Closing the Books

After you ensure that all your accounts are up-to-date, and you allocate costs and income, then you can close the books for a fiscal year or period.

You are not required to close a year, but doing so will make working in the system easier for you because you will be able to take advantage of the convenient filtering options provided. You also do not have to worry about losing details of transactions when you close because all details are retained, even after you close the year.

Closing Book Process

The process for closing the book includes these main tasks:

Closing the accounting period.

A fiscal year is defined as one or more open periods as defined on the Accounting Periods page. A typical fiscal year contains 12 periods of one month each, but you can also choose another method of defining a year.

For more information, see Close Accounting Periods.
Registering prior-year entries.

When you close a fiscal year, you must enter a number of administrative transactions (such as prepaid and accrued items). These transactions are called adjusting entries. There are no special rules for posting these entries, and they (like other entries) contain a check mark in the Prior-Year Entry field if they are posted on a date in a closed fiscal year. Even though a fiscal year has been closed, you can still post general ledger entries to it.
Transferring balances from the income statement accounts to the balance sheet.

After a fiscal year has been closed and all prior-year entries have been posted, the income statement accounts must be closed and the net income for the year must be transferred to an account under owners' equity on the balance sheet. Use the Close Income Statement batch job for this purpose. The batch job processes all general ledger accounts of the type Income Statement and creates entries that reverse their balances. These entries are placed in a journal from which they can be posted. The batch job does not post them automatically, except when an additional reporting currency is used. When an additional reporting currency is used, the batch job posts directly to the general ledger.

For more information, see Close Income Statement.
Posting the year-end closing entry along with the offsetting equity account entries.

When the Close Income Statement batch job is finished, you post the entries generated by the job. If you did not specify a retained earnings account in the batch job, then enter one line with a balancing entry that posts the net income to the correct general ledger account under owners' equity on the balance sheet. Finally, post the journal.

For more information, see Post Year-End Closing Entry.

What Happens When You Close

When you close at the end of the year, the system moves your earnings from calculated earnings to the Retained Earnings account. The system also marks the fiscal year as "closed," and marks all subsequent entries for the closed year as "prior year entries."

The system then generates a closing entry, but it does not post the entry automatically. You are given the opportunity to make the offsetting equity account entry or entries, which allows you to decide how to allocate your closing entry. For example, if your company has several divisions, you can let the system generate a single closing entry for all the divisions, and you can then make an offsetting entry for each division's equity account.

You can post in a previous fiscal year, even after the income statement accounts have been closed, if you run the Close Income Statement batch job again afterward.

Closing the Books

Closing Book Process

What Happens When You Close

See Also

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