End of financialyear

[Mike or Penny Novack]

>
> 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?


And considered as if it were a ledger account, what sort of account 
(fundamental type) do you think "retained earnings" would be?

It might be important were the entity a corporation that income and 
expense be closed into an ACTUAL "retained earnings" child account of 
equity rather than directly into equity itself. Normal dividends are 
paid out of "retained earnings" with what has been  what being paid out 
to shareholders from here no longer retained (does the name make more 
sense now?). Thats why shown separately on the balance sheet (with the 
original equity unchanged). Other forms of organization, sole 
proprietorships and partnerships,  have more freedom what they can 
distribute as a "normal" distribution. But it still makes sense to be 
able to show that you haven't dipped into your principle, so to speak 
(that the original equity is still there).

Michael