those were special cases of Equity, existing for the purpose of
Income/P&L reporting at the end of the period. 'Closing' them merely
facilitated resetting their balance to zero for the next period's
reporting.
Not EXACTLY "merely"
Back in the old days of pen and ink on paper, not only did "closing" the
temporary income and expense accounts into equity zero out these
accounts ahead of the next period but the process created the "Income
Statement" (aka Profit and Loss). That's because it was a two step
process. The income and expense accounts were not directly closed to
equity. They were first closed to another temporary account (of
fundamental type Equity) that had a name like "Profit and Loss", Then
THIS account was closed to equity using whatever amount, a net gain or
loss, that was required to bring that special "profit and Loss" account
to zero (thus closing IT).
That account was then the "Profit and Loss" report for the period.
Isn't it nice having a computer just fake that. When we run the "Income
Statement" report it is showing us what we would see IF we had done this
two step process.
Michael D Novack.
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