian statutory severance indemnity) dealt with separately in the following module.

Business event

Transfer of the monthly payroll summary to the accounts: the labour cost is attributable to the month in which it accrues, while the amounts owed to employees, institutions and the Erario are settled in the following months.

Before posting, check

• Balance the payroll adviser's monthly summary against the data filed through UNIEMENS and against the lines of the F24: a difference between the book liability to the institutions and the amount actually paid points to adjustments, credits used for set-off, or contribution exemptions not recorded in the accounts.
• At the year end, check the accruals for deferred and indirect entitlements earned but not yet paid (tredicesima, any quattordicesima, untaken holiday and leave) together with the related contributions: without these accruals the labour cost for the financial year is understated.

Case

Teaching example. Company with fewer than 60 employees (assumption: TFR – the Italian statutory severance indemnity – retained within the company, with no transfer to the INPS Fondo di Tesoreria). TFR accruing during the financial year amounts to 4.500 €, of which 1.500 € allocated to previdenza complementare (supplementary pension provision) for one enrolled employee and 3.000 € set aside within the company. The pre-existing fund is revalued by 2.000 €, with imposta sostitutiva (substitute tax) at 17%, amounting to 340 €. One employee is paid an advance of 5.000 € gross, with withholding under tassazione separata (separate taxation) assumed at 23% (1.150 €) and a net amount of 3.850 €.

Business event

Annual accrual of TFR with differentiated allocation, revaluation of the fund with the related imposta sostitutiva, and an advance paid to an employee out of the fund.

Before posting, check

• Verify the headcount threshold that triggers transfer of the TFR to the INPS Fondo di Tesoreria, which is no longer a fixed figure from 2026 onwards: an annual average of at least 60 employees for 2026-2027, 50 from 2028 to 2031 and 40 from 2032 (art. 1, comma 203, L. 199/2025, amending art. 1, comma 755, L. 296/2006; INPS circular no. 12 of 5 February 2026). Above that threshold the amounts accruing do not remain within the company and the accounting changes radically, because the liability is owed to the institution and not to an internal provision.
• Check the revaluation coefficient actually applied by the payroll adviser, which depends on the ISTAT index for the period and must be taken from the published figure, not estimated; check also the due dates for the payment on account and the balance of the imposta sostitutiva, and that the advance meets the requirements as to length of service, maximum percentage and permitted grounds laid down by law and by the collective agreement. The tassazione separata rate of 23% shown here is a simplification: the actual rate is determined on the employee's reference income.

Case

Teaching example. Purchase of a machine: price 50.000 €, incidental transport and installation costs 4.000 €, VAT at 22% amounting to 11.880 €, total 65.880 €. The asset enters service in mid-year; estimated useful life 10 years, annual charge of 10% halved in the first financial year (2.700 €). After four financial years, with accumulated depreciation of 18.900 € and a net book value of 35.100 €, the machine is sold for 38.000 € plus VAT at 22% (8.360 €), giving a gain on disposal of 2.900 €.

Business event

Capitalisation of the cost including directly attributable incidental costs, systematic depreciation from entry into service and subsequent disposal giving rise to a gain.

Before posting, check

• Distinguish directly attributable incidental costs, which form part of the capitalisable cost, from repairs or production start-up expenses, which remain period costs; and start depreciation from the date the asset enters service, not from the delivery date or the invoice date.
• Keep the accounting depreciation schedule, based on useful life and on the remaining possibility of use — for OIC 16 purposes, halving the charge in the first financial year is correct only where it matches the actual period of use; it is not an automatic rule —, separate from the tax rates set out in the ministerial tables, where the reduction to 50% in the first financial year is instead a statutory automatism (art. 102, comma 2, TUIR): the divergence between the two criteria is dealt with in the tax return, not by forcing the accounts. On a disposal, check how long the asset has been held before considering whether the gain may be spread over instalments, which requires a holding period of at least three years (art. 86, comma 4, TUIR) and must be elected in the tax return.

Case

Teaching example. Preliminary contract for the supply of a machine at 30.000 € + VAT at 22%. On signature the customer pays 5.000 €. The case is worked through under the two alternative characterisations: (A) the sum is characterised as a down payment on the price (acconto), which brings forward the time of supply for VAT purposes and requires an invoice for 5.000 € + VAT of 1.100 €; (B) the sum is characterised as an earnest money deposit (caparra confirmatoria) with express reference to art. 1385 c.c., outside the scope of VAT when paid and set against the price only on delivery.

Business event

Receipt of a sum before delivery: the contractual characterisation, and not the reference wording on the bank transfer, determines whether the payment brings forward the time of supply for VAT purposes.

Before posting, check

• Read the contract before posting: a caparra confirmatoria requires a clause expressly invoking that function under art. 1385 c.c.; in the absence of a clear characterisation, or where the sum is agreed as part payment of the price, it takes the nature of a down payment (acconto) and the invoice must be issued when the money is received.
• Check that the documents are consistent: if the reference wording on the bank transfer says "acconto" while the contract refers to a caparra, the mismatch must be resolved in writing before posting. The treatment on default must also be kept distinct: a deposit retained, or repaid at twice its amount, is compensatory in nature and remains outside the scope of VAT, but it affects taxable income and must be recognised in the income statement.

Case

Teaching example, figures are fictitious. Alfa S.r.l., financial year coinciding with the calendar year. (a) On 1 July 2025 it pays an insurance premium of 3.600 euro for cover running 1/7/2025–30/6/2026, charged in full to profit or loss. (b) On a bank loan with outstanding principal of 200.000 euro bearing interest at 3% per annum, the interest-only instalments fall due in arrears on 31/03 and 30/09: three months of interest therefore accrue from 1 October to 31 December 2025 without yet being settled (200.000 x 3% x 3/12 = 1.500 euro). The premium deferred is 3.600 x 6/12 = 1.800 euro.

Business event

At 31/12 the six months of insurance premium not attributable to the financial year are carried forward to 2026 and the quarter of interest already accrued but not yet due is recorded.

Before posting, check

• Documentary evidence of the period covered: the policy (or endorsement) showing the commencement and expiry dates, and the repayment schedule or loan agreement showing the frequency of the instalments. Without the document that delimits the period, the accrual or the deferral cannot be substantiated on inspection.
• Check that the amounts genuinely accrue by reference to time (OIC 18): a one-off consideration, an advance to a supplier or a service already received in full give rise to neither deferrals nor accruals, but respectively to a cost, a receivable or a payable (invoice to be received).
• Check that the previous year's accruals and deferrals have been released: a balance carried unchanged from one year to the next points to a failure to close off the portion attributable to the financial year.

Case

Teaching example, figures are fictitious. Beta S.r.l. trades in electrical equipment. Opening inventories of goods at 1 January amount to 95.000 euro. The physical stocktake at 31 December, measured at cost on a FIFO basis, gives 120.000 euro; that figure includes a technically superseded batch whose cost is 20.000 euro, for which the realisable value inferred from market trends, net of selling costs, is estimated at 12.000 euro. A write-down of 8.000 euro is therefore recognised and closing inventories are stated at 120.000 - 8.000 = 112.000 euro (OIC 13: the lower of cost and realisable value).

Business event

At 31/12 the opening inventories are written back to profit or loss and the closing inventories are recognised at the lower of cost and realisable value, already reduced for the obsolescence of the batch.

Before posting, check

• A dated and signed stocktake record, with the physical count reconciled to the warehouse accounts; inventory differences must be explained and not merely netted off. The libro degli inventari (inventory book) must be signed by the legal representative within three months of the deadline for filing the income tax return for direct tax purposes (art. 2217, comma 2, c.c.).
• Scope of the assets: exclude third-party goods held on consignment, for processing or on approval; include goods in transit where the risks and rewards have already passed under the contractual delivery terms, cross-checking against the purchase invoices and the documenti di trasporto (DDT, delivery notes) straddling the year end.
• Divergence between the accounting and the tax treatment of obsolescence: art. 92, comma 5, TUIR allows a write-down to the average normal value of the last month of the financial year; the part of the write-down exceeding that limit is not deductible and must be handled as an upward adjustment in the tax return. The calculation must be supported by price lists, quotations or subsequent sales.

Case

Teaching example, figures are fictitious. Gamma S.r.l. receives goods on 20 December, accompanied by a documento di trasporto (DDT, delivery note), for an estimated taxable amount of 15.000 euro based on the confirmed order and the contractual price list. At 31 December the invoice has not yet arrived. The fattura differita (deferred invoice) arrives on 12 January and shows a taxable amount of 15.000 euro and VAT at 22% of 3.300 euro, giving a total of 18.300 euro.

Business event

At 31/12 the cost attributable to the financial year and the related payable to the supplier are recognised on the basis of the goods received, with no VAT entry whatsoever.

Before posting, check

• Cross-check between the documenti di trasporto, the job sheets or stage-of-completion statements for December and the registro degli acquisti (purchase register): every delivery or service received and not invoiced must have a matching item among the invoices to be received and, conversely, no invoice to be received may stay open without an underlying document.
• Reasonableness of the estimate: the amount must be anchored to an order, a contract, a price list or an accepted quotation, not to a rounding. Differences between the estimate and the final invoice must be monitored, because a systematic gap points to an estimation basis that needs revising.
• VAT: no tax is to be recognised in the year-end adjusting entry, and the tax on a December invoice received in January is not recoverable in the year to which the cost relates. The derogation in art. 1, comma 1, of d.P.R. 100/1998, which allows invoices received by the 15th of the following month to be brought into that month's VAT settlement, does not apply to transactions carried out in the previous year (artt. 19 and 25 of d.P.R. 633/1972).

Case

Teaching example, figures are fictitious. Delta S.r.l. at 31 December has two distinct situations. (a) Supply of goods: goods delivered on 28 December with a documento di trasporto (delivery note), taxable amount 24.000 euro, invoiced on a deferred basis on 12 January with VAT at 22%, equal to 5.280 euro (total 29.280 euro). (b) Supply of services: maintenance engagement completed on 22 December, agreed consideration 8.000 euro, neither invoiced nor paid at 31 December.

Business event

At 31/12 the revenue attributable to the financial year is recorded in both cases against 'Invoices to be issued', while VAT follows its own time of supply: delivery for goods, payment for services.

Before posting, check

• Reconciliation of the December documenti di trasporto with the deferred invoices issued by 15 January (art. 21, comma 4, lett. a, del d.P.R. 633/1972): every December DDT (delivery note) must be either invoiced or accounted for as a return, and no revenue attributable to the financial year may be left out of the income statement.
• For goods, the transaction is carried out in December (delivery of 28/12): the deferred invoice of 12 January must be entered in the VAT register by reference to the month of delivery (art. 23, comma 1, d.P.R. 633/1972) and the 5.280 € of VAT fall within the December VAT settlement and not within the January one (art. 1, comma 1, d.P.R. 100/1998); at 31/12 the related VAT liability must already appear in the financial statements, even though the invoice is physically recorded in January.
• No output VAT is to be recorded on the services in the financial year: the time of supply is payment of the consideration (art. 6, comma 3, del d.P.R. 633/1972), unless the invoice is issued in advance, which makes the transaction carried out up to the amount invoiced (art. 6, comma 4). Check therefore that the 'Invoices to be issued' balance relating to the services has not been included in the December VAT settlement.
• Check of the point at which revenue is recorded under OIC 34 (applicable to the financial statements of financial years beginning on or after 1 January 2024): revenue is recorded once the risks and rewards have substantially transferred, which is to be verified against the delivery terms, any retention of title clauses and the proof of delivery.

Case

Epsilon S.r.l., an Italian company with share capital keeping ordinary accounting records, financial year 1/1–31/12/2026, monthly VAT settlement. Fictional data for teaching purposes. The starting point is the trial balance at 31/12/2026 drawn up AFTER the year-end adjustments (depreciation, accrued items and prepaid items already recorded) and BEFORE the December VAT settlement and the tax computation. DEBIT SIDE — Bank current account 68.000; Trade receivables 82.000; Input VAT 30.000; Plant (historical cost) 60.000; Purchases of goods 300.000; Costs for services 40.000; Wages and salaries 90.000; Depreciation of plant 12.000; Interest expense on loans 5.000. Total Debit 687.000. CREDIT SIDE — Share capital 50.000; Accumulated depreciation of plant 18.000; Trade payables 67.000; Social security payables 8.000; Output VAT 44.000; Sales of goods 500.000. Total Credit 687.000. STATED ASSUMPTIONS: (a) the plant was acquired in financial year 2025 for 60.000, tax depreciation rate 20% (d.m. 31 dicembre 1988), halved in the first year under art. 102, c. 2, TUIR: accumulated depreciation 6.000 in 2025 + 12.000 in 2026 = 18.000; (b) the year closes with no inventories, because that topic is dealt with in the dedicated module; (c) there are no upward or downward tax adjustments for IRES purposes, so taxable income equals profit before tax; (d) labour costs relate entirely to employees on open-ended contracts and are fully deductible for IRAP purposes under art. 11, c. 4-octies, d.lgs. 446/1997; (e) the ordinary IRAP rate of 3,9% applies (art. 16, c. 1, d.lgs. 446/1997), with no regional increases. PRELIMINARY COMPUTATIONS: profit before tax = 500.000 − (300.000 + 40.000 + 90.000 + 12.000 + 5.000) = 500.000 − 447.000 = 53.000. IRES 24% × 53.000 = 12.720. IRAP base = net value of production = 500.000 − (300.000 + 40.000 + 12.000) − 90.000 (full deduction of labour costs) = 58.000; cross-check: 53.000 + 5.000 of interest expense, which belongs to the financial area and does not enter the value of production. IRAP 3,9% × 58.000 = 2.262. Total current taxes 14.982. Net profit = 53.000 − 14.982 = 38.018.

Business event

On 31 December 2026 the management body closes the financial year: it settles the VAT for the month of December, clearing the two VAT accounts against a liability to the tax authorities; it computes and records current IRES and IRAP tax with a matching entry to tax payables; it closes off all income statement accounts — taxes included — to the Profit and loss account, thereby determining the net profit; and it closes the balance sheet accounts to the Closing balance sheet account, keeping the fixed asset at gross value and closing the related accumulated depreciation separately, since that is a contra account with the opposite sign. On 1 January 2027 it reopens the accounts, one by one, with the opening entry.

Before posting, check

• Balancing of the Closing balance sheet account. Assets: Bank 68.000 + Trade receivables 82.000 + Plant at gross value 60.000 = 210.000. Liabilities and equity: Accumulated depreciation of plant 18.000 + Trade payables 67.000 + Social security payables 8.000 + Erario c/IVA 14.000 + Tax payables 14.982 + Share capital 50.000 + Profit for the financial year 38.018 = 210.000. The balancing total is stated gross because accumulated depreciation, being a contra account with the sign opposite to the asset it adjusts, is closed on the Debit side in its own right and appears among the items to be reopened on the Credit side.
• Why accumulated depreciation must NOT be netted off. In the accounting records the fixed asset is closed at 60.000 and accumulated depreciation at 18.000; the net book value of 42.000 is disclosure information, not a ledger balance. In the balance sheet under art. 2424 c.c. the fixed asset is shown net under B.II, but art. 2427, n. 2, c.c. requires historical cost and accumulated depreciation to be disclosed separately in the notes to the financial statements. If the asset were recorded net on closing, at 1/1/2027 the depreciation base would be lost — in 2027 it is 20% of 60.000, that is 12.000, and not 20% of 42.000 — and it would become impossible to determine the gain or loss on disposal (art. 86 and art. 101 TUIR).
• Check on the result. The Profit and loss account clears to nil: Credit 500.000 against Debit 461.982 (costs and taxes) + 38.018 (profit). Arithmetical check: 500.000 − 447.000 = 53.000 of profit before tax; 53.000 × 24% = 12.720 of IRES; 58.000 × 3,9% = 2.262 of IRAP; 53.000 − 14.982 = 38.018. Closing equity 50.000 + 38.018 = 88.018, equal to the difference between net assets (210.000 − 18.000 of accumulated depreciation = 192.000) and liabilities (67.000 + 8.000 + 14.000 + 14.982 = 103.982).
• VAT check. Balance of the December settlement: 44.000 of output VAT − 30.000 of input VAT = 14.000 payable by 18 January 2027, because 16 January 2027 falls on a Saturday and the deadline moves to the first following working day (art. 6, comma 8, d.l. 330/1994, conv. L. 473/1994), codice tributo 6012 (monthly VAT for December). After entry 1 both VAT accounts show a nil balance and do not appear in the Closing balance sheet account: closing them separately in the Closing balance sheet account without having settled them first is the error that presents a gross receivable from and a gross payable to the same authority in the financial statements, in breach of the prohibition on offsetting items (art. 2423-ter, c. 6, c.c. — here, on the contrary, offsetting is required because there is a single tax relationship).
• Check on the reopening. Each reopened account restates, in the same amount and on the same side, the balance closed at 31/12: bank 68.000, receivables 82.000, gross fixed asset 60.000 on the Debit side; share capital 50.000, accumulated depreciation 18.000, trade payables 67.000, social security payables 8.000, Erario c/IVA 14.000, tax payables 14.982, profit 38.018 on the Credit side. The Opening balance sheet account clears to nil (210.000 on the Debit side against 210.000 on the Credit side). The profit stays in an equity account until the shareholders resolve to approve the financial statements (art. 2478-bis, c. 3, c.c.); any transfer to the legal reserve, equal to 5% of the profit until it reaches one fifth of share capital (art. 2430 c.c., therefore up to 10.000 on share capital of 50.000), is recorded only after that resolution and amounts to 1.900,90.
• Practical steps. By 18 January 2027, the first working day after 16 January, which falls on a Saturday, the December VAT payment (codice tributo 6012, amount 14.000); the IRES and IRAP balance for 2026 and the first payment on account for 2027 are due within the ordinary deadlines for the tax period, charged against the tax payables already recognised; accumulated depreciation reopened at 18.000 is the base for the 2027 charge of 12.000, taking accumulated depreciation to 30.000 on historical cost of 60.000.

Case

Teaching example, figures are fictitious. Zeta S.r.l. prepares its cash flow statement under the indirect method (OIC 10). Data for the financial year: profit 50.000 euro; depreciation and amortisation 30.000 euro; provision to TFR (Italian statutory severance indemnity) 10.000 euro and TFR paid out 4.000 euro; increase in trade receivables 20.000 euro; increase in inventories 8.000 euro; increase in trade payables 12.000 euro; purchase of plant 45.000 euro; drawdown of a new loan 30.000 euro; repayment of loan principal 10.000 euro; dividends paid 20.000 euro. This gives: cash flow from operating activities +70.000 euro, cash flow from investing activities -45.000 euro, cash flow from financing activities 0 euro (30.000 - 10.000 - 20.000), with an increase in cash and cash equivalents of 25.000 euro, from 15.000 to 40.000 euro.

Business event

At 31/12 the movements in balance sheet items and the non-cash items are reclassified into operating, investing and financing flows, so as to explain in full the change in cash and cash equivalents. The example is deliberately simplified in order to isolate the mechanics of the adjustments: the complete OIC 10 format, in section A, starts from profit before tax and interest and adjusts them separately, and then discloses tax and interest actually paid as separate items; here tax and interest expense have been omitted from the data.

Before posting, check

• The change in cash and cash equivalents shown by the cash flow statement must agree exactly with the difference between the balances of item C.IV of the balance sheet for the two financial years, reconciled with the bank statements and with the cash on hand resulting from the accounting records; any residual difference must be explained, not forced through a balancing item.
• Strip out of the movements in receivables, payables and fixed assets the non-cash transactions and the reclassifications (capital contributions, exchanges, purchases not yet paid, transfers between items): the accounting movement in the balance does not equal the cash flow. Depreciation must be reconciled with the fixed asset register, and TFR must be broken down between the provision charge, utilisations and amounts paid over to external funds.
• Scope of the requirement: the cash flow statement under art. 2425-ter c.c. is not required from companies preparing financial statements in abridged form (art. 2435-bis, comma 2, c.c.) nor from micro-entities (art. 2435-ter c.c.); where it is prepared voluntarily, it must still be drawn up in accordance with OIC 10 and accompanied by the comparison with the previous financial year.

Case

Teaching example, figures are fictitious. On closing the financial statements, Eta S.r.l. faces two situations that must be kept strictly distinct (OIC 29). (a) Material error: it emerges that a supply of services of 30.000 euro, received in the previous financial year, was never invoiced by the supplier nor recorded in the accounts; the liability is recognised only now, as a correction of the error. Taking IRES at 24%, the tax effect is 30.000 x 24% = 7.200 euro, recoverable through a dichiarazione integrativa a favore (amended return in the taxpayer's favour), and the net impact on opening equity is 22.800 euro. (b) Adjusting subsequent event: a customer whose receivable of 50.000 euro was already recognised at 31 December is admitted to an insolvency procedure in the following February; the event confirms a condition of non-collectability already existing at the reporting date and must therefore be reflected, increasing the allowance for doubtful receivables by 20.000 euro.

Business event

A material error of the previous financial year is corrected against opening equity without passing through profit or loss, whereas the update to the estimate of recoverability of the receivable, required by an adjusting subsequent event, passes through the income statement of the year being closed.

Before posting, check

• Prior classification of the situation: material error (adjustment of the opening balance of equity, with restatement of the comparatives and disclosure in the nota integrativa), non-material error (income statement of the current year) or change in estimate (always applied prospectively through profit or loss). The materiality threshold adopted must be defined and documented beforehand, not chosen after the event according to the result.
• Time window for subsequent events: account must be taken of events known up to the date on which the draft financial statements are prepared by the administrative body, distinguishing those that adjust the amounts (an insolvency procedure confirming a non-collectability already incurred) from those that call for disclosure in the nota integrativa only. Retain the evidence of the date on which the event became known.
• Separate tax treatment: correcting an error that recognises a cost attributable to the previous financial year requires coordination with the dichiarazione integrativa a favore (art. 2, commi 8 and 8-bis, of d.P.R. 322/1998), and the effect is computed here for IRES purposes only (24%) for the sake of simplicity: a cost for services is as a rule relevant for IRAP as well, so the actual net impact on opening equity would need to be verified including that tax too. The write-down of the receivable is deductible within the limits of art. 106 of the TUIR, whereas the loss on receivables from parties subject to insolvency procedures follows artt. 101, commi 5 and 5-bis, of the TUIR, recognition in the financial statements being a condition for deduction.
• Invoice never received: the customer is under an obligation to regularise. From 1 September 2024 art. 6, comma 8, d.lgs. 471/1997 (as replaced by d.lgs. 87/2024) no longer requires a self-billed invoice with payment of the tax, but a communication to the Agenzia delle Entrate within 90 days of the deadline by which the invoice should have been issued; if that communication is omitted, a penalty of 70% of the tax applies, with a minimum of 250 €; from 1 April 2025 the communication is made using document type TD29. It is not to be confused with the TD20 self-billed invoice in the case on intra-EU transactions, which remains the correct procedure for that situation (art. 46, comma 5, d.l. 331/1993).

Case

Teaching example, with no journal entries. Theta S.r.l. is closing its 2026 financial statements in full format. Before delivering the draft to the management body, the firm works through a checklist covering every area of the financial statements: each item must be reconciled with an external document or with a supporting schedule kept in the financial statements file. The checklist does not replace the professional's judgement on the individual case: it serves to prevent a reconciliation from remaining implicit and undocumented.

Business event

Before the final close, each balance in the financial statements is checked to be reconciled with an external source or with an analytical breakdown filed in the year-end file.

Before posting, check

• Trade receivables: open subledger balanced with the general ledger balance; circularisation or verification of subsequent receipts on the most significant positions; ageing of the receivables and consistency of the bad debt provision with positions that are overdue, disputed or subject to insolvency proceedings; credit notes to be issued for year-end returns and allowances.
• Trade payables: subledger balanced with the general ledger; search for unrecorded liabilities by cross-checking delivery notes, job sheets and payments made in the first months of the following year; invoices to be received supported by an underlying document; any unusual debit balances reclassified among advances.
• Banks and cash: reconciliation of each account with the bank statement and with the confirmation of balances at the closing date; outstanding items dated and cleared in the following financial year; bank charges, interest and fees accrued but not yet debited; check of foreign currency balances translated at the year-end exchange rate.
• VAT: registers balanced with the annual VAT settlement and with the VAT account in the balance sheet; review of transactions straddling the year end (deferred invoices issued by 15 January, December invoices received in January, for which input VAT recovery shifts to the following year); check of reverse charge, split payment and any final pro rata; reconciliation with the comunicazione delle liquidazioni periodiche (LIPE).
• Payroll and personnel: labour cost balanced with the payslips and with the annual payroll summary; accruals for untaken holidays and leave, quattordicesima (fourteenth month's pay) and bonuses earned, with the related social security contributions; TFR (Italian statutory severance indemnity) provision reconciled with the analytical schedule by employee, with the amounts used and with the amounts paid into supplementary pension funds or to the Fondo di Tesoreria; amounts payable to INPS and INAIL and tax withholdings checked against the F24 forms and the UniEmens returns.
• Fixed assets: register of depreciable assets balanced with the general ledger, both for historical cost and for accumulated depreciation; check of the date on which new assets were brought into use, of the rates applied and of the pro-rating for the first financial year; correct treatment of ordinary and capitalisable maintenance, disposals and retirements; assessment of whether indicators of impairment are present under OIC 9.
• Leases and multi-year contracts: recognition under the metodo patrimoniale (rental method), with the disclosure required by art. 2427, n. 22, c.c. (present value of the lease instalments, finance charges, carrying amount of the asset with notional depreciation); initial lease payment deferred over the term of the contract; purchase options recognised among fixed assets and not expensed.
• Equity, provisions and taxes: equity reconciled with the libro delle decisioni dei soci (register of the members' resolutions) and with the appropriation of profit approved; riserva legale (legal reserve) under art. 2430 c.c. and restrictions on distributability (OIC 28), including the non-distributable reserve arising from the measurement of derivative financial instruments; adequacy of the provisions for risks and charges under OIC 31; current tax computation reconciled with the schedule of tax adjustments and assessment of the recoverability of deferred tax assets (OIC 25); lastly, assessment of going concern and of the adequacy of the organisational arrangements under art. 2086 c.c., also in the light of the indicators of the CCII (Italian business crisis and insolvency code).