Ársfærslur

Ársfærslur, meaning "year-end entries" in Icelandic, refers to a set of accounting adjustments made at the end of a fiscal year. These entries are crucial for ensuring that a company's financial statements accurately reflect its financial position and performance for that period. They are used to bring accounts up to date and to recognize revenues and expenses that have not yet been formally recorded.

Common examples of ársfærslur include adjustments for accrued expenses, such as unpaid salaries or utilities, which are recognized as expenses in the period they are incurred, even if payment has not yet been made. Conversely, accrued revenues, such as services rendered but not yet billed, are also recorded. Depreciation of fixed assets is another significant year-end adjustment, allocating the cost of an asset over its useful life. Prepaid expenses, such as insurance premiums paid in advance, are adjusted to reflect the portion that has been consumed during the year. Inventory valuation adjustments, accounting for goods that are obsolete or have a lower market value than their cost, are also performed.

The purpose of ársfærslur is to comply with the accrual basis of accounting, which requires that revenues and expenses be recognized when earned or incurred, regardless of when cash is exchanged. This ensures that financial statements provide a more accurate and complete picture of a company's financial health, enabling better decision-making by management, investors, and creditors. They are a fundamental part of the closing process in accounting.