 |
 |
 |
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|

 xTuple ERP 3.0 won the LinuxWorld product excellence award for best Business Application! Read more here!
|
|
The process of closing Accounting Periods and Fiscal Years is simple and straightforward. However, to truly understand the process, we must first review several xTuple ERP configuration options. To begin, we will look at G/L Account Number settings and how they relate to Accounting Periods that are open and/or frozen. Next, we will run two scenarios based on different configurations of these settings to further our understanding. Finally, we will examine important issues to consider before closing Accounting Periods and Fiscal Years. Two settings on each G/L Account Number definition are particularly important in relation to closing Accounting Periods. The Account Number screen is shown in the following screenshot:  G/L Account Definition
The two settings we will be focusing on here are "Allow Posting into Closed Periods" and "Automatically Forward Update Trial Balances." Let's review the impact of each setting.
Accounting Periods are assigned two independent statuses: "Closed" and "Frozen." A sample list of Accounting Periods having various combinations of statuses is shown below:  Accounting Periods Statuses
Let's review the function of each status.
NoteThe impact of the "closed" and "frozen" statuses on an Accounting Period applies only to the updating of Trial Balances. Account activity is always recorded in the General Ledger regardless of the status of an Accounting Period. If a transaction appears as unposted in the G/L, this means the transaction has not yet impacted the Trial Balance. To further our understanding of how the Account Number settings impact the closing and reopening of Accounting Periods, we will look at two scenarios which take two slightly different approaches. The first scenario we will call "safe mode," while the second is called "convenience mode. We refer to the first scenario as "safe mode" because operating in this manner significantly reduces the chance of unintentionally posting into an Accounting Period. In this "safe mode" example, we will be using a Cash Account called "Cash eBank" and a Supplies Account called "Office Supplies." The definition for the Cash Account is shown in the following screen: G/L Chart of Accounts, Account
Settings
The Cash Account is configured to not allow posting into closed Periods and also to not automatically forward-update Trial Balances. For the purposes of this exercise, the current Accounting Period is 2006-March. Let's look again at our master list of Accounting Periods and see how the current Period relates to those before and after it. Master List of Accounting
Periods
All the Periods prior to the current Period are both closed and frozen. By contrast, the current Period (2006-March) is open and not frozen. Now let's look at our Fiscal Year information. The current Fiscal Year runs from January 1, 2006 through December 31, 2006. The current Fiscal Year is open. As we can see below, all the prior Fiscal Years are closed:  Master List of Fiscal Years
Process Flow Overview In this scenario, we will see the processing for and implications of posting a transaction into a closed and frozen Accounting Period. Here are the steps we will be following:
Posting into Closed and Frozen Periods Perhaps the easiest way to demonstrate posting into a prior Period is to enter a simple Journal Entry using the "Simple Journal Entry" option found under the "Enter G/L Journal" section of the G/L Module. The Journal Entry screen is shown below:  Simple G/L Journal Entry
For this transaction, we will simulate a $500 purchase of office supplies, using both the Office Supplies and Cash Accounts. Notice how we have entered a distribution date of January 17, 2006--a date which falls within a closed and frozen Period. Posting Prevented into Closed Period Because our Accounts are marked to prevent posting into closed Periods, we get the following error message when we try to post the simple Journal Entry:  Prevented from Posting
The system will prevent users from posting into closed Accounting Periods if the Accounts are specifically set up to disallow it. No G/L activity is recorded when transactions are blocked in this manner. The error message indicates the dates for the closed Period in question. To allow the transaction to proceed—if that is what you truly want—then it will be necessary to identify the Period and then open it to allow the transaction to go forward. We discuss thawing and opening Periods in the next section. Thawing and Opening Accounting Periods In order for our simple Journal Entry to be posted successfully to the G/L—and for the Trial Balance to recognize it—we must first thaw and open the Accounting Period (2006-January) into which we attempted to distribute the transaction. NoteIf our example Accounts were configured to allow posting into closed Periods, the act of thawing the frozen Period would have been enough for the simple Journal Entry to be marked as posted. In other words, the Period would not also have to be opened. First, we perform the following steps to thaw the frozen Accounting Period:
Once the Period has been thawed, we are now ready to open it. To open the Accounting Period, we follow these steps:
The Accounting Period has now been updated, as we can see in the following screenshot of the Accounting Periods master list:  Thawed and Opened Accounting
Period
We can see our actions have caused the "Closed" and "Frozen" columns to read "No" for the 2006-January Accounting Period. We are now able to post the simple Journal Entry again—and it will be distributed successfully to the G/L. Pending Transactions If for some reason you have pending transactions in your G/L, you will be shown the following message when attempting to open a closed Period in which these transactions exist:  Pending Transactions Warning
Message
Your options here are to investigate the transactions and learn more about them—and then, if appropriate, open the Period in question to allow the transactions to update the Trial Balance records. A "pending" transaction is defined as any transaction which has posted to the G/L, but whose Trial Balance record has not yet been updated to reflect the transaction amount. These types of transactions are rare in xTuple ERP. The following conditions may lead to pending transactions:
Forward-Updating Required for Trial Balances Looking at the Trial Balances display, we see that the ending balance for the 2006-January Period is displayed in yellow type. This color-coding indicates that forward-updating is required to update the balances for all succeeding Periods:  Forward Update Required in Trial
Balance
Because our Cash Account is not set to "Automatically Forward Update Trial Balances," we must intentionally forward-update. This is part of what makes this first scenario the "safe mode" scenario: the fact that the forward update must be performed manually. We can accomplish the forward update in either of the following three ways:
NoteThe "Forward Update Accounts" utility forward-updates from the earliest Accounting Period you have defined in your system all the way through the current Period.
NoteWhenever an Accounting Period is closed, the system automatically forward-updates all Accounts from the Accounting Period you are closing through to the current Period. For the purposes of this exercise, we will use the third method—that is, we will close the 2006-January Accounting Period. When the Period is closed, a forward update will automatically be performed. Closing and Freezing Accounting Periods To close the 2006-January Period, we return to the Accounting Periods master list, as shown below:  Accounting Period Closed
After highlighting the 2006-January Period, we right-click on it and select the "Close" option. We could have used the CLOSE button instead. The Period is now closed. Next, we freeze the Period by using the FREEZE button. TipTo avoid unexpected forward updates, configure all your Accounts to disallow "Forward Update into Closed Periods." Then freeze your Accounting Periods immediately after closing them. Now let's take a look at how closing this Accounting Period impacted the Trial Balances. Viewing Updated Trial Balances Returning to the Trial Balances display, we can see that the ending balance for all Periods up through the current Period have been updated:  Update Trial Balances
Notice how the ending balance for the 2006-January Period is no longer yellow. And to verify that forward updates have occurred, compare the ending balance amounts with those we saw earlier before we closed the Accounting Period. Again, forward-updating occurred automatically when the 2006-January Accounting Period was closed. Our first scenario was called the "safe mode" because of choices we made when configuring our G/L Account Numbers. As you recall, both our Cash and Office Supplies Accounts did not allow posting into closed Periods or automatic forwarding-updating. We call the second scenario the "convenience mode" because it takes the opposite approach to configuring G/L Accounts. In the "convenience mode," the Account Numbers are configured with the following settings:
To understand the implications of using these alternate configurations, let's compare the results we would get to those we got when operating in the "safe mode" scenario:
In the end, the "convenience mode" simplifies processing, since many actions occur in the background. However, this streamlining also increases the risk that your users may inadvertently post and forward-update into prior, closed Accounting Periods. Before deciding on a method to implement at your site, you should pilot combinations of these Account settings to determine which give you the level of control you require. TipIf you decide to use the "convenience mode" settings, you should consider the following: Always freeze an Accounting Period immediately upon closing it Never thaw an Accounting Period before first reviewing all unposted G/L transactions By doing so you will reduce the chances of inadvertently forward-updating. Fiscal Years are used primarily for calculating retained earnings. The area where Fiscal Years are defined and maintained can be found in the "Master Information" section of the G/L Module. The Fiscal Years master list is shown in the following screen:  Master List of Fiscal Years
TipYou must create Accounting Periods which span the range of dates defining a Fiscal Year without any gaps. It is essential that your Accounting Periods and Fiscal Year line up precisely. When a Fiscal Year is closed, xTuple ERP totals all Revenue Account balances for the Accounting Periods that make up the Fiscal Year and subtracts from that Revenue total the total for all Expense Account balances for the same Period of time. The resulting Net Income for the Fiscal Year is posted to the Year-End Equity Account specified in the system's G/L Module configuration. The G/L Module configuration screen is shown below:  G/L Configuration of Year End Equity
Account
Revenue and Expense Accounts Throughout this chapter we have discussed forward-updating and seen examples of it at work. Where Revenue and Expense Accounts are concerned, forward-updating stops at the end of the last Accounting Period in the Fiscal Year. This ensures that the beginning balance for all Revenue and Expense Accounts is $0.00 for the first Accounting Period in each new Fiscal Year. Account Numbers are assigned an Account Type (e.g., "Revenue" or "Expense") when they are created. The following screenshot of the Trial Balance screen illustrates how the beginning balance for one Revenue Account has been reset to $0.00 for the month of January 2006--which is the first Period in a new Fiscal Year:  Revenue and Expense Accounts After
Fiscal Year Closing
You can see that the beginning balance for our Revenue Account is $0.00 for all Periods that start in January, that being the first Accounting Period in each Fiscal Year. Year-End Closing Considerations Here are some pointers you should consider before closing a Fiscal Year:
TipWhen searching for yellow ending balances on the Trial Balances display, be sure to specify all Accounts and all Accounting Periods.
Reopening Fiscal Years Fiscal Years may be reopened after they have been closed. For example, you may want to reopen a Fiscal Year to recognize new transactions which have been posted—inadvertently or not—into Periods within a closed Fiscal Year. Keep in mind that reopening and then re-closing a Fiscal Year may cause your retained earnings amount for the year to be updated to reflect the value of any newly-recognized transactions. To reopen a Fiscal Year, simply right-click on the Fiscal Year from the master list and select the "Open" option. NoteWhen a Fiscal Year that has been reopened is subsequently closed, the year-end retained earnings totalling will be performed again. The amount posted to the Year End Equity Account will be replaced with the new total. This will likely have a material impact on your previously reported financial statements. The process for managing Accounting Periods and Fiscal Years in xTuple ERPxTuple ERPxTuple ERP is flexible and straightforward. It will yield the results you expect so long as you understand the implications of the settings on your G/L Accounts and take a disciplined approach to ensure there is no pending activity in an Accounting Period before you close it. Finally, let's recap some of the important points to consider when closing Accounting Periods and Fiscal Years:
In short, make sure any pending transactions are posted and processed prior to closing a Period. And keep the following points in mind:
|
 |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|||
