Close books trashes Income Statement and Net Income on Balance Sheet

[Mark Haanen]

Op zaterdag 06-02-2010 om 19:33 uur [tijdzone -0800], schreef JT Morée:
> I realize the close books issue has been dealt with for years but I'm
>  coming up empty on searching for this particular aspect.  Please tell
>  me if there is another way to fix this issue that I'm not seeing. As I
>  understand and experience the 'close books' feature:  Close books
>  makes offsetting entries in every revenue and expense account on the
>  date given. So if I 'close books' in the previous year so that I can
>  start a new year I can no longer run a meaningful income statement for
>  the previous year.  All the revenues and expenses go to zero. If I
>  close books in the current year so that I can keep the previous year's
>  income statment the current year has negative balances for revenues
>  and expenses. So I don't close the books which is almost what I want
>  but the Retained Earnings/Losses line on the Balance sheet is not
>  quite right.  The Equity section on the Balance sheet should show a
>  Net Income line.  Net Income is the revenues less expenses for the
>  current reporting period.  This is actually the same number you get
>  from running the Income statement.  Standard stuff I learning in my
>  accounting class here.  What they didn't teach me was that the
>  retained earnings is the sum of all revenues and expenses from
>  previous periods.  So when you add Net Income with Retained Earnings
>  and the other Equity Account Changes you get the Total Equity which is
>  also Assets - Liabilities. I've used the concept of not zeroing out
>  revenues and expenses in other accounting systems (written by myself
>  and major software vendors). The idea of 'closing out revenues and
>  expenses' comes from paper ledgers.  The only reason to do it is so
>  that revenues and expenses start with zero for a new accounting
>  period. Modern systems can easily start revenues and expenses at zero
>  by being a little smarter when running reports.  The income statement
>  would always be accurate if we don't put in offsetting (book closing)
>  numbers.  The balance sheet is going to sum up every number anyway and
>  put them all in the equity section so why zero them.  I can't see a
>  good reason for offsetting revs and expenses in a computer based
>  accounting system. There really isn't much change that needs to be
>  made to GNUcash to make it 'close books' a little nicer.  The 'close
>  books' feature should really only stop people from making changes. As
>  far as I can tell in GNUCash the balance sheet sums all the data for
>  the entire life of the books and displays it in the equity section.  
>  The totals of revenue and expenses are in the Retained Earnings/Losses
>  line.  This is good because there is no need to move anything to
>  retained earnings from revenues or expenses. The only thing that is
>  needed to be changed on the balance sheet is to show the Net Income
>  line by splitting the Retained Earnings/Losses line in two (Retained
>  E/L and Net Income) divided at the beginning of the current reporting
>  period. The only reason I can think of for people to want to zero out
>  revs and exps is so that they can look at the sum of the entire
>  account and see only the current year's balance.  I think this should
>  be handled by smarter views of the data rather than old world hacks to
>  the books. JT
> 

Spot on. Historically, closing to paper meant that the closing moment
itself is neither within the closed period, nor in the new period. As
several previous posters have agreed, it's not really needed at present,
given the ability to pick your own reporting period. You hit the nail on
the head for the requirements: a differentiation between 'current'
period and 'previous' periods under Equity and a setting to eliminate
past accruals from the P&L accounts in the sum of accounts view.

BTW, close books currently does _not_ prevent changes to closed years.