Unit 5 Simulation - Closing off accounts?

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Just before easter I started the unit 5 simulation and had a good look through in order to spend sometime revising for the parts I did not complete. In part 2 there are 3 questions, 1 is something about "Closing off accounts for Direct Costs and the VAT account" I am totally confused by what they mean. I have checked my books which are Osborne and I can not find any reference to "Closing off accounts". At first I thought they meant "Balancing the accounts" but having searched the internet it appears that "Closing" and "Balancing" are different and it depends on whether the account is shown in the P&L or Balance Sheet. Can anyone please help with some advice?

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Unit 5 Simulation - Closing off accounts?

    By what I understand, closing off accounts happens at year end. Basically if the account is being closed off it gets written to the P&L account. Unit 5 does teach you this, it just may not phrase it that way, possibly? Balances brought down are usually the ones that get written to the balance sheet.

    EG

    You balance the VAT account, then that amount gets written to the p&l a/c so the account is cleared (closed off)

    If I'm wrong someone please correct as I'm not understanding it either.

    :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Unit 5 Simulation - Closing off accounts?

    hi, thanks for your reply. what i don't understand is what i found on the internet, which states that when you "close off" an account this goes to the P&L and when you "balance" an account this goes to the balance sheet, making it sound like these are 2 different things. also, why would you close off the VAT account when this actually gets shown on the balance sheet? and i don't get the thing about closing off direct costs either? i really am struggling :(
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Unit 5 Simulation - Closing off accounts?

    Good point, me being thick. Direct costs is an expense a/c so that would get cleared (closed down) to the P&L. The only part of the VAT getting cleared that I can think of would be the amount that gets paid, then the rest of the balance gets written to the balance. Technically the internet is right but is misleading. If you learn what gets written to P&L and balance sheet then you'll fine. Don't think that balancing the accounts means it goes to the balance sheet as you balance all the accounts to get the figure of it, then you post it to the relevant places.

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