Year-end closing

[Mike or Penny Novack]

>I realize this is a newbie question but could somebody point me to 
>information on:
>
>What is year-end closing?
>Why is it important?
>How is it done?
>
>Thanks for your patience.
>
>
>Gerry Thompson
>  
>
Accounting basics -- you have two fundamentally different kinds of 
accounts, standing (permanent) accounts of the types asset, liability, 
and equity as well as temporary accounts of type income and expense 
which exist only for the current fiscal period. Why? Well if you 
immediately balanced income and expense transactions to their effect on 
equity you would have no easy way to see what totals you had in each 
income/expense category.

But at the end of the accounting cycle, after you have produced your 
final income/expense report, all the income accounts and all the expense 
accounts ARE closed to equity as a net gain or loss for the period. A 
number of ways to do that, a temporary equity account then closed to 
"retained equity" with a "gain" or "loss" or as has been described here 
two split transactions, total income for period to equity (reseting all 
income accounts to zero) and total expenses for period to equity 
(reseting all expense accounts. As described, a trial balance (or an 
income/expense report) would give you the amounts and accounts for the 
two split transactions.

The books are now "closed" and ready to begin the new fiscal period. You 
should "burn" copies to make it clear that you never change any 
transactions before that date (the computer system can't stop you -- and 
while users ask for a "block" developers know that wouldn't stop 
somebody like myself from being able to fiddle the books unless a know 
copy resided in somebody else's custody. Whether important for people 
using GnuCash just for personal books is another question I can't answer 
(I am keeping the books of a 501(c)3 using GnuCash). Even if you don't, 
the system can still generate reports for any time period.

Michael