Question

For your main Discussion post, address the following questions/topics:

• Explain the differences between permanent and temporary accounts and identify which types of accounts must be closed at the end of a company’s fiscal year. Additionally, recall your Week 1 Discussion in which you brainstormed a business you would like to start. For your type of business, identify at least three permanent and at least three temporary accounts your business would have and explain why each account is classified as such.
• Once closing entries have been entered in the general journal and posted to the ledger, what is the effect on the owner’s capital (or retained earnings) account?
• Explain the purpose of a post-closing trial balance in your own words and answer this question: Is the post-closing trial balance mandatory as a step in the accounting cycle?
• Reflect on this question: Assuming a company’s first year-end, would financial statements be affected if the closing process were not completed? Explain.

Answer 1

Answer:

1.

Permanent accounts balance in which will be carried forward to following reporting period though temporary accounts balance in which will be charged to income statemment or held income with the goal that account balance will become "0"  toward the finish of each reporting period . At the end of the day temporary accounts will be closed toward the finish or end of organization's financial year.

Temporary accounts incorporate : Revenues , costs , profits or dividends and so forth - > These are income statement things and to be closed toward the end of financial year.

Permanent accounts incorporate : debt claims or accounts receivables ,notes payable ,accumulated depreciation ,and so forth - > These are balance sheet things,balance in which will be carried forward.

2.

When closing entries have been entered in the general journal and presented on the ledger ,it will have either positive or negative or both impact on the proprietor's capital ( or retained earnings) account .That is ,the point at which the incomes and costs related accounts are closed ,distinction between ending balances of those accounts may result either net profit or net loss for the financial year . In the event that it results net profit ,it will increase held income or retained earnings else it will diminish held profit . Anyway closing of dividends will consistently diminish held income or retained earnings balance.

3.

Post-closing trial balance gives an exact image of business exchanges during a accounting period. It makes accounting increasingly viable. It lets track business progress all the more precisely and take reasonable financial deccisions. It additionally helps in indicating business performance to potential speculators or investors.

A post-closing trial balance isn't important and mandatory step in accounting cycle. In any case, it is prescribed to be done as a best practice and preferences or advantages gained because of it.

4.

Fiscal reports would not be influenced or affected due to non completion of closing process. In any case, it may postpone the distributing of financial statements as reconciliation needs should be accomplished for temporary accounts too. As a best practice it is prescribed to have a standard agenda for closing of books and afterward get ready to prepare fiscal statements.