Closing is an accounting operation. It consists of closing three types of accounts: incoming (income), outgoing (expenses) and costs. These accounts show everything that has been accumulated during a given period, typically January 1st through December 31st. Thus, these accounts determine the profits and losses of the company . Balance Sheet Closing
The purpose of a balance sheet closing is to assess the benefits or losses of a business activity. In other words, if the final result is positive, there is an increase in corporate equity and if the final result is negative, there is a decrease in the company’s equity.
Some considerations about closing the balance sheet
This procedure involves a series of pre-questions. On the one hand, check each of the asset, liability, equity, depreciation or bank reconciliation accounts. Once these adjustments are made, it is necessary to close the balance sheet.
The balance sheet closing falls within the context of international financial reporting standards .
In the balance sheet closing process , a series of accounting entries is carried out with the objective of updating the accounts.
Closing the balance within the accounting cycle
An accounting cycle is understood as the entire process by which information about a company and its financial activity is registered.
The accounting cycle has three different phases:
1) Opening of accounting;
2) development phase;
3) Balance Sheet Closing.
The opening of the accounting is carried out at the beginning of each fiscal year with the following processes: inventory and opening of the accounting books to which data from the closing fiscal year of the previous year are added.
In the development phase, the accounting actions that took place during the year are registered in the daily books, as well as the balance of proof of the sums and balances in the ledger.
Finally, closing the balance sheet performs a series of steps: accounting regularization, determining the result, closing the accounts and presenting the annual accounts.
Finally, the accounting cycle observes a period of time and performs a set of operations and procedures in order to reflect the financial state of a company.