ACC 100 Week 4 Discussion

Week 4 Discussion

Identify and discuss the key steps in the closing process that provide the most opportunity to make mistakes in processing account transactions. Why did you select these steps, and what makes them confusing? 

Make at least two (2) recommendations for improving the accuracy and reliability of the information in the gaps that you have identified

Reply to below student answer to the above questions:

Closing journal entries are made at year-end for the preparation of temporary accounts for the next accounting period. Temporary/ nominal accounts or also referred to as income statement accounts, are measured periodically. The amounts in one accounting period must be closed or brought to zero to ensure that they won’t be mixed with those of the next period. Temporary / nominal accounts consist of all revenue and expense accounts, and also withdrawal accounts of owners in case of sole proprietorships and partnerships. The main purpose of closing entries in accounting is to prepare the temporary accounts for the next accounting period

While doing the closing process, there is possibility of making errors. First error can be to forget to close every temporary account. Temporary accounts include accounts like revenues, sales, numerous expenses like rent expense, advertising expense, marketing expenses, depreciation expense etc.

At times, it happens that there is confusion in the temporary account and permanent account thus creating the confusion that which accounts should be closed and which accounts should not be closed and the balances are required to be carried forward to the next financial year.

The two recommendations which can help in improving the efficiency, accuracy and reliability of the information are:

All the accounts which are reported in the income statement are temporary accounts and required to be closed. Thus all the revenues and expenses that are reported in the income statement must be closed.

Other temporary accounts can be taken from the statement of retained earnings which includes dividends, net income, and withdrawals. These accounts must be closed as they are temporary accounts.

Only permanent accounts which include assets, liabilities and equity can be taken to the post closing trial balance and should not be closed.

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