acct closing process
According to our textbook the closing process serves a dual purpose 1. The temporary accounts (revenues, expenses, gains and losses) are reduced to zero balances, ready to measure activity in the upcoming accounting period, and 2. These temporary accounts are closed (transferred) to retained earnings to reflect changes that have occurred during that accounting period. (Spiceland p. 79). There are three times during an accounting period when a company should perform a closing process, daily, monthly and yearly. This memo will discuss the month- end closing process, the year-end closing process and the accounting process cycle as a whole. “The month-end closing process is an accounting procedure performed at the end of the month to close out the current posting period.” (businessdictionary.com). The month-end process starts at Step 6 of the accounting process cycle, with recording of the adjusting entries (which are the revenues made and expense paid for during the month). Then balance remaining after posting the adjusting entries are posted to the general ledger accounts.
Once the adjustments are recorded to general ledger on should prepare an adjusted trial balance, which are the differences of the revenue and expense from the beginning of the month to the end of the month. Once the adjusted trial balance is prepared one moves to preparing the financial statements, the balance sheet (shows if the company has a net income or net loss), income statement (which shows that a firms assets= liabilities and owners’ equity) and lastly the statement of cash flow (shows what the changes in cash activities were). Once these financial statements are prepared and balance one can begin the year end closing process at the end of the yearly accounting cycle. The year-end closing process “carries forward budgetary account balance from one fiscal year to another.” (oracle.com). the year-end closing process are the last two step performed as a part of the accounting process
Once the adjustments are recorded to general ledger on should prepare an adjusted trial balance, which are the differences of the revenue and expense from the beginning of the month to the end of the month. Once the adjusted trial balance is prepared one moves to preparing the financial statements, the balance sheet (shows if the company has a net income or net loss), income statement (which shows that a firms assets= liabilities and owners’ equity) and lastly the statement of cash flow (shows what the changes in cash activities were). Once these financial statements are prepared and balance one can begin the year end closing process at the end of the yearly accounting cycle. The year-end closing process “carries forward budgetary account balance from one fiscal year to another.” (oracle.com). the year-end closing process are the last two step performed as a part of the accounting process
References: Spiceland, J. D., Sepe, J. F., & Nelson, M. (2012). Intermediate accounting (7th ed., combined ed.). New York: McGraw-Hill Irwin. Year-End Closing Process. (n.d.). Oracle U.S. Federal Financials User Guide. Retrieved November 14, 2013, from http://docs.oracle.com/cd/E18727_01/doc.121/e13551/T343342T345237.htm month-end closing. (n.d.). BusinessDictionary.com. Retrieved November 14, 2013, from http://www.businessdictionary.com/definition/month-end%20closing.html what accounting assumptions and principles are involved in the month-end and year-end closing process? How is?. (n.d.). Yahoo! Answers. Retrieved November 14, 2013, from http://answers.yahoo.com/question/index?qid=20121208153348AA04HuS