Close an accounting period
Historically, the accounting cycle involved numerous tasks to “close the books” at the end of an accounting period, whether a month, quarter, or year. Income and expense summaries were developed, trial balances were created, amounts were transferred with journal entries, and so forth. Most steps were designed to:
- Zero out income and expense accounts before starting a new accounting period
- Identify and correct errors
- Limit accumulation and propagation of mistakes from one period to the next
These practices developed over centuries, not only to support meaningful analysis, but also to combat unavoidable omissions, mental miscalculations, and oversights when entering and posting hundreds or thousands of transactions manually.
Hub eliminates the need for most of these steps by:
- Performing all calculations electronically, eliminating arithmetic errors
- Basing automatic double entries on type of transaction and account selection by the user, reducing the need for manual journal entries with their requirement to deduce which accounts to debit and credit
- Furnishing real-time feedback when journal entries are made, reducing the possibility of unbalanced transactions
- Leaving incorrect, incomplete, or unbalanced transactions in Suspense until fixed
- Carrying forward information from one period to the next in a perpetual database
- Setting displays and reports to cover defined time periods
Closing the books
At the end of any accounting period, just a few tasks are normally required. For many businesses, these steps are only performed annually:
- Make necessary adjusting entries (when using accrual basis accounting) for prepaid expenses and income items.
- Make desired distributions of earnings to capital or equity accounts using journal entries.
- Pay out desired dividends or draws.
- Create desired reports for the accounting period. These might be limited to a Profit and Loss Statement and Balance Sheet. Of course, others can be added to suit needs of management, accountants, or tax authorities. Reports can be printed, stored electronically, or just saved in Hub.
- Consider locking past transactions by setting the lock date once end-of-period adjustments are complete. This prevents changes to transactions forming the basis for statutory reporting obligations and tax returns.
For many small businesses, especially sole traders/proprietors, none of these steps might be necessary. Perhaps the business has no prepaid items. Depending on the equity structure of the chart of accounts, the second and third steps might have happened over the course of the accounting period. And reports can always be generated later if they are needed.
Setting up the next accounting period
The only essential step prior to entering transactions for the next period is resetting the period in the Summary tab. Click on Edit:
Be sure the box is checked to
Show balances for specified period. Otherwise, all transactions from the date Hub was first used will be included. Enter the first day of the new accounting period in the
From field. Normally, select Today as the
Until date so the Summary is always current, but no transactions entered in advance will be included until their entry dates are reached:
To begin accounting work for the new period, click Update:
You might want to define common reports for the new accounting period, too. That way, they will be quickly available when needed. But they can also be created later.