Coworking:End Year Close

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Introduction

The "Close Year" process allows to close a fiscal year. This process also permanently closes all the periods of the year (standard ones and adjustment one).

It is important to remark that it is not required to close the standard periods of a year prior closing that year, however it can help to keep tracking of the periods of the year already reviewed and closed.

The close year process requires that the next year exists and its first period is opened.

Once a year is closed, the status of that year and all its periods can be reviewed in the Open/Close Period Control window.
As already mentioned, all the periods of the year are now shown as "Period Status"="Permanently Closed", that means that it is not possible to post any transaction within that year anymore unless the Undo Close Year process is run for that year.

"Close Year" process creates the following accounting entries:

1. The "Profit and Loss Closing" entry.

• This accounting entry resets all "Revenue" and "Expense" Account Types and the difference is posted in the Income Summary account.
  • In other words the "Expense" accounts are "Credited and the "Revenue" accounts are "Debited" and the difference if any is posted in the Income Summary account.
    Let's take an expense account with a debit balance of 500,00. The P&L Closing entry creates a credit accounting entry of 500,00 in the Expense account of the example, therefore it gets a balance equal to zero.
    If the revenue accounts total balance is higher than the expense accounts total balance that difference is credited in the Income Summary account, that means a positive result or a profit.
    If the revenue accounts total balance is lower than the expense accounts total balance that difference is debited in the Income Summary account, that means a negative result or a loss.
• This accounting entry is posted the last day of the last period of the year being closed, that is the "Adjustment Period" or "13th Period" of the year.
• Openbravo does not create a G/L Journal for this accounting entry but just the accounting entry.

2. The "Closing" entry or "Balance Sheet Closing" entry.

• This accounting entry credits all the accounts which have a debit balance and debits all the accounts which have a credit balance. The aim of this accounting entry is to get that Asset and Liability accounts get a zero balance.
  • In order words, let's take an Asset account with a debit balance of 8.000,00. The closing entry creates a credit accounting entry of 8.000,00 in the Asset account of the example.
• This account entry is posted the last day of the last period of the year being closed, that is the "Adjustment Period" or "13th Period" of the year.
• Openbravo does not create a G/L Journal for this accounting entry but just the accounting entry.
• This entry is created only if the Reverse Permanent Account Balances check-box is set to yes.

Finally, if a Retained Earnings account is specified for the general ledger configuration, an additional entry dated on the last day of the year is created.
This entry moves the Income Summary account balance to the "Retained Earnings" account.

3. And the "Opening" or "Balance Sheet Opening" entry.

• This accounting entry is the reversal entry of the closing entry.
  • Following the example of point 2 above the opening entry creates a debit accounting entry of 8.000,00 in the Asset account of the example. That amount is the opening balance of the asset account for the new year.
• This accounting entry is posted the first day of the first period of the next year.
• This entry is created only if the Reverse Permanent Account Balances check-box is set to yes.

End-year close process example

This example describes the "2012 end-year closing" process of a sample legal with accounting organization named "Oat Biscuit Company".
Please note that the "Oat Biscuit Company" configuration is described in the Business Setup section of the Quick Guide. The account tree structure used to generate the balance sheet and income statement is the one provided by the Generic Chart of Accounts module.

This article describes the end-year closing process intentionally keeping the organization's activity as simple as possible.

The company in this example started its activity prior to 2012, therefore a G/L Journal set as "Opening" can be created to record the 2012 opening entry and get it posted to the ledger.

To make it simple, the company in this example executed below detailed "regular" activities which created the corresponding "regular" journal entries in the general ledger:

1. An AR Invoice (2012 Oat Biscuit Revenue)
2. An AP Invoice (2012 Oat Biscuit Cost of the Goods Sold)
3. A G/L Journal to post Interest Income (2012 Other Income)
4. A G/L Journal to post Land Depreciation (2012 Depreciation)
5. and a G/L Journal to post Marketing and Staff Salaries (2012 Operating Expenses)

Let's imagine that "Oat Biscuit Company" closes the standard periods as soon as each period is over and that is done even for the last standard period which is "December 2012".

Oat Biscuit Company's accountants can use the "13th Period" to post accounting adjustment to the ledger through the posting of G/L Journal/s, prior running the "Year Close" process.

Once 2012 is over and ready to be closed, the company in this example can execute the 2012 "Close Year" process from the End Year Close window.
The process button "Year Close" runs the end-year close process for "Oat Biscuit Company" organization.

Reverse Permanent Account Balances set to "Yes"

Openbravo creates below detailed "closing entries" if the "Reverse Permanent Account Balances" check-box of the Organization's general ledger is set to "Yes" before running the "Close Year" process.

Note that below accounting entries can also be reviewed in the "End Year Close" window in the Accounting Tab.

• Dated on the latest day of the year (31-12-2012) below P&L Closing Entry.
  This entry resets all "Revenue" and "Expense" account which in this example means a profit of USD 387.800,00 which is posted in the account defined as Income Summary.
  In our example that is the account "3300 Current Operating Income":
  
• Dated on the latest day of the year (31-12-2012) below Closing Entry.
  This entry resets all "Asset", "Liability" and "Owner's Equity" accounts.
  Besides an additional entry is created to move the Income Summary account balance to the Retained Earning account:
  
• Dated on the day of the following year (01-01-2013) below Opening Entry.
  This entry is the reversal entry of the above closing entry:
  

The organization in this example can launch the 2012 Balance Sheet and the 2012 Income Statement reports from the Balance Sheet and P&L structure window:

2012 Balance Sheet:

2012 Income Statement:

Reverse Permanent Account Balances set to "No"

Openbravo creates below "closing" entries if the "Reverse Permanent Account Balances" check-box of the Organization's general ledger is set to "No" before running the "Close Year" process.

Note that below accounting entries can also be reviewed in the "End Year Close" window in the Accounting Tab.

• Dated on the latest day of the year (31-12-2012) below P&L Closing Entry:
  
• and dated on the latest day of the year (31-12-2012) below entry as a Retained Earnings account is defined for the organization's general ledger:
  

The organization in this example can launch the 2012 Balance Sheet and the 2012 Income Statement reports from the Balance Sheet and P&L structure window. It will get the same Balance Sheet and Income Statement as the ones showed for the "Reverse Permanent Account Balances set to "Yes" scenario.

End Year Close

In the End Year Close Window all the Years previously created in the Fiscal Calendar Window are shown. Besides those years can be closed in this window.

The records shown in this window are filtered by their "Status" and the "Organization", by showing only the Years which are not closed yet and belongs to the Organization in which the User is logged. These filters can be removed by clicking in the funnel icon.

This Window shows two Tabs. The first Tab shows all the existing Years. Once selected a record in this Tab, the lower tab shows the related Accounting entries, meaning the closing entries generated by the Close Year process as well as the corresponding opening entries of the next year.

This way it is easier and quicker to see the Accounting generated when a Year is closed. More information can be found in the Accounting Tab below.

The way to Close a Year is:

• Use the filters of the grid to show the Year to close.
• Select the Year.
• Click on the Year Close button and click OK.

Once done, Openbravo informs that the process has been completed successfully.

All the Periods for that Year and that Organization will be permanently Closed. The way to Undo the Close of the Year is the same, but clicking on Undo Close Year.

As shown in the image above, the main fields in this Window are:

• Organization.
• Calendar.
• Year.

Undo Close Year

If a year (i.e 2012) is closed it will not be possible to do any posting within that year unless the "Undo Close Year" process is run for that year.

This process opens the year and all the periods of the year. It also reverts all the ledger entries posted by the end-year close process; therefore closing/opening entries are not shown in the Journal Entries Report anymore, unless the end-year close process is run once again for the year.

• Status. It can be Year Not Closed or Year Closed

Accounting

In the Accounting Tab of the End Year Close Window, all the Accounting entries generated when a Year is Closed or when it is Opened are shown, grouped by Account. This Account entries can be:

• Opening Entries
• Income Statements
• Closing Entries
• Regular Entires
• Divide Up

This way is easier to review the Accounting entries made in the Closing Year Process.

As shown in the image above, the main fields in this Window are:

• General Ledger.
• Type. It can be an Opening Entry, Closing Entry, Income Statement, Regular Entry or Divide Up.
• Account. Notice that the account entries are grouped by Account, showing only one record.
• Debit.
• Credit.

For explaining this Tab, it is better to follow the same example as in the Introduction section and show how this Tab presents the results.

Reverse Permanent Account Balances set to "Yes"

Openbravo creates below "closing entries" if the "Reverse Permanent Account Balances" check-box of the Organization's general ledger is set to "Yes":

• Dated on the latest day of the year (31-12-2012) below P&L Closing Entry.
  This entry resets all "Revenue" and "Expense" account which in this example means a profit of USD 387.800,00 which is posted in the account defined as Income Summary.
  In our example that is the account "3300 Current Operating Income":
  
• Dated on the latest day of the year (31-12-2012) below Closing Entry.
  This entry resets all "Asset", "Liability" and "Owner's Equity" accounts.
  
• Dated on the day of the following year (01-01-2013) below Opening Entry.
  This entry is the reversal entry of the above closing entry:
  

Reverse Permanent Account Balances set to "No"

Openbravo creates below "closing" entries if the "Reverse Permanent Account Balances" check-box of the Organization's general ledger is set to "No":

• Dated on the latest day of the year (31-12-2012) below P&L Closing Entry:
  
• and dated on the latest day of the year (31-12-2012) below entry as a Retained Earnings account is defined for the organization's general ledger:
  

Full list of End Year Close window fields and their descriptions is available in the End Year Close Screen Reference.

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