Closing the Books

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Suppose a business has the following ending balances on these accounts at the end of 2012.

At the end of March 2013, if these accounts remain open, they will show the amounts from last year and the amounts from this year.

A business owner cannot see how much he earned from January to March because the statement combines this information with the prior year's transactions.

To clearly define periods, close the books; this changes income and expense accounts to zero.

Closing the books makes it clear which income and expenses occurred in 2012 and which occurred in 2013.