Zero Balancing > By Profit & Loss

This feature deals with "Profit & Loss Year-end Closing" requirements. Conventional accounting calls for the closing of Revenue & Expense accounts at the end of each fiscal year to the Equity section of accounts, usually in a two step effort, for example:

1st close Revenue and Expenses to Net Profit for the year
2nd close Net Profit to Retained Earnings

Various approaches have been taken in manual and computerized systems - usually this involves creating an offsetting entry (bring to zero) each account in the Revenue and Expense series and making a final entry for the cumulative total of all "closed accounts" to an account in the Equity section. This type of entry is often recorded in a fake accounting period (e.g. the 13th month).

In STEP FORWARD we suggest the following approach: rather than processing an entry against each Revenue and Expense account or creating fake periods, you could set up two GL accounts, possibly each as the last account in each of its respective sections:

At the end of the Equity section: Net Profit/Loss for the year
At the end of the Expense section: Close Revenue & Expense Accounts

With these accounts in place the following type closing entries can be made (the assumption is a fiscal year-end of December 31st and the company posted a profit for the year i.e. revenues exceeded expenses):

December 31st Debit Close Revenue & Expense Accounts
Credit Net Profit/Loss for the year
January 1st Debit Net Profit/Loss for the year
Credit Retained Earnings



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