Month End Closing Process

Version: As of version 16.03

Purpose

Month End Close - Closing and reconciling the ledger on a monthly basis ensures a company's ability to produce timely and accurate financial statements. These statements are important for the management team so they can review and analyze the financial health of the company on a regular basis. Each company may have their own specific procedures for a month end close, but the details below are an overview of the main functions that should occur.

Year End Close - The closing entry takes all the Balance Sheet accounts and posts their fiscal year-end balances on the first day of the subsequent fiscal year. Certain GL reports use the closing entry description to identify this entry as the year’s starting balance; for this reason, the description should not be modified. Users do not have to be logged out of the system to post a closing entry. Closing entries can easily be reversed and corrected for auditing adjustments.

Security and Configuration

Security/Permissions

  • The security setting "Accounting -- create closing entries" is used to control which user may make a closing entry in the system.

See your system administrator for additional security access.

Configuration

Refer to Accounting Options for "No Posting Before" and "Supervisor No Posting Before" dates.

  • The "No Posting Before" date should be moved to the last day of the month being closed to prevent further postings in that month. For the year end close, the No Posting Before date should be moved to the end date of the year being closed to prevent further postings to that fiscal year.
  • The "Supervisor No Posting Before" date may be set one day before the end of the month being closed, so authorized accounting staff can post month-end adjustments to the final day of the month as needed. For the year end close, the Supervisor No Posting Before may be set for the month prior to the end of fiscal year period, should be restricted to ensure only authorized Accounting staff may post entries as necessary for year- end adjustments, and should include whoever is posting the year- end closing entry.

Note: These dates are no posting on or before, as you may not use any date on or before the specified date to post entries.

Related Processes

Procedure

Completing a Month End Close

Systematically, the only item required to close the month in DEACOM is updating the "No Posting Before", "Supervisor NPB", and "No Posting After" fields in Accounting Options as noted in the Configuration section. You would typically update No Posting Before date to close off any posting of jobs, AR, AP etc. a few days after month end. Supervisor No Posting Before could the be updated after the month end closing entries are complete. After updating the No Posting dates, it is time to verify that the General Ledger and the Sub-Ledgers are in balance.

Checking that the general ledger matches the sub-ledger

It is important to ensure the following ledgers and sub-ledgers are in balance. See below sub-sections for the procedures.

  • Accounts Receivables
  • Accounts Payables
  • AP Suspense (received not invoiced)
  • Inventory

Accounts Receivable

Confirm that the GL AR accounts have the same totals as the AR Summary report. To do this, generate an Accounting AR Reconciliation report for the correct dates and accounts. Be sure to select the correct Start and End Accounts for the reports to ensure AR is being compared to AR. This report is used to track when the AR subledger went out of balance by comparing the GL Value to the AR Value, calculating a Difference between the two, and calculating a Delta. Lines with a value in the Delta column indicate that the account went out of balance on that date. The security setting "Accounting -- view AR Reconciliation" controls the ability to see and use this report. For dates that do have a Delta, compare the General Ledger Summary report to the Receivables Summary - Bill to report, both for the same date. To see the detail behind the AR value, run the Receivables Summary report for the same account used when running the AR Reconciliation report.

Note: If comparing the GL Summary report to the Receivables Summary report make sure to specify the appropriate accounts, do not run the reports wide open. Running these reports wide open, without specific accounts specified, will result in an out of balance since Payments on Account are displayed in the Receivables Summary report but not in the GL Summary.

Accounts Payable

Confirm that the GL AP accounts have the same totals as the AP Summary report. To do this, generate an Accounting Reporting AP Reconciliation report for the correct dates and accounts. Be sure to select the correct Start and End Accounts for the reports to ensure AP is being compared to AP. This report is used to track when the AP subledger went out of balance by comparing the GL Value to the AP Value, calculating a Difference between the two, and calculating a Delta. Lines with a value in the Delta column indicate that the account went out of balance on that date. The security setting "Accounting -- view AP Reconciliation" controls the ability to see and use this report. For dates that do have a Delta, compare the General Ledger Summary report to the Payables Summary report, both for the same date.

AP Suspense

If using an AP Suspense account, confirm the total of received not invoiced material matches what is in the AP Suspense account. This is hard to reconcile as of a future date, so performing this reconciliation on the correct date (last day of the month) is important. To capture this amount, navigate to Purchasing > Order Reporting > select a "Status" of "Received Not Invoiced" and a "Date Based On" of "Received" > click "View". Ensure the Balance at the top of the resulting report matches the value in the AP Suspense account.

Inventory

Confirm that the GL Inventory accounts have the same totals as the Inventory Lots report. To do this, generate an Accounting Inventory Reconciliation report for the correct dates and accounts. This report can reduce the time needed to balance the Inventory Sub-Ledger to the General Ledger. The report tracks changes and imbalances in the Inventory Sub-ledger by comparing the value from the Trial Balance report to the total value of on hand inventory. The security setting "Accounting -- View Inventory Reconciliation" enables users to see and select the report in the "Report type" field on the pre-filter. If this "Inventory Reconciliation" report reveals an out of balance issue, compare the GL Detail report to the Inventory Reporting History report to find the specific issue.

An alternate method to balance the inventory ledger to the general ledger is to compare a general ledger summary report to the Inventory Lots report. The steps to perform this comparison are listed below.

Step 1

  1. Inventory > Inventory Reporting.
  2. Run a Lots Report.
    1. Make sure that the view is set to All so that all inventory is displayed.
    2. Set the QC status to All.
    3. Confirm that the ending date of the report is the last day of the month being closed.
    4. Use the grid toolbar Subtotal option to subtotal the Account field. This will generate a report of inventory by GL account number. Export this report to Excel for comparison.
  3. Run a new Lots Report with the view set to "WIP".
    1. Use the Subtotal option in the grid toolbar to generate a report of WIP inventory by GL account. Export this report to Excel for comparison.
  4. The final inventory values are determined by removing the WIP inventory amounts, found in line above, from the total inventory valuation amounts of each account in the subtotal report. The WIP value will be added as its own line for comparison to the WIP G/L account.

Step 2

  1. Accounting > Accounting Reporting.
  2. General Ledger summary.
  3. Enter a beginning date.
  4. Enter the other date.
  5. Enter the account.
  6. View.
  7. The balance on the trial balance should agree to the balance in step 1.

If they don’t balance, run the Inventory Reconciliation report for the account in question to isolate the day that the imbalance happened. Next, run an Inventory history for that account on that day, and summarize by posting reference. Also run a GL Detail report for that account on that day, and summarize by posting reference. Finally, join the two reports by posting reference and see which posting reference has a dollar difference.

Diagnosing ledger and sub-ledger out of balance issues

Using system reports

It is critical that the General Ledger and the Sub-Ledgers are in balance. If the two are out of balance, the Sub-Ledger is considered correct and the will be used to reconcile the GL. The GL can be viewed for any period by running an Accounting "General Ledger Summary" report. Several examples of sub-ledgers and the reports where balances can be viewed are shown in the table below:

Sub-Ledger

DEACOM Report

Filtering Rules

Accounts Receivable

Accounting > Accounting Reporting > "Receivables Summary" report

 

Accounts Payable

Accounting > Accounting Reporting > "Payables Summary" report

 

Receivables Detail

Accounting > Accounting Reporting > "Receivables Detail" report

 This report can be used to verify that the total of the receivables detail for all customers equals the total AR balance on the Trial Balance.

Drill down capability is available on both the Receivables Detail and Trial Balance reports.

AP Suspense Account

Purchasing > Order Reporting > "Order Summary" report

 Use the pre-filter options with "Status" set to "Received", "Date Based On" set to "Received" and the end date of the end of the month.

After running the report, use an advanced filter to view "Invoiced > End of Current Month" or "Invoiced < 01/01/1900".

Inventory

Inventory > Inventory Reporting > "Lots" report

 

If any of the above ledgers are out of balance, follow the steps below to diagnose the problem:

  1. Verify that the reports are being run with the correct dates and that the currency shown in the reports is consistent.
  2. Verify that the entire GL is in balance by running an Accounting "Trial Balance" report.
  3. Find the last time that the GL and sub-ledgers were in balance by using the Accounting reconciliation reports.
  4. Once determining the last time the GL and sub-ledgers were in balance, comb through ledger and sub-ledger transactions in the necessary reports.
    1. Look for entries that match the variance amount.
    2. Keep an eye out for multiple postings that may have occurred for the same transaction.
    3. Utilize the drill down capabilities within DEACOM to research as necessary.
    4. Keep an eye out for unusual transactions such as Journal Entries and postings references that are not usually in a ledger account.

Using date range searches

A simple, yet effective solution when determining out of balance issues is the use of date range searches and account number comparisons. For example, comparing the ledger and sub-ledger week by week or even day by day can often result in the out of balance being narrowed down clearly. Assume an AP reconciliation is being performed and there is a mismatch between the GL and the AP values on February 14. To determine why the two reports are out of balance, run the Payables Summary report for February 13 and 14 and compare the two reports to determine what balances changed. Then, run the GL Detail report for February 14 and determine which entry did not hit the GL.

The most common reasons for the reports being out of balance are due to back dating transactions, un-invoicing, and un-receiving. Many times, an External Program will be required to fix the out of balance issue. Contact Tech Support if this is the case.

Month end closing process

In DEACOM, there are five steps that need to occur, which are broken down in detail below:

  1. Closing open transactions (jobs, purchase orders, sales orders, cash receipts).
  2. Completing the closing journal entries (i.e. payroll, accruals, etc.).
  3. Reconciling balance sheet accounts.
  4. Checking that the general ledger matches the sub-ledger.
  5. Completing the reporting requirements.

Closing open transactions

Ensure that the following transactions are complete:

  • All jobs closed.
  • All receipts processed.
  • All sales orders shipped.
  • All sales orders invoiced.
  • All vendor invoices entered.
  • All AR checks recorded.

Completing closing journal entries

Confirm that all necessary journal entries are completed. Some examples include:

  • Depreciation entry.
  • Payroll entry.
  • Allocation entry.
  • Miscellaneous monthly accruals.
  • Check reversing entries and re-book if invoice is not yet received.
  • Commission payments.

Completing reporting requirements

Save and print any necessary reports. Examples include:

  • Complete set of financial reports.
  • Accounts receivable aging.
  • Accounts payable aging.
  • On Hand inventory report.
  • Sales reports.
  • Verify sales match income statement.

Reconciling balance sheet accounts

Confirm with auditors what is required for backup documentation when reconciling the balance sheet accounts.

Completing a Year End Close

The closing entry takes all the Balance Sheet accounts and posts their fiscal year-end balances on the first day of the subsequent fiscal year. Certain GL reports use the closing entry description to identify this entry as the year’s starting balance; for this reason, the description should not be modified. Users do not have to be logged out of the system to post a closing entry. Closing entries can easily be reversed and corrected for auditing adjustments.

Posting a closing entry

Prior to making the closing entry, print an Income Statement for the last day of the year or run a Trial Balance report for the full year to get the year-end income total. Once this is complete:

  1. Navigate to Accounting > Journal Entry.
  2. Click the "Closing Entry" button, which will open the Closing Entry form and automatically populate the starting and ending dates for the previous fiscal year. If these dates are not correct, review the fiscal year setup in Accounting > Maintenance > Fiscal Years. If these dates are correct, click "Save". Uses also have the option to enter a Chart of Accounts Position filter in this step. This filter is only used if the database has two companies with two different Fiscal Years.
  3. After saving, the "Date" on the form will automatically be set to the first day of the new fiscal year and the "Description" will automatically be set to "Closing entry". This description should not be changed as the system uses this description to identify the entry as the next year's starting balance.
  4. Validate that the sum of the Credits and Debits differ by the income from the previous year.
  5. Click "Add Line" and enter the details for the Retained Earning account(s) to debit or credit the income or loss for the year to the retained earnings balance. This should bring the closing entry into balance and these balances being brought forward should match the Trial Balance report.
  6. Post the closing entry by clicking the "Post" button.

Correcting a closing entry

If a user should happen to post the year-end entry prematurely and find out later on that the year-end income was incorrect, a general journal entry can be made to reverse the postings.

  1. Navigate to Accounting > Journal Entry.
  2. Set the "Date" to the first day of the new fiscal year, which should be the same date that the original year-end posting was made.
  3. Use the "Copy Entry" search box to find and copy the original year-end posting, by searching for the posting reference for the closing entry.
  4. Click the "Reverse Entry" button to change the original debits into credits and the original credits into debits. Do not change any of the account numbers.
  5. Click the "Post Entry" button to post the reversed entry.
  6. With the beginning balances reversed, a user can now complete the year-end adjustments and re-post the beginning balances.

Additional Information