Closing Procedures

The recommended, "best practice" procedures for closing both monthly periods and fiscal years are covered in this article. Learn what the various gotchas are and how to define the all-important retained earnings account.

Overview

This document offers a brief overview of topics related to closing monthly periods and fiscal years in xTuple ERP.

Closing Monthly Periods

Accounting periods can be assigned two independent statuses: "closed" and "frozen." When an accounting period is closed, you can no longer post transactions to that period. The closed status is the status a period should be set to when all adjustments and activities related to monthly closing are completed.

The following screenshot shows a sample list of accounting periods having various combinations of statuses. To open the "List Accounting Periods" window, please follow these steps:

  • Select the "Accounting" module from the top menu
  • Locate the "Fiscal Calendar" submenu
  • Choose the "Accounting Periods" option
  • The "List Accounting Periods" window will open (it might need to be expanded in order to see all the columns):

cp01v2

List of Accounting Periods

It may be desirable to freeze an accounting period during the monthly closing process. Like a closed period, a frozen period cannot accept transactions—that is, unless the user posting the transaction has been assigned the privilege to post into frozen periods. The privilege which allows users to post into frozen periods is called PostFrozenPeriod. If you have this privilege, you will be able to post into frozen periods during the monthly closing process; all other users will be blocked from doing so.

The following error message will be shown when unprivileged users attempt to post transactions into a frozen period:

cp04v2

Cannot Post to Frozen Period

Having a period frozen before it's closed gives you the flexibility to make adjustments as you're reviewing your trial balances, without having to worry that other users will be posting activity into the period. The freezing feature allows you to closely control the flow of transactions so that month-end closings can proceed smoothly.

Regardless of the privileges you have, nobody will be allowed to post into a closed period. All transactions are blocked from being posted into a period once it has been closed. The following error message shows one example of what users will see if they attempt to post into a closed period:

cp05

Cannot Post to Closed Period

If you ever need to re-open a closed period, you can easily do so from the list of accounting periods. Once a period has been re-opened, users will again be allowed to post into the period.

Note: The system also prevents users from posting transactions if no accounting period exists. If users receive an error related to a missing accounting period, the solution is to either: A.) change the posting date to a valid date or B.) add the required accounting period.

Closing Fiscal Years

Here is a brief overview of the fiscal year closing process:

  1. Ensure you have a retained earnings account defined.
  2. Close the months in the year you're trying to close.
  3. Create the next fiscal year (and the included accounting periods).
  4. Close the year.
  5. Retained earnings will automatically be calculated and moved to the retained earning account.
  6. Revenue/expense accounts will start the new fiscal year with trial balances of $0.

The retained earnings account is defined on either the accounting setup screen or the company screen, depending on how your system is configured.

In the following screenshot we see the retained earnings account defined at the company level:

cp06

If you are not using the company segment in your chart of accounts, then you would define the retained earnings account on the accounting setup screen.

The next screenshot shows the accounting setup screen, you can find the account setup screen by following these steps:

  • Select the "Accounting" module from the top menu
  • Open "Setup" from the submenu
  • The "Setup" window will open, locate "Configure" from the left side menu and select the "Accounting" submenu
  • Once select, the "Accounting" setup screen will appear in the "Setup" window:

cp03v2

When you close a fiscal year in xTuple, the system automatically calculates the amount of retained earnings for the year. It arrives at this calculation by subtracting the total of all the expense accounts from the total of all the revenue accounts for the year. The amount derived from this calculation is automatically put into the retained earnings account—either adding to or subtracting from the amount already found in that account.

To close a fiscal year, you must first close all the accounting periods in that year. You must also create the next fiscal year—and all the periods in that year. The master list of fiscal years (shown below) can be used both for creating new fiscal years and also for closing fiscal years. The years shown in this example are calendar years. However, xTuple also supports flexible, non-calendar fiscal years.

Master List of 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 need to be back-dated. 

To reopen a fiscal year, follow these steps:

  • Select the "Accounting" module from the top menu
  • Open the "Fiscal Calendar" submenu
  • Choose the "Fiscal Years" submenu
  • The "List Fiscal Years" window will open
  • Right-click on the fiscal year from the master list and select the "Open" option.

When a fiscal year that has been reopened is subsequently closed, the year-end retained earnings amount will be recalculated. 

cp02v2

The new, re-calculated amount posted to the retained earnings account will replace the previous amount. This will likely have a material impact on your previously reported financial statements.