Purpose of Accounting Period? Benefit to closing books?

[Adrien Monteleone]

> On Feb 22, 2018, at 1:11 PM, Stan Brown <the_stan_brown at fastmail.fm> wrote:
> 
> New user here. I understand double-entry accounting pretty well, but I'm
> struggling to adapt that knowledge to GnuCash's take on double-entry
> accounting.
> 
> Why do we specify an accounting period?  How is it used in GnuCash?

The accounting period is defined by the entity you are keeping books for. For most people, this is the calendar year. Some businesses and organizations prefer to keep a ‘fiscal year’ which does not start on Jan1 and end on Dec31. You can define this in Gnucash’s preferences. It’s the very first tab in Preferences. You would use the absolute entries for specific fiscal years and unfortunately have to change it each year. (unless there is a trick I’m not seeing)

There are also options to define the period as a month or quarter as you see fit. (including shortcuts to previous/current for each as well as for year)

This comes in handy when you are entering historical data and need to run several reports. By defining the period in Preferences, you get this as the default date range for reports like the Income Statement, otherwise, you’d have to set those dates manually each report run since they’ll vary from the default ‘current year'.

Since you like running reports by month routinely, you have two options other than changing the dates each time:

A) Define a saved report configuration for each report you want to run with the dates set to ‘start/end of current month’
B) Set your Accounting Period to ‘start/end of current month’ and run reports without any additional configuration.

The only drawback to option B is that to run reports for the year, you’ll have to specify that date range. (but you still have the shortcut options of ‘start/end of current year’ available)

Look over the Accounting Period options, play with them and run some reports. Play with the report’s Options > General preferences as well to see how these work and interact.

There might be other implications to setting the accounting period. I’ve left mine at relative to start/end of current year and I just run monthly reports specifically as I need so I probably don’t encounter those other cases, if any.


> 
> I assumed it was related to closing the books, but section 8.9 in the
> help manual says we shouldn't close the books because GnuCash doesn't
> understand that the closing entries it generates are special, so it will
> think income and expenses in the period are all zero.

> 
> (I'm accustomed to close the books monthly, with monthly income
> statement and end-of-month balance sheet -- that's when I would
> reconcile everything, though I understand GnuCash reconciliation is
> driven in  a different way. I also want to get an annual income
> statement. I understand that if I don't close the books monthly I can
> still get an income state monthly by specifying dates. But in that case,
> why would I close the books at the end of the year? or ever? Or is there
> some benefit in GnuCash to closing the books that I'm missing?)

There’s really no need to do so and you’re reporting won’t be as flexible. (once closed, you can’t run a cross-period boundary report, say 4Q-1Q for example) I’m not sure about reporting within a closed period though. (such as a P&L for June in a closed year) You also lose flexibility to correct prior periods since that will throw off the closing entries. (you’d have to do a post-period correction in the new period) You also wouldn’t be able to re-run any standard period reports after such a correction if you made one since the revenue and expense accounts are now zero.

‘Closing the books’ is a carry-over from the days of physical paper volumes. Part of the organization system including starting new physical ledger books to keep periods separate. (so you didn’t end up with partial periods filling the end and beginning of volumes, each volume consisted of an entire period and only that period)

Of course with computers, none of that matters any more. (there are some documentation concerns, but that can be handled by writing the current file and period PDF reports to a read-only medium for archival purposes)

Not all software is so kind. I have a client using a POS/Inventory system that requires a ‘close the month’ routine to zero out some running counters that are useful for at-a-glance info. The only thing close to this in Gnucash is the Chart of Accounts tab’s Total column. But you can add a column showing the present accounting period totals if you like, (called "Total (Period)") so you get both running totals and current totals without having to pick one or go through any book closing procedure. An interesting ‘feature’ of using this column is an at-a-glance view not only of your P&L with respect to current period income and expenses, but your change in position for each asset and liability account, essentially, how the balance sheet is period-to-date affected. And all without running a report.

Regards,
Adrien