[jgmart04]

Hey y’all

Can someone help me understand year end closing entries of temporary accounts? I do understand the need to increase/decrease the permanent accounts (Retained earnings, assets, liabilities, etc..).

Here is where I feel very stupid, so please bear with me…

If we close out all of the temporary (nominal) accounts, how would we do a year on year analysis in the ERP system?

E.g. I post all of my closing entries on 12/31/18, my December expense activity for those nominal accounts would be largely negative as I am crediting the expenses from the entire year. I do understand my total year would be effectively “ZERO”. And those revenue and expense accounts would end up in the Retained Earnings account of the balance sheet.

Just looking for a “Keep it simple stupid” response because I feel like I am over complicating.

[Recked]

Just to clarify… are you talking about Governmental or normal?

Memento Mori - Kingston NY CPA & EA (SUNY Albany 2002)

FAR-93 11/9/17 (10wks, 250 hrs, Roger 1800+ MCQs, Gleim TB 600+MCQs, SIMs)
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[jgmart04]

Non-government private (normal) accounting

[Pete]

Most accounting softwares automatically closes certain accounts at year end. A better question might be why wouldn't you close your GL accounts at year end?

If you didn't close the entries, your current income GL would simply keep increasing forever and it would be much more difficult to determine what the current year expenses were and what was incurred in the past. Overall, it would just be a messier presentation. Granted, you could always simply look at the amounts revenues changed in the current year range and how much they changed in the past. In fact, your equity (retained earnings) basically shows how much a certain income item changed in the past and your current year income item shows how much it changed in the current year.

I think closing an account simply makes it easier to determine what the equity section should be and what the current items should be for the financials. Granted, you could probably simply figure out those items, it would add a lot of work each time you needed to prepare financials.

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[Jen-J]

You don't zero out the accounts during Period 12. It's this weird time that isn't Period 12 or Period 1 of the following year. As part of rolling the year, your software should create an entry to zero out the income statement accounts and the difference goes to retained earnings. You can't close Period 1 until you have rolled the year (because your starting numbers won't be zero). If you ever go back to change Period 12 later (like say an audit adjustment), you have to re-roll your year end. If you are truly doing this by hand, I'd put this income statement / retained earnings entry in a Period 13.

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[Author]

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