At the end of the accounting period,
| All the nominal accounts are closed by transfer to the trading and profit and loss account. |
| + | Profit and loss account is closed by transfer to either the capital account or the profit and loss appropriation account. |
| + | Profit and loss appropriation account is shown along with the reserves in the balance sheet. |
| ⇒ | The Profit and loss appropriation account is a non-current account and it can be considered to be a representative account for all the nominal accounts. |
| ⇒ | A debit/credit to a nominal account has the affect of a debit/credit to a non-current account (the Profit and loss appropriation account). |
Cross Transactions involving nominal accounts
Where in a transaction involving a nominal account, the account other than the nominal account is a current account, the transaction becomes a cross transaction.
Since,
| A cross transaction involves one account from the current area and another account from the non-current area of the balance sheet. |
| + | A debit/credit to a nominal account has the affect of a debit/credit to a non-current account. |
The following transactions would be cross transactions and thus bring about a in working capital
Transactions resulting in
- a charge on profits representing expenses.
- an accrual of profits representing incomes.
The following transactions would not be cross transactions and thus do not bring about a in working capital
Transactions resulting in
- a charge on profits representing losses.
- an accrual of profits representing gains.
- Approrpriations of profits.
- Adjustment of losses.
Transactions involving two nominal accounts would not be a cross transaction, and thus does not bring about a change in fund (working-capital).
