Closing the Accounting Books Task
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A Closing the Accounting Books Task is an accounting task that ...
References
2015
- http://www.bizfilings.com/toolkit/news/finance/basics-closing-books.aspx
- QUOTE: When you reach the end of an accounting period, you need to "close the books." At a minimum, you will close your books annually, because you have to file an income tax return every year, and you should prepare annual financial statements as well. Most businesses, however, close their books at the end of each month. Sending out customer statements, paying your suppliers, reconciling your bank statement, and submitting sales tax reports to the state are probably some of the tasks you need to do every month. You may find it easier to do these if you close your books. Unless your business is very small and has few transactions each month, it's likely that you'll want to have your accountant close your books for you. We describe the basic procedure here just to give you a feel for what you're paying your accountant to do. After you finish entering the day-to-day transactions in your journals, you are ready to "close the books" for the period.
- Post entries to the general ledger. Transfer the account totals from your journals (sales and cash receipts journal and cash disbursements journal) to your general ledger accounts.
- Total the general ledger accounts. By footing the general ledger accounts, you will arrive at a preliminary ending balance for each account.
- Prepare a preliminary trial balance. Add all of the general ledger account ending balances together. Total debits should equal total credits. This will help assure you that your accounts balance prior to making adjusting entries.
- Prepare adjusting journal entries. Certain end-of-period adjustments must be made before you can close your books. Adjusting entries are required to account for items that don't get recorded in your daily transactions, such as accrual of depreciation, accrual of real estate taxes, etc. In a traditional accounting system, adjusting entries are made in a general journal.
- Foot the general ledger accounts again. This will give you the adjusted balance of each general ledger account.
- Prepare an adjusted trial balance. Prepare another trial balance, using the adjusted balances of each general ledger account. Again, total debits must equal total credits.
- Prepare financial statements. After tracking down and correcting any trial balance errors, you (or your accountant) are ready to prepare a balance sheet and income statement.
- Prepare closing entries. Get your general ledger ready for the next accounting period by clearing out the revenue and expense accounts and transferring the net income or loss to owner's equity. This is done by preparing journal entries that are called closing entries in a general journal.
- Prepare a post-closing trial balance. After you make closing entries, all revenue and expense accounts will have a zero balance. Prepare one more trial balance. Since all revenue and expense accounts have been closed out to zero, this trial balance will only contain balance sheet accounts. Remember that the total debit balance must equal the total credit balance. This will help ensure that all general ledger account balances are correct as of the beginning of the new accounting period.
- QUOTE: When you reach the end of an accounting period, you need to "close the books." At a minimum, you will close your books annually, because you have to file an income tax return every year, and you should prepare annual financial statements as well. Most businesses, however, close their books at the end of each month. Sending out customer statements, paying your suppliers, reconciling your bank statement, and submitting sales tax reports to the state are probably some of the tasks you need to do every month. You may find it easier to do these if you close your books. Unless your business is very small and has few transactions each month, it's likely that you'll want to have your accountant close your books for you. We describe the basic procedure here just to give you a feel for what you're paying your accountant to do. After you finish entering the day-to-day transactions in your journals, you are ready to "close the books" for the period.
2014
- http://smallbusiness.chron.com/close-general-ledger-48416.html
- QUOTE: A general ledger is a record of all of a company’s accounts and their associated transactions and balances. Revenue, expense and dividend accounts are temporary accounts because they hold a balance for only one accounting period. Permanent accounts, such as assets, in comparison, hold a balance over multiple periods. Closing your small business’s general ledger at the end of an accounting period transfers the temporary-account balances to the retained earnings account and reduces their balances to zero so that they are ready for the next period.
- Step 1: Debit the revenue account by the amount of its balance at the end of the accounting period to reduce it to zero. Credit the income summary account by the same amount. Income summary is an account used specifically for the closing process. For example, if your small business has $100,000 in revenue, you would debit $100,000 to the revenue account and credit $100,000 to the income summary account.
- Step 2: Credit each expense account by the amount of its balance to reduce each account’s balance to zero. In this example, assume you have balances of $30,000, $12,000 and $18,000 in the wages, utilities and advertising expense accounts, respectively. Credit $30,000 to the wages expense account and credit the other accounts by their respective balances.
- Step 3: Add together the credits you made to each expense account to determine your total expenses. Debit the result to the income summary account. In the example, add $30,000, $12,000 and $18,000 to get $60,000 in total expenses. Debit $60,000 to income summary.
- Step 4: Subtract the amount of total expenses you debited to income summary from the amount of revenue you credited to income summary. A positive result represents net income for the period, while a negative number represents a net loss. Continuing with the example, subtract $60,000 from $100,000 to get $40,000 in net income.
- Step 5: Debit the amount of net income to income summary. Credit the same amount to the retained earnings account. Alternatively, credit a net loss to income summary and debit the same amount to retained earnings. These entries reduce the income summary account to zero and either add net income to or subtract a net loss from retained earnings. In this example, debit $40,000 in net income to income summary and credit $40,000 to retained earnings.
- Step 6: Debit the retained earnings account by the amount of the dividend account’s balance. Credit the dividend account by the same amount. This reduces the dividend account to zero and reduces the retained earnings account by the amount of dividends paid during the period. For example, if your dividend account has a $5,000 balance, you would debit retained earnings and credit dividends each by $5,000.
- QUOTE: A general ledger is a record of all of a company’s accounts and their associated transactions and balances. Revenue, expense and dividend accounts are temporary accounts because they hold a balance for only one accounting period. Permanent accounts, such as assets, in comparison, hold a balance over multiple periods. Closing your small business’s general ledger at the end of an accounting period transfers the temporary-account balances to the retained earnings account and reduces their balances to zero so that they are ready for the next period.