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Closing Journal Entries Clarification

JaysonWonderJaysonWonder Member Posts: 16

Hello,

I understand you do not NEED to close your books but it just seems like i have to if I want the reporting options over multi-years.

I have the following equity accounts:

Business Owner Contribution & Drawing
-Owners Investment / Drawings
Retained Earnings: Profit
-Owners Equity

I do not see an Income Summary Account. Is this the same as Retained Earnings?

I want to close out the temporary accounts. Any help is appreciated. The link in the help section only shows reconciliation. I want to close my fiscal year.

Please help thanks.

in Help Center Discussion

Comments

  • JulianPJulianP Member Posts: 1,002 ✭✭✭

    Hey @JaysonWonder !

    As you may know, in Wave, there is no need to close out the year!

    Other accounting platforms don't allow you to touch historical data, but in Wave, you can pull up reports and make adjustments at any time. This means that your previous years never really "close". All that happens at year-end is that current year earnings get zeroed and added to previous year earnings.

    At the start of your new fiscal year, you will see your new previous year earnings balance, fresh income and expense account balances, and your usual bank account balances.

    What Wave doesn't do is put those amounts under a common account, such as retained earnings, that you can post transactions to. If you want your previous year income/loss to roll forward into retained earnings, you will need to manually do this. Here's how:

    1. Run an income statement for the year. This will give you all of your income and expense final balances.
    2. Save this statement in excel or a PDF so you have all of the balances saved.
    3. Click Accounting > Transactions > More > Add journal transaction.
    4. Enter the balances as opposite of how they appeared on your income statement.
    5. Note that the amount of Net Income on the Income Statement matches the amount of the debit to Owners Equity.

    This could get confusing, so if you are concerned about your year-end balances and need some professional accounting help, you might want to get in touch with a professional accountant, which we always recommend.

    If you would like to learn more about starting balances, please check out this Help Center article on the topic

  • erandinoerandino Member Posts: 2

    Hi. I just recently joined wave and finished my first month of journal entries. I'm having a very similiar issue... there is no Income Summary account. Without it I can't properly close my revenue and expense accounts to retained earnings ant the end of each month. I realize I can create an Income Summary account as an Other Income but then ruins the income statement feature since it recognizes the account as an income account. Is there any other work around for this?

  • erandinoerandino Member Posts: 2

    In typing out the above comment I realized that I should make the Income Summary account a equity account since it is a temporary equity account. However this still leaves me with the issue that while closing the revenue and expense accounts to income summary on the final day of the month, it renders the Income Statement feature of Wave useless.

    Here is what I'm going to try now. I'm going to try doing the closing entries on the first day of the new month and see how that affects the reports.

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