Overview:
- Learn how to close the financial year.
Why close the financial year?
At the end of the financial year, the company calculates its net profit or loss to evaluate the performance of the business. Closing the Profit & Loss statement resets the revenue and expense accounts to zero in preparation for the new financial year, ensuring that only transactions for the new year are recorded. The net profit or loss is then transferred to retained earnings in the equity section of the balance sheet, which updates the company’s equity position.
How to close the financial year?
When a fiscal year ends, it's essential to close the periods that make up that year. The fiscal year is closed through the close accounting periods process. Once this is done you can run the Close Income Statement batch job, which transfers the year's results to an account on the balance sheet and closes the income statement accounts by creating lines in a journal, which you can then post.
Note: To prevent posting into the prior period on July 1st, please update the posting date in the general ledger setup.
Note: Grant individual users access to post entries to the last day of the financial year, based on their needs.
Here are the steps to run the Close Income Statement batch job:
- Close the Fiscal Year: Close the fiscal year before running the batch job. You’ll need to close the accounting periods first before you can close the fiscal year.
- Search for Close Income Statement on the top right-hand corner of the page. Select the related link.
- The Close Income Statement request batch page displays.
- Update the required fields. Use the drop down to select the:
- Gen.Journal Template as General
- Gen.Journal Batch as Default
- Retained Earning Acc
- Post to Retained Earning Acc. Select Balance
- Posting Description, include a meaningful description for your year end
- Select the Close by Dimensions to close the year with the appropriate dimensions and inventory period
- Select OK to run the batch job.
- Navigate to the earlier selected General Journal batch. Then, verify and post your journal for year end.
Note: You can select Schedule to schedule closing the income statement later.
About the Close Income Statement Batch Job:
- Processing: This batch job processes all income statement accounts, creating entries to zero out their balances. Each entry sums all general ledger entries on the account for the fiscal year.
- Journal Entries: New entries are placed in a journal. You need to specify a balancing account and a retained earnings account in the balance sheet before posting. Once posted, each income statement account is zeroed out, transferring the year's results to the balance sheet.
- Manual Posting: You must post the journal entries manually. The batch job doesn't automatically post them unless an additional reporting currency is used. In that case, the batch job posts entries directly to the general ledger.
- Closing Date: The date on the journal lines inserted by the batch job is always a closing date for the fiscal year. This is a fictitious date between the last day of the old fiscal year and the first day of the new year, ensuring correct balances for ordinary dates of the fiscal year.
- Reusability: The Close Income Statement batch job can be run multiple times. You can post in a previous fiscal year even after closing the income statement accounts by running the batch job again.
What's next?
Find out how to post any adjustments post year end close.
Need more help?
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