[GNC] closing of accounts, and locking, "not needed in Gnucash"? Needed!

[Adrien Monteleone]

On 8/9/20 5:51 PM, doncram wrote:
> In the recent thread with Marilyn Graves, and also in previous threads, it
> has been asserted that closing of accounts at the end of a period is not
> needed.  But it is needed!
> 
> It has accurately been pointed out that Gnucash or other modern accounting
> software does not need users to go through manual steps a) to close out
> temporary account balances (for every revenue and expense account) to a
> temporary net income account, and b) to close the temporary net income
> account to a retained income account within equity.  That is so;  the
> software does that automatically.
> 
> It may be true (I think it is true) that for an entity that strictly uses
> cash accounting and does not recognize accruals of any kind, that no other
> closing entries are needed.
> 
> But, for any entity with full accrual accounting, or with any small part of
> accrual accounting, it is normally necessary to make closing entries,
> typically dated December 31, to update accruals.  Often requiring use of
> information not available until later:
> *use of info from bills known already plus bills coming in during January,
> to make an accurate statement of Accounts Payable as of December 31.

How does the 'Close Books' function in GnuCash accomplish this?

If you use the Business Features, your AR and AP accounts are maintained 
properly. If I run a Balance Sheet as of 12/31, I'll see what their 
balances were on that date. No special entries needed.

If I get a bill in January for December services, I simply enter the 
bill with a December posting date. (so it is recognized in the proper 
period)

Alternatively, I can post it with the January date, but posted against 
an Accrued Expenses account with that account containing the expense 
transactions dated when incurred - December. Running the report 
afterwards will properly show the AP balance.

> *if capital assets are being recognized, record depreciation for the year,
> putting in at December 31.

Done manually anyway as an expense against the asset. This isn't part of 
the 'Close Books' function.

> *if tithing obligations are being accrued, do an update

Again, a manual entry. There is no need to reverse and re-enter 
balances. The balances just continue.

If you run a Balance Sheet as of 12/31 and another as of 1/1, you'll see 
everything is as it should be without any special entries.

> *about taxes due, perform a good analysis of tax obligations stemming from
> the year (i.e. by going through your process of filing tax forms with the
> government), and then recognizing any additional tax expense if the amounts
> recognized during the year were not enough (or show a negative tax expense
> on December 31 if too much has been recognized), in the process making an
> accurate Taxes payable balance.

Handled by the Tax Report. No closing entries necessary.

Note, to be clear, the 'Close Books' function in GnuCash does only one 
thing - it zeroes all expenses and income to Retained Earnings. That's 
it. Nothing more.

Since the Balance Sheet already can calculate RE from all of the book, 
you don't need to periodically close. Closing was a process of obtaining 
numbers for reporting and carrying forward amounts from previous periods.

But that only matters with paper and ink.

You don't need to specifically make entries to carry balances forward - 
because you aren't moving to a new file that would make this necessary. 
(though you *could* do so, some here on this list practice this, but you 
don't *have* to operate that way)

> 
> And so on, for other accruals.  And when you are really satisfied, then you
> should lock transactions up to December 31, so that in the future neither
> you nor anyone else can accidentally enter transactions that are
> miss-dated.   Except perhaps changes could be allowed by use of a
> password.  Within past Gnucash development, there has been refusal to allow
> such locking, but it is an essential, crucial part of accounting, IMO.  A
> big credibility issue for Gnucash, relative to other accounting software
> that does allow for such, because it is so basic to professional accounting
> practice.   I am not sure of current state of affairs on this.  One
> objection to allowing locking, which I recall, is that programmer-types
> would know how to bypass the locking so it would not be a perfect control.
> However it obviously would be a control that helps avoid accidental changes
> or changes by uninformed data entry staff.

A preference to discourage preventing inadvertent entry and possibly 
editing already exists, though the UI for it could maybe use another 
option or be improved.

> If you do not update your accruals on December 31, then Income Statement
> periods ending on that date and Balance Sheet of that date will be
> misstated.  If you want quarterly reports to be accurate this way (not
> generally necessary) then you need to perform similar closes on

Looks like you trailed off, but I don't see how those reports will be 
inaccurate without 'updating accruals'. What does that even mean anyway? 
Remember, unless you're starting each year with a new clean file (not 
necessary) then there is nothing to 'update'. It is already up to date.

Regards,
Adrien