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Year-end Closing FAQs
Summary: Answers to frequently-asked questions about closing the accounting year in Clients & Profits.
Q. I'm ready to close the year. What do I do now?
If you're prepared, closing the accounting year in Clients & Profits is easy : just run the Close Year tool in the General Ledger > G/L Tools and C&P does the rest. But preparing for year-end closing is a different story -- and something that Clients & Profits can't do for you. Please read the questions below about what procedures to perform before closing the year.
Q. Can someone walk me through the year-end closing process?
The C&P Helpdesk can offer guidance and advice about closing the year if needed. However, the information provided by the helpdesk will reflect what is already written in this FAQ. If you have a question about closing the year that's not covered by this FAQ, please contact the helpdesk.
Q. Is the year-end closing process different in old of versions Clients & Profits?
The user-interface is different, but the fundamental process is identical.
Q. Is there a year-end closing procedure in Marcom?
No. Because Marcom doesn't have a General Ledger, there's no accounting year to close.
Q. Do I have to close the year on the first day of the new year?
No. Clients & Profits Studio & Agency support two accounting years. Clients & Profits lets you work up to twelve months (periods 13-24) before closing. You can close the year any time during these periods.
Q. I'm not ready to close the year. What happens to new work now that it's already January?
Nothing. You'll enter new A/P invoices, A/R invoices, checks, client payments, and journal entries as you normally do. The only difference is that they'll affect period 13 (i.e., the first period of the next fiscal year). Before you enter new work, be sure to change the current period in Preferences > Accounting Periods to 13, as well as changing the first day of the fiscal year in this window to the first day of period 13.
Q. We don't use Clients & Profits for accounting. Do I still need to close the year?
Yes, if you have not disabled G/L Journal Entries and have entered any accounting activity into period 13 or later. In this case, you'll need to close the year to reset the accounting system even if you don't pay attention to it. However, if in Preferences > Accounting & Finance > General > Options, G/L Journal Entries has been disabled, and no records have been added to C&P with period 13 or later, then there is no need to close the year. When moving into the next fiscal year, use period 1 again, not period 13.
Q. What procedures should I perform and which reports should I print before I close the year?
What is most important for us is to make a permanent backup of the database before closing the year. It's essential to print every Financial report for the year you are closing (even if printed to PDF) because the primary function of the close year process is to purge every general ledger debit and credit record in periods 1 - 12.
Apart from any final year end adjusting journal entries, there are some essential accounting procedures that should be performed in C&P before closing the year. These include the following:
1. All of the essential accounting procedures that are recommended to perform at least monthly, but if done only once per year, that is sufficient for closing the year. There is just the risk it may take longer than anticipated to fix any issues these procedures find, which can delay closing the year. These procedures can be found on the Essential Accounting Procedures best practice guide.
Note: When performing the bank reconciliation, per the essential accounting procedures above, try to make sure that there are no more outstanding items from periods 1-12.
2. Make sure all records from periods 1-12 are posted and therefore properly refelcted on the financial statements. These records include A/R invoices, A/P invoices, Client Payments, Checks, and Journal Entries.
Note: C&P at this time will only prevent closing the year if the balance sheet is not in balance, or if there are unposted journal entries, but we recommend completing all the steps above before closing the year.
3. OPTIONAL - Print any necessary WIP reports to prepare the year end WIP adjusting journal entry.
Q. Can I post time cards and time sheets in the new year before closing the year?
Yes. Time entries don't affect the General Ledger and don't appear on financial statements. But be sure to choose the correct accounting period for the new year's work (e.g., period 13 instead of period 12). Also, you can add jobs, POs, estimates, and expenses before closing the year since they don't affect the G/L.
Q. Do I have to print my 1099 reports prior to closing?
No. The 1099 reports and forms are based on checks you've written, and not the G/L, so they can be printed at any time. The Vendor 1099 FAQ (i.e., frequently-asked questions) has more information.
Q. How long will the year-end closing procedure take?
It depends on your speed of your hardware and the size of your database, so there's no way to know for sure.
Q. How do I know that the year was successfully closed?
The Close Year window shows the status of each step in the year-end closing process. As a step is completed, you'll see the date and time displayed in the Completed column. This feature lets you monitor the close-year process as it happens. Once all steps are marked completed the close-year is finished. The close-year log can be printed for reference if wanted.
However, it's a good idea to audit the keys areas impacted by closing the year by doing the following:
1. Confirm all activity with periods 13 and later was changed to period 1 and later. This can be done by going into each of the 5 key accounting areas (A/R, A/P, Client Payments, Checkbook, General Ledger) and printing the respective list report (Audit Trail for the General Ledger) for all periods for a date range covering the current fiscal year. All records should now have periods 1-12, not 13 or later.
2. Confirm all G/L activity from the prior fiscal year with periods 1-12 were properly purged from the database. This can be done by printing an Audit Trail under G/L Reports for all periods and a date range covering the prior fiscal year. No activity should show up on this report apart from possibly a few transactions dated in the prior fiscal year that were entered into period 13 (now period 1 after closing the year).
3. Confirm that the beginning balance entry is accurate and in balance. This is done by finding the reference number BEG BALN in the General Ledger. First make sure the debits equal the credits, then check each account's entry and make sure it matches the ending balance of this account through period 12 of the prior fiscal year. Note that the profit or loss from the prior year will close into the retained earnings account adjusting the beginning balance of this account accordingly. Another way to see the beginning balances is to print the period 1 trial balance. The Beginning Balance column of this report should exactly reflect the amounts in the BEG BALN journal entry (if no other beginning balance adjustments have been made).
4. Print a comparative balance sheet for the new current accounting period. Make sure the prior year totals on this report match those for that period in the prior year pre-closed database.
5. Confirm all account balances are accurate by again printing the out of balance checker, account totals checker, A/R Quick Check, and A/P Quick Check, all located in the Auditor. As well, print the Balance Sheet and make sure it's in balance.
Q. Are there any final steps to prepare the database for data entry and running reports after closing the year?
You're almost ready for the new year! There are a few accounting preference settings to modify before entering data or printing reports after closing the year. Go to Preferences > Accounting & Finance > Accounting Periods. Preferences is located under the Clients & Profits menu on a Mac and under the Setup menu on Windows.
1. Confirm the first day of the fiscal year is properly set to the first day of period 1.
Note: Once your current accounting period is 13 or later, set it to the first day of period 13.
2. Edit the month names for the accounting periods to make sure they're accurate.
3. Ensure the names of the two accounting years are accurate to reflect that the year has been closed (the name for year 2 should now be the name for year 1). These names are text fields and only print on reports, they do not control the active accounting year
4. Confirm the current accounting period is properly set (e.g., if it was period 15 before closing the year, it should now be period 3).
5. Unlock the current accounting period if it's locked (many C&P users will lock all the other periods to prevent data entry into the incorrect accounting period).
Q. What should I do if the close year process is interrupted or does not finish properly?
Restore the backup of the database then start the year-end closing procedure again.
Q. What actually happens when Clients & Profits closes the year?
-- The database is inspected for out-of-balance journal entries (the process stops if any are found).
-- The database is checked for unposted journal entries through period 12. If it finds any, it will stop the close year process. Then you can post or delete them and restart the close year procedure.
-- The total profit or loss is calculated by adding together all the YTD amounts for the income and subtracting the YTD amounts for job costs and expense accounts. This amount will be posted to Retained Earnings.
-- The account totals from the previous fiscal year are replaced with the current year's totals. The current year's totals are then cleared, making room for the new year's work. This step allows C&P to print comparative financial statements (because prior year account totals are preserved in the database).
-- All journal entries from the prior year are purged, making room for new JEs.
-- Beginning balance JEs are created for each asset, liability, and equity account that has a balance.
-- Any new A/P invoice, A/R invoice, check, client payment, or journal entry posted into periods 13-24 is changed to periods 1-12.
-- The YTD totals for clients, vendors, and staffers are reset (used in older versions of C&P).
-- Any G/L account that is marked as "inactive" and doesn't have a balance is deleted.
-- Any pending recurring payables or receivables added for periods 13-24 are changed to periods 1-12.
Q. I got a message that I can't close the year. What's wrong?
If you receive a message that you can't close the year, one of two things has happened: (1) you have out of balance journal entries in the year you are trying to close (i.e., through period 12); or, (2) you have unposted journal entries in the year you are trying to close (i.e., through period 12). If this happens, use the Out of Balance Checker to find the incorrect entries, then make the appropriate adjustments. If the database has unposted JEs, you'll need to either post or delete them to close the year.
Q. How do I make post-closing adjustments to the prior year?
After the year is closed, adjustments to the prior year can only be made to balance sheet accounts (i.e., asset, liability, and non-income statement equity accounts). Income and expense accounts from the prior year are rolled into retained earnings when the year is closed. Therefore, for adjustments to prior year income, costs, or expenses, always use the Retained Earnings account. Post-closing adjustments are added just like regular journal entries, except you use the period labeled "Beginning Balances".
Q. How do I know my account balances are correct after year-end closing?
The quickest way is to compare trial balances. Compare the ending balance column from the trial balance printed for period 12 before the year was closed to the beginning balance column from the trial balance printed for period 1 in the closed database. The ending balances on period 12's trial balance should equal the beginning balances of period 1's trial balance, accounting for the fact that the profit or loss from the prior year was closed into the retained earnings account. Thus, all income, job costs, expense, misc income and misc expense accounts should have zero balances in the beginning balance column of the period 1 trial balance in the closed database.
Q. I need to make an adjustment to an invoice from last year, but I can't unpost it. What should I do?
Ideally, you should not unpost work from the prior year. Rather, add an adjusting invoice in the new year instead. This is because the invoice will unpost/repost into period of the invoice, which normally will cause activity to show up in a future period in the closed database, which in turn would require an adjusting journal entry to move it out of that period into the current accounting period.
Q. In old versions of C&P, I could enter beginning balance entries in period 13. Why can't I now?
Because Clients & Profits now handles more accounting periods in two fiscal years. Period 13 now contains entries for the first period of the next fiscal year. The beginning balance period in Clients & Profits is now called Beginning Balances when adding journal entries to this period.
Year-end closing reminders:
- Be sure to have Clients & Profits make a permanent backup of the database
BEFORE closing the year.
- Year-end closing is irreversible and can't be canceled
once it starts.
- All A/P, A/R, checks, client payments, and journal entries should be
posted prior to closing the year.
- No one can use Clients & Profits while it's closing
the year (which may take several hours).
Q. We are changing our fiscal year, how should we handle closing the year to prepare for this change?
Note: If your situation falls outside of the typical situations for changing the fiscal year listed below, please contact the C&P helpdesk for assistance.
C&P allows users to work in two fiscal years at the same time. Periods 1-12 (including the beginning balances) are the first fiscal year, and periods 13-24 are the second fiscal year. C&P Classic X only allows access to periods 13-15 in the second fiscal year.
A calendar fiscal year is one where period 1 is January. A non-calendar fiscal year is one where period 1 is any other month than January.
Steps for moving to a calendar fiscal year from a non-calendar fiscal year:
- Properly plan the transition before entering accounting activity into January
a. The transition needs to be planned prior to adding any accounting activity into the month of January that you want to become period 1 in the changed fiscal year.
b. If you have already added accounting activity into January, and didn't follow the instructions given in Step #3 below when doing this, then please contact the C&P helpdesk for assistance.
- Closing the year when working in the second fiscal year in the month of December
This step is only for those that will be adding accounting activity into the second fiscal year (periods 13-23) for the month of December preceding the new period 1 month of January. This step involves closing the year properly in preparation for Step #3 below, which includes a second closing of the year that will complete the transition to the changed fiscal year.
a.
It's essential that you close the year in this step prior to adding any accounting activity into January. As well, wait to close the year until after completely adding all accounting activity in period 12, including any year end adjustments through period 12 (that you may auto-reverse into period 13 as normal).
b.
After closing the year, you'll now be working in the first fiscal year. This is because an essential part of closing the year is changing all accounting activity with periods 13-24 to periods 1-12.
c.
You are now ready to move to step #3, where you can begin adding accounting activity into January, but you'll do so by putting it into period 13 for the month of January. The correct transition into January is essential so that the closing of the year in Step #3 properly completes the transition to the changed fiscal year.
- Closing the year when working in the first fiscal year in the month of December
This step is only for those that will be adding accounting activity into the first fiscal year (periods 1-11) for the month of December preceeding the new period 1 month of January. Per Step #2 above, if you will be working in the second fiscal year (periods 13-23) for the month of December, you'll need to close the year before continuing with Step #3.
a. When moving into January, add the January accounting activity into period 13, February into 14, etc.
b. To guide your users when moving into January, change the month names of the periods for year 2 only. Choose Preferences > Accounting & Finance > Accounting Periods Edit period 13 to January, period 14 to February, etc. As well, rename both accounting years in this window to reflect the changed fiscal year. And last, lock the remaining periods in year 1 after the period that was the month of December, and remove the month names for these remaining periods, so that your users don't make the mistake of going into the next numerical period as they move into January.
c. Choose Preferences > Accounting & Finance > Accounting Periods. Set the current accounting period to 13 once you are ready to begin adding accounting activity into January.
d. Once you have completed adding the accounting activity for the month of December, then you're ready to close the year. This includes year end adjusting entries through December, which should be manually reversed into period 13 (if a reversing entry is necessary) . Don't auto-reverse these entries, or the reversal will go into the period after December, instead of the reversal going into the next accounting year (period 13). You may close the year at any time through period 24.
e. After closing the year, the December ending balances will become the beginning balances for the new changed fiscal year and January will be changed to period 1, February to period 2, etc. (since when closing the year it changes any accounting activity with periods 13-24 to 1-12).
f. Choose Preferences > Accounting & Finance > Accounting Periods . Make sure the month names for all periods in both year one and year two properly reflect the changed fiscal year. Also, change the name of each year accordingly to reflect the changed fiscal years. Last, set the current accounting period accordingly (if you closed in period 15 then set it to period 3, if you closed in period 18 then set it to period 6, etc.).
Steps for moving to a non-calendar fiscal year from a calendar fiscal year:
The exact same logic applies when moving to a non-calendar fiscal year as moving to a calendar fiscal year described above. You'll still need to plan and implement the change prior to adding any accounting activity into the month that will become the new period 1. In the steps above for moving to a calendar fiscal year, substitute the name of the month that will become the new period 1 for January, the month before the new period 1 for December, and the month after the new period 1 for February.
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