It's beginning to look like...the end of a fiscal year.

For some reason, a typical accounting textbook will consider a natural business year to consist of 360 days. This just doesn't make sense. Since I am not going to be an accountant, I will not accept this notion of taking away days from my year. However, the number of days in a year is very important to the accounting process at the end of a fiscal year for a business. Typically, December 31 is the end of a fiscal year/period, although a business may choose whatever day it so desires. They may also break the year up into different accounting periods, normally being broken into quarters. No matter, the end of a period or fiscal year is a very exciting time for a business because this is when they can truly analyze their success or progress over time. When this time rolls around, accountants isolate themselves into a confined area, lit only by a computer screen displaying Microsoft Excel, where they will spend a few hours, days, or weeks closing out accounts to prepare various financial statements. Temporary accounts, such as revenues, sales, expenses, and dividends, are closed out so that they may start the next period with a balance of zero ($0). The income statement account is closed to retained earnings.

Some accounts are carried over into the next period and to be taken into consideration throughout future financial transactions and other endeavors. The balance sheet will obviously not be closed out to be zero because a company will typically continue to possess certain accounts of cash, inventory, liabilities, retained earnings, and others. These are referred to as permanent accounts. These account balances at the end of the year are carried over and documented as the beginning balance for the next period.

Sometimes, adjusting entries must be made to ensure that the financial statements accurately represent the revenues and expenses accumulated over the period. The most common reasons for adjusting reasons involve unearned revenues and expired assets (such as prepaid insurance). I will also note that there are so many reasonable hypothetical situations of unrecorded expenses and earned revenues that are often unavoidable for large, and small, businesses. This is why adjusting entries are a commonality of end of year accounting.

I As a final note, I want to let all of my readers know that, as of October 4, there are only 82 days until Christmas, the best day of the year. I will begin playing Christmas music, unapologetically, starting at 80 days remaining. So to all who have read this far, I want to wish you a very Merry Christmas!