Closing the books refers to the accounting procedure done at the end of the month, quarter or year, to ensure the accurate and timely delivery of your financial reports and statements. The purpose of this is to make sure that the income and expenses from the previous accounting period don’t carry over to the current accounting period, so business owners like you can get a good look of your financial position over time.
On top of that, the generated reports also provide you with an overview of your finances so you can properly file your income tax returns, and be informed of how well your business is performing within the period. While this is usually done by an accountant, understanding the steps involved is still important so you would know what to expect the moment you decide to hire a professional or outsource your accounting.
Closing the books used to be a tedious yet mundane process, but with the help of accountants, we can make it easy for you. As we wrap up the year, here are the basic steps that you need to know in closing your books:
- Transfer journal entries to general ledger
Entries recorded in the general journal are transferred into the general ledger. - Sum the general ledger accounts
All entries in each general ledger account are added to compute their ending balances. - Make a preliminary trial balance
A preliminary trial balance is prepared to check if the total debits and credits are equal. - Enter adjusting journal entries
Adjusting entries are recorded to take into account the items that are not noted in daily transactions such as accruals, prepayments, and depreciation. - Make an adjusted trial balance
An adjusted trial balance is prepared to make sure that the total debits and credits are still the same after adjusting. - Generate financial statements
If they are still equal, the balance sheet and the income statement are now generated. - Enter closing entries
Closing entries are added to zero out the revenue and expense accounts by transferring them to a permanent one such as retained earnings. - Make a final trial balance
A final trial balance is prepared to match the total debits and credits as you set your books for the next accounting period.
To ensure that all recorded transactions are correct and accurate, it’s best to reconcile your accounts once in a while to resolve any discrepancies that might be discovered during the process. An accountant can help you find the error and correct it, but if you want to skip the complexity of closing your books, we can do the rest of the work so you can focus more on the most important areas of your business.
Email us today at mpcamaso@mpca.com.ph so we can help you!
