End of financialyear

[David Cousens]

Chris,

The concept of "closing books" in the sense of physically starting new files
is really a hangover from practices when books were actually kept in
physical books or ledgers.

The main purpose of closing the books is to allow calculation of
information for financial reporting e.g. balance sheet , profit and loss
statement etc.  With books maintained in a computer database or records,
this can be done at any time by using reports with the appropriate
restriction to the period of concern. Financial reporting requirements may
however require you to  record this information annually, semi-annually or
quarterly by keeping copies of the state of the accounts.

There is a requirement to transfer the current periods earnings from the
"temporary" income and expense accounts to the equity account.  This can
done with closing transactions which transfer the balances of the income and
expense accounts to an income summary account to determine the profit and
loss, ( and in turn taxable income, tax liabilities etc.). This is normally
done at suitable periods based on business and reporting needs (weekly,
monthly, quarterly etc.). 

Adjustments are also normally applied before the closing of the temporary
accounts so that income and expenses are recorded in the correct period
depending upon whether cash or accrual accounting applies. The income
summary account is in turn closed to the owner's equity account normally at
the EOF year.  The closing of the income and expense accounts to the income
summary account zeros the balances in the income and expense accounts
readying them for the next sub- period.

Closing does not require the files to be physically closed and new files
started, only that the appropriate transactions be recorded to zero the
income and expense accounts. You will need to consult a textbook on
financial accounting and or your accountant to determine exactly what
adjustments are needed in addition to the primary closing transactions as
the requirements will depend upon the business needs, financial and taxation
reporting requirements as these are jurisdiction dependant.

What is more important is to make backup copies of the files on a regular
basis and to keep copies of the files so you have a snapshot of the files at
regular fixed points so you can restore the accounts if your main working
file is corrupted. Gnucash does do this but you will need to transfer copies
of the files to a safe location.

Some accounting software does close and create new files. This is primarily
because their development was driven by the desires of accountants rather
than the requirements necessary for business recording. In rare cases with
large organisations with large numbers of transactions it may be necessary
to create new files in Gnucash  but not for the average private and small
business or non profit user.

Hope this clarifies the rationale behind "closing" accounts.

David Cousens


-----Original Message-----
From: Brian Funk [mailto:gnucash at stoneladder.ca] 
Sent: Friday, 22 November 2013 11:10 PM
To: gnucash-user at gnucash.org
Subject: Re: End of financialyear



On 11/22/2013 1:19 AM, Chris Bester wrote:
> Hi
> I am still awaiting a reply regarding closing off my books at the end 
> of the financial year and restarting with the closing balances as 
> opening balances in the new year.  Books cannot just run continuously.
Please help.
> Thanks
> Chris

You need to remember to send your mail to the list...

If none of the options outlined in the wiki or the other link below than I
have no other suggestions... other folk on the list may have some ideas for
you but again, you need to mail to the list.. not just me.

--
Brian


>
> On 11/21/2013 12:20 AM, Chris Bester wrote:
>> Hi
>>
>> I have been using GnuCash for the past year and now have to do end of
> year.
>> How do I close off this financial year and how do I start a new year?
>>
>
>   From the wiki...
> <http://wiki.gnucash.org/wiki/FAQ#Q:_Is_there_book-closing_support.3F>
>
> from the web at large...
> <http://www.gssezisoft.com/main/2011/08/gnucash-and-end-of-year/>
>
> I have never closed my books so YMMV.
>
> regards,
>