 In this presentation, we're going to take a look at the closing entry process within our accounting system. Get ready, because here we go with zero. Here we are in our not-for-profit organization dashboard. We're going to jump on over to Excel to see what our objective will be. We're in tab 10, number 10 over here in our Excel worksheet. You'll recall we have up top, we go all the way up top. We entered our transactions up here into this top trial balance. Then we took the ending balance numbers and I moved them to the beginning balance numbers in the second trial balance, so that we can do our allocation within a trial balance format from the expenses by nature to the expenses by function. We don't need to do that in zero, but you can think of it conceptually how it'd be kind of difficult to do this on a two-dimensional like Excel worksheet. How would you do it here versus the zero, the tools we have there using the classification making it much easier. Then we're going to go down to this next trial balance worksheet, again taking the ending balance numbers here, so that we could see the ending balance numbers in this format and then do the closing process. This is what we would do in like again in Excel, so that we can see the closing process and what that would be from a journal entry standpoint. Then those are going to be the beginning numbers. Then we'll do our closing process. In a for-profit type of organization, closing process is going to be much the same, very similar and just note that you have a similar kind of problem with different, just depends on the type of entity you're talking about. Some things are going to be the same with the closing process. Some things will be different. Generally the closing process means that the temporary accounts, income statement accounts, in other words profit and loss accounts, income and expense type of accounts will be closed out at the end of the time period, in this case the end of the month to the equity accounts or in this case the net asset type of accounts, just different name for the not-for-profit organization. At the end of the day, what do we expect to see? Only balance sheet accounts or permanent accounts, income statement accounts or statement of activity accounts, income and expense accounts being zeroed out and then being closed into the equity section and then of course we're still in balance. In a for-profit type of organization, the problems with a for-profit really depend on the type of entity. If it's a sole proprietor, pretty straightforward transaction because you only have one equity account. When you think about the equity as a whole, it's pretty much the same but then it'll differ by entity. If you have a partnership, then you might have the profit sharing could be different by the partners and then you got a problem of having two equity accounts at least or more that you'll have to allocate the income to in accordance with the profit sharing agreement and that's a pain for the closing process. That's the tweak in the system of the closing process and then the corporation's actually a little bit easier than a partnership because all the stocks are basically the same but it still can look kind of confusing because then you're going to have the investment which is basically the common stock that are in there versus the retained earnings which is what you roll over into but the closing process is easy because it all rolls into the retained earnings account. That's going to be that and then with a not-for-profit, it's all going to roll over but now we have at least these two accounts up top and that's going to be the net assets with restrictions and those without restrictions. Why is this important? Because you'll recall the net assets here represent assets minus liabilities or the book value of the organization. This is the money or the net value of the organization. In other words, this is what people that are part of the organization are going to want to try to be spending and they're going to, this is what people are going to be arguing over how they're going to use this money in what way or another. So what we want to say, hey look, of this equity section, we have to be able to tell people to say, hey look, this portion of it is restricted. It has a restriction to it and therefore you have to, when you start thinking about and arguing about what you're going to spend it on, it's going to have to be in the area of these restrictions because it's restricted and this money is not restricted and therefore we have a much broader debate, we could have a broader debate on what to do with that money. So we have to have that restriction. How are we going to do that? Well, we're going to close these accounts into the equity section but you'll recall that when we set up these accounts in a trial balance format, we have the restricted items here that we have as restricted versus not restricted. So anything that says restricted, basically we're going to be put into the restricted item. Anything that doesn't say anything like all the expenses are going to be assumed to be non-restricted. In other words, if we spent it, then obviously it must not have been restricted or we must have released it from restriction. So any expense account must have been released from restriction or resulted in something being released from restriction and therefore it's going to be an unrestricted item. So any revenue that we got that was restricted, then we're going to have to put into the restricted category, roll it over into restricted net income. I won't go into the journal entries but if you want to think about the journal entries you can over here, within zero it'll do this for us basically, however it won't do it completely right because it can roll over the net income to the equity section, depending on our year end. It won't do it till the year end but we can do it basically at the year end. It'll roll over the income to the equity section. However, it won't break out properly between restricted and unrestricted necessarily and that's what we have to go in and make an adjustment for. Alright, so let's see what that looks like. If I go back over to zero then, let's open up our reports over here. So we're going to go to the accounting dropdown. I'm going to be opening up the standard reports. Let's open up the balance sheet. Let's open up the income statements and then our worksheet report. So we'll open up the balance sheet, changing the date. We're going to select the date and let's bring it down to 2020. I'm going to bring it to the end of January. Then I'm going to go right up top again, right click on that tab, duplicate that tab. Go back to the tab to the left. Then I'm going to select the accounting dropdown. We want to open the income statement. So then let's open the income statement and then I'm going to keep that open. Then I'm going to go back up top, right click on the tab again, duplicate this tab. Go back to the tab to the left. Now let's open up our worksheet. So I'm going to hit the dropdown. I'm going to go to the income statement worksheet now. Let's open the income statement worksheet. There is our income statement worksheet. Now let's go back to our balance sheet. So we're going to go back to our balance sheet. Let's see what zero does for us and what we need to do to help us out within zero. So within our balance sheet, we're concentrating down here on the equity section. In the equity section, you'll note that it says current year earnings because that's what zero does to basically tell us that the earnings are tying into the income statement. That's not really what we want because we're going to have to break that out to two different components. We would like to see the equity section. We can't even really change that and this isn't zero only. This is how other accounting software of a similar nature will be working. We can't really change that number because it's not actually an account. So we'll see what we can do with that. But just note that first of all, that $278,900 is going to tie out to the income statement. So if I go to the income statement, there's the net income, the $278,900. So that's how the income statement ties out to the balance sheet. Going back to the balance sheet, there's no other account at this point in time because this is our first month of operations. So we have nothing else happening and note that it'll stay there no matter what we do really until we roll over the year. So at the end of the year, it'll automatically roll over given the fact that we're indicating that we're a fiscal year end. So let's see what that looks like. I'm going to go back up top. I'm going to select the dropdown. I'm just going to bring this out to 2021 even though there's no other data in it and see the effect on the equity section. So if I bring this out to say 2021, the end of 2021 or close to it for January and January 2021 or close to it, scrolling down, then it's now called retained earnings. So it's now called retained earnings. Now that's retained earnings is what we expect to, or that would be for a corporation, what we would name it for a corporation. It's doing what we want, but one, it's not naming the account correctly. And two, it's not breaking out between the two equity accounts we need, which are going to be the net assets with and without restrictions. So what we could do then is we can rename this retained earnings account to be the unrestricted account. Then we can make an adjusting entry to break out the portion of this account that is going to be restricted. So we're going to have to make an adjusting entry to break out the restricted portion. Now how would we know to do that? I'm not going to go to our Excel worksheet. We could say, okay, if I go over to the income statement, here's our income statement net income. And then if I go to my income statement worksheet, here's our income statement worksheet Now this is the net income once again, obviously the total of the worksheet should be our net income. So the net income of the 278, 900 tying out to the net income over here of the 278, 900. So back to the Excel worksheet, then we're going to break out that amount between the unrestricted and the restricted. So if we just leave it alone, we're going to rename retained earnings and have everything, the 279, 278, 900 rolling to retained earnings, which we will then recalculate as the unrestricted portion of the net assets. Then we'll make an adjustment to break out the restricted portion. So that's going to be our objective. Let's take a look at it. Let's first right click on this tab again, duplicate this tab so we have something to work with. I'm then going to work with the tab all the way to the left. Then we're going to go into our chart of accounts. I'm going to select the accounting drop down up top. We're going to look all the way down at the bottom to the chart of accounts. Notice it's not, well, there it is, chart of accounts. If it's not there, it's because I'm zoomed in. So if there's any problems you want to zoom out so you can get down there. Now we could go down to the equity section in all accounts, or I could just simply choose equity. Obviously, equity is a name for a for-profit type of organization if we call like net assets here, but they're equity type of accounts and that's fine. No problem. We can work with that. Now this net retained earnings, we'd like to call it a different name. Notice it says not used because this is the account that it rolls up, that we roll over income to, but we'd like to rename it. So I'm going to edit it and I'm going to say this is going to be called net, let's say net assets, actually this is going to be the account type, which I don't want to change. I'm going to close this back out again and let's do it again so I don't mess it up. Again here and then I want to change the name down here. So the name is going to be net assets and I'll say unrestricted, all right, net assets unrestricted. Then I'm going to say save. So we'll save that. So net assets unrestricted. Now if I go to the balance sheet, I go to the balance sheet. I notice again I'm a year out, I'm in 2021. I'm going to update this report and then scroll back down and it'll roll over into net assets. Now note that it's not there yet because it's currently in the current year, it's going to be a net income. So we still have that kind of issue here, but in essence, there it is, it's going to roll out to the unrestricted once it does the rollout process, all right. Then if I go back to the first tab, we're going to need another account that we're going to say is the net assets that will be the restricted portion that we're going to have to make an adjustment for. So I'm going to make another account then, I'm going to say that we then need to add an account. So we're going to add an account. It's going to be an equity type of account, so not an equity type of account. And the code that we will make, I guess, should be three, well, I don't know, what should the code be? If I pull this on over a bit, this is going to be the retained earnings is the three nines. Let's put it three, nine, three, nine, one, zero. And this is going to be the net assets restricted net assets restricted. And then I'm going to say save that. So there we have it. So there's the unrestricted and restricted that looks good. So now we need to make a journal entry and what we're going to do is say, okay, from the balance sheet over here, we see it's all going to roll out into unrestricted. So I need to take the portion out that is restricted, reduce this amount by the portion that's restricted and put it into the restricted category. How do I do that? Well, if I go to the worksheet here, here's the amount in this column that's restricted. Bottom line is going to be that, that 234, 656. So 234, 656. Let's go back to the first tab to do that. We're going to go into our journal entry, go to the accounting up top. We're going to go into our reports. I'm looking for basically the, the journal entry portion now. I'm going to scroll down to the general journal or the general report. We will then add a new journal. So we're going to say add new journal. So another journal entry that we're going to have here. Now this is a closing entry. So I'll make it as of the end of the time period. So I'm going to say closing entry at the end of the month. So it's going to be the end of January. So I'll bring this back to January. If I can't, it won't let me click on it. It's being stubborn. There it goes, January 31st. Then we're going to go down to our description down here. It's going to be closing entry and then we're going to have the closing entry. Now these are going to be our equity account. So if I select the equity account, we're going to start with the debit. Debits should be decreasing an equity account. So we need to decrease the equity account. I'm going to go down to the accounts we have set up here. We're going to be decreasing the unrestricted item and put it into the restricted item. So I'm going to say unrestricted item is going to be decreasing. We shouldn't need unrestricted or restricted categorization because this is going to be for not an income statement, but balance sheet account. Then if I go to my worksheet, the worksheet, scrolling down, look at the restricted column. the number we need to pick up is going to be that 234-656 234-656 234-656 234-656 234-656 234-656 right there and then closing entry on the other side also going to be an equity account we're going to go to the net assets but this time the restricted ones so we're going to be in the net assets or equity section restricted this will be increasing the equity section for for the restricted items because again it's a credit balance account if you've got the credits and debits mixed up that's okay you could record it and then you can change it if it's going the wrong way right so what's this going to be doing it's going to be decreasing the net assets that are unrestricted increasing the net assets restricted let's go ahead and post that and then check it out so we're gonna post it hopefully we get a green thing up top there's a green thing so that means that we didn't haven't done anything horribly wrong or maybe even done something right and then we're on the balance sheet let's go ahead and update the balance sheet now I'm out in 2021 so that's good I mean that's not the current year that we're in but that's gonna mean that when we look at the equity section it will have rolled over retained earnings already so if we go down it's it's rolled over to retained earnings which we'd recategorize retained earnings into unrestricted so there's the unrestricted items and then we took the amount out of unrestricted that was restricted and applied it here in other words if we go into this 44 244 then and scroll down we they won't give us the data because that's the amount it rolled over into so let's go actually if I change the date up top let's change the date and bring this back to January of back before January let's say 2019 and update this report so then we see our adjustment for the manual entry for 2020 so this is the adjustment that we made and here's the total profit for 2020 so this total profit is the net profit this was rolling over automatically and then we took this amount out of it by with a journal entry to bring it down to the 44 244 alright let's scroll back up let's go back to our balance sheet so back to the balance sheet and then if we scroll on down this other side here is just it's just with a journal entry so it's not going to show any rollover so remember everything rolls over into this account then we take the rest I'm sorry this one up here is the one that is just a journal entry the one that was unrestricted includes the rollover and then the journal entry out so this one was retained earning every net all the net income rolls in at the end of the year and then we take the amount out of the unrestricted which was the retained earnings and put it into the restricted item here so now if we take a look at these two amounts the 234 656 if our income statement worksheet so within our income statement worksheet we have the unrestricted and the restricted columns so the unrestricted there's the 234 656 there's the and going back to the balance sheet 234 656 the 44 244 back to our worksheet there's the 24 the 44 244 as well so you could see those two items broken out now if we go back over here note that this is all up only one month of operation if you wanted these two items to be tying into the the income statement or the worksheet if we go back over to our worksheet for example and we want to say how much should the restricted items be if I had more than one month of operation we would have to run this worksheet for the life of of the restricted items so we would just change the dates up top so in other words this will tie out to the income statement if we run the same date range here if we want to run it for the life to see what should be on the balance sheet if there were multiple periods then we would have to run it for you know the life of the organization of the life of the restricted items and then it should show the proper amount in the balance sheet type of item okay so then if we go back to the balance sheet also note we have this problem that we're actually in 2021 what if I bring it back to the current period which is January 2020 so if I bring this on back and say alright well let's bring it back to January oh that was way too far so we're gonna bring it up now to January 31st 2020 update that report then we'll scroll back down and and so now we've got these three numbers here we've got the current earnings that 278 900 if we go to the normal income statement that's gonna be that the total earnings so the total earnings are over here if we go back to the balance sheet so notice that those earnings are gonna roll into what used to be the retained earnings which is now unrestricted so unrestricted is the account that those will roll into now we we can't run the report as of this date because it's I mean well it won't be rolled over as of this date so note that this is one area and it's not just zero that has this kind of issue most of the softwares have this kind of thing where they have the current earnings broken out instead of putting them into the retained earnings this is not an account yet right so that we can't really adjust it with a journal entry so what we would have to do is adjust this if we want to format it and to and let the reader know that hey look the current earnings and the unrestricted that's what represents the the unrestricted net assets so the unrestricted net assets are gonna be the 278 900 minus the 234 656 that's what you can argue over what what spend most on right and then the and then the restricted items are gonna be the items that are restricted at this point now if we want to format this a little bit more nicely we could then go to the when we make the the excel sheet we can tie these two things together we can also go to the editing tool here and see what we could do with regards to the editing tool for external formatting so if I was to scroll down on the editing tool and see what we have and see what we have down here in the equity section so notice we have current year earnings here and we also have the net assets unrestricted so we could group those two together which is very nice so I could I could highlight those two and say hey let's make a group of those two and let's call that let's call that then so we'll go up top and we'll say this is net assets unrestricted so there we have it and then let's go ahead and save that and then I'm gonna minimize this column and see if we could put those together which is great because that's something again this tool is something that you don't normally see have more flexibility with it if you if you were talking like a quick books type of software or other types of software this is not typically something that you can do so that's great that pulled it pulled it together here so again this is another thing that we could do within zero to really make our internal reports so that's something you'd want to do most likely for the external reports and then leave it alone I would think for the internal reports I won't save it right now we'll probably take a look at it again when we do the external reports but that's really nice so it's not perfect yet our reports aren't perfect because we still have labels like the equity section here and whatnot but that's pretty nice that that we can do that so now we have these two items again those are going to tie out to our worksheet over here everything looks fairly straightforward our worksheet over here so that's going to be it for now let's get out of here