|
Closing the books
Generally accepted accounting practices XE
"closing the books" XE
"books, closing" carry income and
expense accounts until the end of an
accounting period (year or quarter,
etc.) Then all the income is added up,
and all the expenses. Total income minus
total expenses shows on the Profit and Loss
Report as profit (we trust it will be a
positive number.) Effectively, the
profit is added to the equity as
Retained Earnings. The classical
accounting transactions are more
complex. The balance in each income or
expense account is transferred (directly or
indirectly) to retained earnings XE
"retained earnings:definition"
. QuickBooks basically does this,
although not in the exact same manner as most
accounting systems.
This is also where the
“balance” in balance sheet comes
in. Accounting tracks the changes in
liabilities and assets, and also income and
expenses. If the changes in assets and
liabilities match the income and expenses,
the balance sheet will remain in
balance. The bean-counters can be
justifiably proud of their work.
|
