What happens to expenses/drawings if I choose not to close books?

Buddha Buck blaisepascal at gmail.com
Tue Nov 15 13:10:54 EST 2016


Closing the books merely adds a transaction which transfers the balance in
the income and expense accounts to the appropriate equity accounts. It was
necessary in a paper system to help prepare the various reports -- the
splits on that transaction are effectively the entries in the profit-loss
statement (aka the income statement), and the final balances after closing
show up on the balance statement.

With GnuCash (and other computerized accounting packages) it is possible to
compute a profit & loss statement without starting from an empty book --
you can run a P&L statement between any two dates, regardless of your
accounting periods. The balance statement includes a line for "Retained
Earnings", which is computed from the income and expense accounts.

Assuming that the chart of accounts is correct, the results end up being
basically the same as if the books had been closed. The income statement is
correct as if the books were closed on the start date of the statement, and
the balance sheet shows the correct balances, with the combined income and
expenses represented as "retained earnings".

I'm not entirely certain if "Drawings" should be considered an expense,
rather than an equity account, but that's something for you to take up with
your accountant.


On Tue, Nov 15, 2016 at 11:10 AM EasyGoingPat <patrickskelton at gmail.com>
wrote:

Hi,

(The following refers to a Sole Trader, not Limited company.)

I have just been reading the help for the GnuCash Close Book tool.  It
states that it is unnecessary to close the books at the end of a financial
period, and indeed seems to recommend *not* doing so.

But, since the Expenses-Drawings account is just another expense account and
does not appear to be special in any way, how does cash taken out of the
business affect Owner's Equity, which I believe it should do?

As always, my thanks to anyone taking the time to help.

Kind wishes ~ Patrick



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