Preparing to Close Out a Business’s Journals
As you prepare to close your business’s books at the end of an accounting period, you first need to summarize (total) the journals. During the process, it’s a good idea to look for blatant errors and be sure that the entries accurately reflect the transactions during the accounting period.
Even the smallest error in a journal can cause a lot of frustration when you try to run a trial balance and close out your books, so it’s best to do a thorough search for errors as you close out each journal for the month. It’s much easier to find an error at this point in the closing process than to try to track it back through all your various accounts.
Do a quick check to be sure the transaction details in your journals are accurate. When you follow the rules of accrual accounting, not all transactions involve cash. In accrual accounting, noncash transactions can include the following:
Customer purchases made on store credit (which you track in the Accounts Receivable journal)
Bills you will pay in the future (which you track in the Accounts Payable journal)
You may also have created other journals to track transactions in your most active accounts, and you probably also keep details about sales in the Sales journal and payroll in the Payroll journal.
In the Payroll journal, make sure that all payrolls for the month have been added with all the proper details about salaries, wages, and taxes. Also verify that you’ve recorded all employer taxes that need to be paid. These taxes include the employer’s portion of Medicare and Social Security as well as unemployment taxes.
If you use a computerized accounting system to do your books, you don’t need to close out your journals, but you can still run a series of reports to verify that all the information in the computer accounting system matches what you have on paper.