Various measures need to be taken at the end of an accounting period. Adjustments to income statements and balance sheet accounts are of utmost importance. Although automated accounting systems take care of many processes, businesses must understand what happens financially at the end of an accounting period. While most tasks might be automated, certain aspects always require manual attention. Here are certain vital elements that every business must look after when closing. 
Temporary Accounts – Income Statement
All revenues and expenses in the period must be accounted for within that same period and should not be left to be included later. The revenues and expenses are recorded in the same period as defined by the matching principle because your closing income statement would otherwise contain anomalies. Ask your vendors to provide you with work-in-progress figures so that you can include them in the income statement. All accounts will be closed at the end of the accounting period, giving them the name of temporary accounts.
Knowing how much money you spend to make what you earn will help you make strategic decisions in the future. You will quickly see if you need to cut the costs to lower the expenses or increase the price to bulk up revenue. Whatever the case, closing temporary accounts is critical for your business operations.
Permanent Accounts – Balance Sheet
Permanent accounts need to be managed actively throughout the accounting period. It is essential so the current capacity of the business can always be determined correctly. All balances in the account will go away unless they are written off. Every transaction must be tracked and adjusted accordingly. While some of these tasks are performed automatically, inventory changes and depreciation need to be adjusted manually. All assets must be reevaluated at the end of an accounting period, and any changes should be altered likewise.
Reconciliation of bank statements is another vital task that needs to be performed as you should prepare for filing tax returns, too. Amortizing the prepaid assets to determine the value of future payments needs to be completed for a specific accounting cycle. A well-maintained balance sheet allows you to choose the business’s current standing, which is imperative to its success.
Trial Balances
The remaining trial balance in each account must be determined before the end of an accounting period. It helps to ensure that all debit entries are equivalent to credit entries and that any anomalies are updated through the adjusted trial balance. The trial balance reports will help you determine the opening and closing balances of many accounts, which will help you understand the abnormalities in your bookkeeping system and what needs to be addressed.
Closing Entries
Typically, your accounting software will perform the closing entries on the books. However, it is vital to understand how the process works. An income summary account is created by closing the revenue and expense accounts. It means your income statement is wiped clean and ready to be reused for the next accounting period.
The income summary accounted is further closed into a retained earnings account, represented as equity on your balance sheet. After the tax deductions and other expenses, the retained earnings are transferred into the net income account and distributed among the shareholders as equity.
Conclusion
Closing an accounting period is indispensable because you only know where the business stands financially with these closing adjustments. You have all of the information, but it is scattered, and you can only make sense of it if all closing entries are performed for the accounting period. Because the results are significant, businesses should use a professional’s help if they need help to perform these steps.
