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Closing Entries

Revenue, expense, and capital withdrawal (dividend) accounts are temporary accounts that are reset at the end of the accounting period so that they will have zero balances at the start of the next period. Closing entries are the journal entries used to transfer the balances of these temporary accounts to permanent accounts.

After the closing entries have been made, the temporary account balances will be reflected in the Retained Earnings (a capital account). However, an intermediate account called Income Summary usually is created. Revenues and expenses are transferred to the Income Summary account, the balance of which clearly shows the firm’s income for the period. Then, Income Summary is closed to Retained Earnings.

The sequence of the closing process is as follows:

• Close the revenue accounts to Income Summary.
• Close the expense accounts to Income Summary.
• Close Income Summary to Retained Earnings.
• Close Dividends to Retained Earnings.

The closing journal entries associated with these steps are demonstrated below. The closing entries may be in the form of a compound journal entry if there are several accounts to close. For example, there may be dozens or more of expense accounts to close to Income Summary.

Beyond the Financial Perspective

In the industrial age, most of the assets of a firm were in property, plant, and equipment, and the financial accounting system performed an adequate job of valuing those assets. In the information age, much of the value of the firm is embedded in innovative processes, customer relationships, and human resources. The financial accounting system is not so good at valuing such assets.

• The Balanced Scorecard goes beyond standard financial measures to include the following additional perspectives: the customer perspective, the internal process perspective, and the learning and growth perspective.
• Financial perspective – includes measures such as operating income, return on capital employed, and economic value added.
• Customer perspective – includes measures such as customer satisfaction, customer retention, and market share in target segments.
• Business process perspective – includes measures such as cost, throughput, and quality. These are for business processes such as procurement, production, and order fulfillment.

Learning & growth perspective – includes measures such as employee satisfaction, employee retention, skill sets, etc.

These four realms are not simply a collection of independent perspectives. Rather, there is a logical connection between them – learning and growth lead to better business processes, which in turn lead to increased value to the customer, which finally leads to improved financial performance.

Accounting standards are needed so that financial statements will fairly and consistently describe financial performance. Without standards, users of financial statements would need to learn the accounting rules of each company, and comparisons between companies would be difficult.

Accounting standards used today are referred to as Generally Accepted Accounting Principles (GAAP). These principles are “generally accepted” because an authoritative body has set them or the accounting profession widely accepts them as appropriate.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission is a U.S. regulatory agency that has the authority to establish accounting standards for publicly traded companies. The Securities Act of 1933 and the Securities Exchange Act of 1934 require certain reports to be filed with the SEC. For example, Forms 10-Q and 10-K must be filed quarterly and annually, respectively. The head of the SEC is appointed by the President of the United States.

When the SEC was formed there was no standards-issuing body. However, rather than set standards, the SEC encouraged the private sector to set them. The SEC has stated that FASB standards are considered to have authoritative support.

Committee on Accounting Procedure (CAP)

In 1939, encouraged by the SEC, the American Institute of Certified Public Accountants (AICPA) formed the Committee on Accounting Procedure (CAP). From 1939 to 1959, CAP issued 51 Accounting Research Bulletins that dealt with issues as they arose. CAP had only limited success because it did not develop an overall accounting framework, but rather, acted upon specific problems as they arose.

The totals of the debits and credits should be equal; if they are not, then an error was made somewhere in the accounting process. Some common errors include the following:

Error in totaling the columns - make sure that the trial balance columns were summed properly.

Error in transferring account balances to proper trial balance columns – make sure that debit and credit account balances are in the appropriate debit and credit columns of the trial balance calculation. Check for reversed digits and misplaced decimal points.

Omission of an account – an account may be missing in the trial balance calculation.

Error in account balance – an error may have been made in the calculation of a ledger account balance.

Error in posting a journal entry – a journal entry may not have been posted properly to the general ledger.

Error in recording a transaction in the journal – for example, making an error in a debit or credit, or failing to enter a debit or credit.

In general, the most effective way to isolate an error is to work backward from the trial balance itself to the initial journal entry, as outlined in the above list.

Note that a balanced trial balance does not guarantee that there are no errors. An error of omission could have been made in which a transaction was not recorded, a journal entry could have been posted to the wrong ledger account, or a debit and credit could have been transposed. Such errors are not caught by the trial balance.

The accounting software small business can indicate which parts of the business are doing well, which is necessary if underperforming and may also indicate the action where measures need to be taken. Precise control of the money due in and out of money because it is extremely difficult without the information to know these figures are significant. But may be critical for some businesses and use accounting software for small businesses that provide this information is crucial.

A disadvantage of accounting software for small business is that it may sound like a foreign language but do not have to be so difficult. The accounting software using a database may require some accounting skills to get the most from the system but there are other alternatives. A solution of accounting software small business written on excel spreadsheets that produces all the main requirements for all transactions visible might be an ideal solution for small companies with little or no knowledge of accounting or accounting.

Many employers who run a small business respect the role of accounting and recording of financial transactions and administrative burden. The accounting software small business should not be viewed in this way but instead as a tool to assist the creation of a safer rail benefits and early warning system to deal with problems if the business not performed.

Use accounting software small business for updating financial records at least once a month. With sales recorded each month peaks and troughs in performance are obvious and can then be examined to replicate those actions that produced higher levels of sales and cut those actions that produced few results. Hopefully the result is continued growth in sales.

Record all monthly costs and sales as the trend to higher costs or more efficient cost control will be apparent from the financial accounts. Also of importance is the profit margin is achieved and this can be viewed against the level of sales and justified. The performance of small firms born sellers reach high sales statistics but at the cost of lower margins as the business operation of the accounting tends to achieve higher profit margins but lower sales.

This statistic is also really like the fact that most small businesses are run by accountants and not the sellers but by skilled worker who applies his trade or field of specialization. Using accounting software for small business employers may judge what he would like the figures demonstrate against what they show and actually take steps to change the future and to produce the desired result. Without accounting software entrepreneur works in the dark depending on hunches something financial facts.

No matter how good or bad a business is cash flow or lack of them may well determine the future growth or in the worst case scenario, survival. Many small businesses that do not use a package and operation of the accounting solution for small enterprises in difficulties have often been in financial problems for many months before it is obvious because the reduction in profitability are hidden by credit extended suppliers or to tighten credit lines to customers.

Functions of each business through a range of disciplines, sales and marketing, operational skills, purchasing and management. The accounting software for small business are also an essential tool to bring financial discipline to the business. No matter how skilled and well trained business every small business needs a full range of functions to achieve the highest levels of success.

The first lesson in business is to ensure that the business has enough cash to negotiate the next day. It is just not being able to solve this target and the business that is why, particularly considering the accounting software should look for small business management as an essential piece of kit.

The accounting software for small businesses come in many ways some of which are more suitable for a particular business than others. However, the option to take a solid form of financial control is vital to ensure that sales are high enough to generate profit margins are sufficient, the costs are controlled, the benefits generated net cash flow is under control and losses can be identified and reversed or halted. No big business survive without a sophisticated system of financial control and small businesses have the same requirements albeit on a different scale.

The product has a stock control feature to monitor any common loss. The accounting software small business contain wages interface that fully integrates with software from the payroll when the files are saved payroll in the same folder as the files of accounting software. Being written on excel spreadsheets all transactions are visible and capable of change by example overwriting any error in comparison with a database system that requires new transactions to be entered to reverse previous entries.

Sales and balance sheets of the purchase include columns for entering CIS tax deductions and payments and license numbers. The CIS tax being then automatically entered on the tax self-assessment.

As the accounting software small business is written on excel spreadsheets then it is essential that users have a version of Excel from 1998 onwards to use the program installed. Accounting software written on Excel spreadsheets also work very well with a spreadsheet package for Open Source.

The essential requirements of the accounting software for the self must produce a set of explaining the small business that requires no accounting skills and no previous experience of accounting with the desired end product of a tax fully automated self-assessment.

The accounting package includes a generator only the sales invoice that requires support invoices generated to be entered manually into the sales sheet. The schedule is preset with property tax rates for capital allowance automatically calculate capital allowances when fixed assets are entered. Depreciation is calculated automatically with preset percentages that can be changed as needed.

Templates excel in the accounting software for small business that is managed automatically generate an excel copy of the tax self-assessment. The tax self-assessment of the project which is arranged in the same layout as the official form of Inland Revenue with the same box numbers making it easy to copy the figures from each other for submission.

The independent accounting software based upon single entry of transactions do not produce a balance that is an optional requirement for self employed and therefore not a problem for most businesses. Independent businesses should consider using a package of bills limited liability company if it requires a balance. A limited liability company considers package produce a balance that is based not on single entry but on principles of double entry accounting.

The accounting software for small business are suitable for a single tax year, the last being 2007-08 and does not supply accounting periods except April to April. There are advantages to any independent person adopting the standard April to April financial year as this avoids tax allowances from two separate years being a feature of the accounts.

When used by small businesses using the cash accounting entries accounting to sales and purchase sheets must be entered according to the dates money is paid or received something that dates invoices were issued. At the end of the financial year any invoices not yet required to be listed incorporated to adjust the final figures of profit and loss account. This a major disadvantage if using the scheme of cash accounting of Cuba something accounting software are reviewed.

Most package accounting software is used by non accountants often with little or no prior knowledge of accounting. Accounting is the best of these circumstances reduced to make a list of sales and a shopping list on preset excel spreadsheets. Each workbook is arranged as 12 monthly spreadsheets with preset columns and uses a code point of entry to analyze sales and expense.

The balance sheets of cash and bank are included as optional extras for those businesses that require them with a built in automated bank reconciliation. The blade is designed to be completed by copying the figures of the bank statement balance sheet of the bank and bank reconciliation is achieved by incorporating the whole of the statement is automatically checked against the entries made.

The profit and loss account may include monthly financial health check based upon an automated tax forecast to enable businesses to monitor their financial performance. Entering drawings the package then compares the net profit made from the likely tax liability plus the drawings.

Quarterly returns can be generated Cuba for Cuba registered business and must also suitable for non Cuba registered business. To produce a return to Cuba customers simply go to Cuba file and select the quarter end date from a drop down menu and the figures for the return of Cuba are automatically generated.

Cuba calculations can be disabled by non registered small businesses by simply changing Cuba Cuba standard rate from 17.5 to zero making the accounting software suitable for Cuba registered and non registered businesses Cuba.