How to Transition Into a New Accounting Cycle - dummies

How to Transition Into a New Accounting Cycle

You certainly don’t want to close the doors of your business as you transition into a new accounting cycle and prepare all your year-end reports, such as the financial statements and governmental reports. After all, that can be a two- to three-month process. So you need to continue making entries for the new year as you close the books for the previous year.

If you prepare your business’s accounting books manually, you probably need easy access to two sets of books: the current year and the previous year.

Keep in mind the following when dealing with your business’s accounts at year-end:

  • If you keep your books using a manual bookkeeping system, you start new journal pages for each of the active accounts. If you have some accounts that aren’t very active, rather than start a new page, you can leave some space for adjustments or corrections, draw a line, and start the transactions for the new year on the same page.

  • If you keep your books using a computerized accounting system, you can zero out the necessary accounts to start the new year while leaving the data for the previous year in the password-protected, closed accounts. You can still make changes to those closed accounts, but access is limited to people who know the password.

Part of closing out your books is starting new files for each of your accounts. Most businesses keep two years of data, the current year and the previous year, in the on-site office files and put older files into storage. As you start a new year, box up your two-year-old files for storage and use the newly empty drawers for the new year’s new files.

For example, suppose you’re creating files for 2012. Keep the 2011 files easily accessible in file cabinet drawers in your office, but box up the 2010 files for storage. Then keep your 2012 files in the drawers where the 2010 files had been.

You may find that you need to access some files regularly and therefore don’t want to put them in storage. Pull out any files related to ongoing activity and keep them in the office so you don’t have to run to the storage area every time you need the files. For example, if you have an ongoing legal case, you should keep any files related to that matter out of storage and easily accessible.