Question

Anne Marie, the owner of Anne’s Beauty Salon, comes to see you again. She tells you that she has one more question for you. She told you that her accountant tried to explain to her the closing process in the accounting cycle. The more he talked, the more confusing it got. How would you explain the closing process to Anne Marie? She also asked about dividends. What are they? Will they increase expense?

Answer 1

Answer:

In the wake of chronicle monetary exchanges all month, the bookkeeping staff needs to play out the end procedure with the end goal to conclude the budgetary records for the month and set up the records for the next month. Each business utilizes transitory records, or income and cost accounts, which enables the organization to record the aggregate exercises in those records for the month.

The reason for the end procedure is to finish off the parities in those records, enabling them to begin with a parity of zero the following month.

The end procedure of the bookkeeping cycle comprises of four stages.

Just income, cost, and profit accounts are shut not resource, obligation, Capital Stock, or Retained Earnings accounts. In the event that the records are not shut accurately the starting adjusts for the following month might be off base

The Steps to Close the Accounts

There are four essential strides in the end procedure:

Shutting the income accounts moving the equalizations in the income records to a clearing account called Income Summary.

Shutting the cost accounts moving the equalizations in the cost records to a clearing account called Income Summary.

Shutting the Income Summary record exchanging the equalization of the Income Summary record to the Retained Earnings account (otherwise called the capital record).

Shutting the Dividends account exchanging the equalization of the Dividends record to the Retained Earnings Account

The Income Summary record is a clearing account just utilized toward the finish of a bookkeeping period to condense incomes and costs for the period. In the wake of exchanging all income and cost account adjusts to Income Summary, the equalization in the Income Summary record speaks to the net pay or net misfortune for the period. Shutting or moving the equalization in the Income Summary record to the Retained Earnings account results in a zero parity in the Income Summary.

The Dividends account is additionally shut toward the finish of the bookkeeping time frame. It contains the profits announced by the top managerial staff to the investors. The profits account is shut straightforwardly to the Retained Earnings account.

It isn't shut to the Income Summary since profits have no impact on pay or misfortune for the period.

Profit:

Profit isn't the Expense of the element.

Profit is only allocation of benefit to the proprietors of the substance to chose degree.

Element close the books of records at intermittent interim and measures the execution amid that period which is by and large every year. Substance discover the net benefit or misfortune which is the consequence of execution of element amid that period.

It might happen that substance have some beneficial open doors for speculation or may plan to extend the business in the following time frame or any such arranging which require more store. In such case Entity may hold some piece of benefit earned to use for that speculation which is known as Plugging back of Profit.

From residual piece of benefit, organization may choose to disperse some % of profit to investors.

In reality Profit after Tax has a place with the Share holders totally. So Distribution of Dividend from them to investors does not result in any cost for the element. It is only dispensing of benefit earned.