Closing Process in Accounting

Closing Process in Accounting

A company’s financial accounts are finalized and made ready for the following accounting period through a sequence of activities known as the closure process. An accounting period might be a month, quarter, or even year. The closure procedure aims to confirm that every financial transaction the company had throughout the period has been appropriately recorded and represented in the financial statements. Generally, the accounting cycle’s closure phase is essential since it guarantees that a company’s financial statements are accurate and current (Jasim and Manaf, p. 52). The financial statements are reset to zero for the following accounting period. The business may start again with a clean slate by closing revenue and cost accounts and moving their amounts to the retained profits account.

In addition, accounts not closed after an accounting period are referred to as permanent or open accounts. The balances of these accounts, which are related to the company’s assets, liabilities, and equity, are carried over to the upcoming accounting period (Jasim and Manaf, p. 54). Cash, receivables, payables, and retained profits are a few examples of permanent accounts. The balances of these accounts are essential for financial reporting and serve as a significant historical record of a company’s financial situation. Nominal accounts, often called temporary accounts, are closed at the conclusion of an accounting period. Revenues, costs, profits, and losses are shown in these accounts. Each accounting period ends with the balances of these accounts being wiped out, and the net balance is transferred to the company’s retained earnings account. Sales income, cost of products sold, salary and expenditure accounts, and interest costs are a few examples of temporary accounts (Jasim and Manaf, p. 56). These accounts’ balances are crucial for determining a company’s net income or loss since they offer crucial information about how the business performed throughout the accounting period. Hence, by distinguishing between permanent and temporary accounts, accountants can ensure that the appropriate accounts are closed after the accounting period and that the financial statements appropriately represent the company’s financial situation and performance. In order to create accurate financial statements, base business decisions on financial data, and adhere to accounting rules and laws, it is crucial to classify assets correctly.

Works Cited

Jasim, Yaser A., and Manaf B. Raewf. “Information technology’s impact on the accounting system.” Cihan University-Erbil Journal of Humanities and Social Sciences 4.1 (2020): 50-57.

ORDER A PLAGIARISM-FREE PAPER HERE

We’ll write everything from scratch

The goal of this course discussion is to apply what you have learned after reading the chapter material and reviewing the PowerPoint.

Closing Process in Accounting

Presentations. Keep in mind that this discussion question will help prepare you for homework and future assessments, so it is important that you understand the information and actively participate in discussions. To supplement your learning and enhance your understanding, you may also have to conduct research outside of course-provided material.

Module Five Discussion Question #1

Explain the closing process in accounting. Questions to consider when answering this are: Why is it important to classify permanent and temporary accounts? How is the account Income Summary used during the closing process?