1. CLOSING THE BOOKS AT THE END OF THE YEAR
The balance sheet accounts are not closed. Those balances such as Cash
Account, Assets and liabilities are carried over to the next year.
The accounts that do change are the accounts in the Profit and Loss section
of the General Ledger. All these accounts are zeroed out, and the Net Profit
for the year is added to Retained Earnings. The year that has just been closed
becomes the prior year, and the new year becomes the current accounting
year.
All Customers accounts are part of Account Receivable. Account Receivable is
a Balance Sheet account; therefore these accounts are not closed out at the
end of the year. If you want to remove a customer ledger, you must first zero
out the account balance. If it is a credit balance, you can issue a check to the
customer. Once the check is posted, the customer ledger can be cleared off.
Vendor accounts are part of another Balance Sheet account, Accounts
Payable and is carried over into the next accounting period. Vendor ledgers
remain in the accounting system for as long as the company does business
with that particular vendor. The information posted on the vendor ledgers is
often needed for reference.
During the month of January, you will be moving back and forth between the
old year and the new year. The business operation does not stop and start
again- it keeps going. Don’t rush through the year-end closing. Take as much
time as you need to make sure that everything that belongs in the old year is
posted and in balance. Keeping financial data is properly maintained and
reported requires knowledge, skill, and organization.