What does year-end closing do, exactly?

Mike or Penny Novack stepbystepfarm at mtdata.com
Fri Apr 16 07:31:04 EDT 2010


Paul A. wrote:

>Is there a description around of just what "Close Books" does?  I've seen
>references to zeroizing transactions, but it's unclear just what they do. 
>Does closing the books delete any transactions at all?
>  
>
I will try to describe again.

ORIGINALLY (hundreds of years ago) in double entry bookkeeping income 
and expense items were immediately entered against equity -- the 
bookkeeping was primarily interested in just the balances of assets and 
liabilities hence the terms "debit" (he owes) and "credit" (he trusts -- 
aka, I owe him). Then somebody got the bright idea that it might be nice 
to have ledger accounts which could show income and expenses. So 
TEMPORARY accounts of these types were introduced. Their fundamental 
type is equity, but by keeping them separate for a while can see the 
totals broken out (actually, keeping that running balance for you one of 
the nice things about using GnuCash and a computer since in the old days 
pen and ink on paper you had to do math to get the totals).

"Closing the books" refers to the end of the accounting period when 
these (temporary) accounts were closed into the main equity account. 
Again nice of GnuCash it computes that net gain or loss when you run the 
"Income Statement" report. In the old days the income and expense 
accounts were first all closed into another temporary equity account 
called :"profit and loss" and THAT became the report with whatever 
amount needed to balance it entered as net gain or net loss there 
(closing the profit and loss account) and equity.

Michael

PS --- You should not ever be adding transactions to a closed 
period!!!!!!  If you NEED to do this, in effect you should undo the 
closing, fix the previous period, and redo the closing. This is not hard 
of you made a copy of the file immediately before the closing operation.

-- 
There is no possibility of social justice on a dead planet except the equality of the grave.



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