End of financialyear

[Egbert van der Wal]

The book closing option has also intrigued me. To some extent, I can see 
that with software the 'book closing' operation is not mandatory. Totals 
of income and expenses can be calculated in on of the report, and the 
balance can be seen in the register at any point in time. It is easier 
to see the progress in the current period when you close the books, but 
the same info is available through a report without book closing.

However, what I don't see is how equity changes when you do not close 
the books. It will just stick to the opening balance and the sum of 
expenses vs income will be added in the 'Retained Earnings' section, 
right? Or am I missing some setting for the Balance Sheet that specifies 
what the 'start' of the period for the balance should be, where all 
expenses and income before this period are summed and added to the equity?

Best regards,

Egbert van der Wal


On 25/11/13 13:45, Mike or Penny Novack wrote:
>
>>
>> One of the recommendations was to use two summary equity accounts one 
>> for
>> income and one for (expenses). OK if it floats your boat, but a 
>> single account will do
>> as the income will be credited to the summary account and the 
>> expenses will
>> be debited to the account by the closing transactions and the resulting
>> balance is the profit or loss for that period. The sum of credits and 
>> debits
>> gives you the total income and expenses respectively. It depends on the
>> level of detail you require.
>>
>
> Historical note (and explanation of what "income" and "expense" 
> accounts actually are)
>
> In the earliest days of double entry bookkeeping (and we are talking 
> about hundreds of years ago) there were no income or expense accounts. 
> Transactions that were either income or expense items were immediately 
> posted to equity. That allowed immediate access to "net worth" (if a 
> running balance were kept) but lost information about categories of 
> income and expenses. They somebody got the bright idea that instead of 
> immediately posting to equity there could be temporary accounts (of 
> fundamental type equity) called "income" or "expense" and the 
> transactions could first be posted there. Then at the end of the 
> accounting period these (temporary) accounts would be closed to equity 
> by the total of each of these accounts. Well actually they were first 
> closed to another temporary account (fundamental type equity) called 
> "profit and loss" and the amount necessary to close this account to 
> equity would be the net profit or loss for the period. That let them 
> see BOTH the net gain or loss as well as the totals for each income or 
> expense category.
>
> The point is that the software can show you these totals at any time 
> without actually closing the accounts.
>
> Michael
>
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