Method of closing accounts at the end of the financial period
The method of closing accounts and temporary and permanent final records at the end of the financial period – in general, it can be said that there are two types of accounting operations: one is the operation related to the events during the financial period and the other is the operation related to the end of the financial period. The first part includes items such as collecting information on financial events, analyzing all transactions and financial operations, recording accounting documents of financial events and transferring the recorded information from the newspaper to the general ledger. The second part, which is the subject of this article, includes closing temporary accounts and permanent accounts. The second part is done at the end of the financial period or after the end of the financial period.
(The description of the article is based on the assumption that all matters such as document registration, account control, warehouse management, depreciation cost identification, etc. have been done)
In the rest of the article, “closing accounts” and its reason, the time of closing accounts and the method of closing accounts are explained:
What does it mean to close the account?
“Closing the account” means zeroing the balance of each account. This is done by crediting the final balance of accounts with debit balance or debiting the final balance of accounts with credit balance through accounting documents.
When is it necessary to close the accounts?
1- During the financial period:
For example, the account balance of some customers is closed due to reasons such as non-payment of debt or non-continuation of cooperation with the company or providing a discount for the account balance during the financial year, that is, the balance of his debt is transferred to the receivables or the corresponding heading is transferred. . For example, Mr. A (customer of the company) owes 1,000,000 rials to the company, and this amount should be considered as a discount for him and his account should be closed. The accounting record related to this event is as follows:
Sales discounts 1/000/000
Commercial accounts receivable / Mr. A. 1/000/000
2- End of financial period:
This item, which is more detailed and complicated than closing the accounts during the financial period, is done to determine the profit and loss of the financial period, as well as to transfer the balance of permanent accounts to the next financial period and issue the opening document.
Accounts are closed at the end of the financial period by considering the type of temporary (profit and loss), mixed and permanent accounts (balance sheets). To close the accounts at the end of the year, the balance of all temporary accounts must first be closed with a permanent account, and then the balance of all permanent accounts should be closed and transferred to the next financial period as an opening.
Examples of temporary accounts: Some of the accounts of this group that are related to income and expenses include sales, salary expenses, water expenses, telephone expenses, etc., which are closed at the end of the financial period and are not directly transferred to the next year. .
Examples of mixed accounts: among these types of accounts are prepayment of rent and prepayment of income, which include two temporary and permanent parts. At the end of the financial period, a part of it is transferred to the expense account as a temporary account, and the other part is transferred to the next financial period as a permanent account.
Examples of permanent accounts: some accounts of this group, which include assets, liabilities and equity, include cash and bank balances, commercial accounts receivable, capital, etc., whose balances are closed at the end of the financial period and are transferred directly to the next financial period. is transferred