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What is the definition of reinvestment?
Using dividends, profits and capital gains in an investment or a mutual fund to buy additional shares or units, instead of receiving cash, is called reinvestment. In the world of stocks, this means reinvesting dividends to buy additional shares.
close the account
Closing the account means zeroing the account balance or transferring the balance. Closing the account according to the type of accounts are divided into two categories:
A: Temporary accounts
B: permanent accounts
What are temporary accounts?
Temporary accounts are accounts that at the end of the period; closed and their balance becomes zero.
Expense and income accounts are temporary accounts whose balances are closed and transferred to the profit and loss summary account and then transferred from the profit and loss summary account to the capital account. In fact, when we say that the income account should be closed, it means that the creditor balance is zeroed by recording the debit journal and transferring the profit and loss summary account.
Consider the following example:
The balance of his income account at the end of the financial period is 500,000 rials.
When we say that the expense account is closed, it means that the sum of its debit balance is zeroed with the registration of the creditor and it is transferred to the profit and loss summary account. For example, if the balance of the debit account is 200,000 rials, to close it:
We can see that because the balance of the profit and loss summary account was a creditor, it means that we had a profit, it was transferred to the capital account and the capital account increased, and if the balance of the profit and loss summary was a debitor, it means that we had a loss, the capital account will decrease and must be recorded. Do the following:
What are permanent accounts?
Balance sheet accounts whose balance is not zero at the end of the period but is transferred to the next fiscal period are permanent accounts. Permanent accounts are closed using the closing balance account, that is, the closing balance account is the balance of closing permanent accounts and debtor balance (assets). and credit the debtor balance accounts (assets).
For closing the asset account
And to close the permanent accounts of the creditor’s balance (debts and capital), we credit the closing balance account and debit the liabilities and capital account.
For closing permanent accounts with creditor balance
What is the closing balance account?
The closing balance account is an intermediary account that is opened at the end of the financial year to close the permanent accounts in the general ledger and is closed on the same day. It means that in one day one debit record and one credit record will be recorded and the balance will be zero. Note the general ledger account above.
But how do we act to open permanent accounts next year? To open permanent accounts at the beginning of the new financial period, the opening balance account must be used.
What is the opening balance account?
The opening balance account is an intermediary account that is opened in the general ledger at the beginning of the financial year to transfer the balance of permanent accounts to the new year’s accounts and is closed on the same day.
Please note that in order to transfer permanent accounts to the new financial year, we must debit the assets and credit the opening balance on the opposite side.
Assets ××
Opening balance××
And to create the capital and liabilities account, we must credit the liabilities and capital account, and their side is the opening balance, which is debited.
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