Closing of Expense Accounts 

Purpose

In Turkey, as part of month-end closing, you are required to close the expense accounts relating to your operating activities to various profit and loss accounts. The system offers a special report for this purpose (see Closing of Expense Accounts Report).

In the Turkish chart of accounts, expense accounts relating to operating activities are contained in account class 7. Within this class, there are different subclasses for different types of expenses. Subclass 71, for example, is for direct materials expense, and subclass 76 is for sales expense. Each of these subclasses consists of any number of expense accounts; a clearing account; and a variance account (see the graphic below, which illustrates any given account subclass in class 7). The purpose of these accounts is described in the following.

Process Flow

The process below shows how you plan, account for, and close expenses relating to operating activities. You repeat this procedure every month for each account subclass in class 7. For a detailed example, see Closing of Expense Accounts (Example).

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       1.      At the beginning of the month, you estimate what costs you will incur in each account subclass. You then debit this amount to the subclass's reconciliation account (in class 1 or 6 – there are regulations as to which accounts you must use) and credit it to the subclass's clearing account.

The posting to the reconciliation account effectively states how much you expect to invest in that item in the coming month. The offsetting posting gives you a credit against which to post your expenses.

       2.      Throughout the course of the month, you debit expenses to the expense accounts as they occur, with offsetting entries to, for example, your bank account.

       3.      At month-end, before you can close the subclass (step 4) you have to account for any variance between the planned expenses (which you credited to the clearing account in step 1) and the actual expenses (the debit postings to the expense accounts, step 2). You post any variance to the subclass's variance account, with the offsetting posting in the general ledger account.

To calculate the variance between the planned and actual expenses, use the Closing of Expense Accounts Report.

       4.      You use the same report to close all the accounts in the subclass to the clearing account.

Result

At the end of the month, the expense that you have incurred is recorded on the account for the object that incurred it.