Year End Closing in Microsoft Dynamics 365 Business Central

It’s the end of the year, and it is very important to go through the essential topics related to year end closing in your company in order to ensure proper and accurate accounting practice. We will shed a light on several activities that are either “required” or “optional” for closing the year in Dynamics 365 Business Central.

The required steps are represented with primarily:

• Closing the fiscal year ( closing accounting periods )
• Running the “Close Income Statement” process to generate the year end closing entry.

Close the Fiscal Year

The first thing to consider when performing year end closing procedure is to “close the year”, this means that all the periods in the selected year will be marked as “Closed”.

As illustrated below, go to the “Accounting Periods”  and selecte an accounting period in the fiscal year.

From the menu, choose “Process” > “Close Year”

Important note

Closing the year can not be reversed, once the year is closing all accounting periods in the selected year will be “closed” and can not be changed.  Once you click “Close Year”, the following message will pop up.

As you click “Yes”, two columns will be marked as true which are “Closed” and “Date Locked”. These two fields are not editable and you can not change any of them.

Close Income Statement

After closing the peridos, the next step is to generate the “Year-End closing entry” . For that we need to run the “Close Income Statement” process.

On the chart of accounts page, click on “Process” > ” Close Income Statement”

The following details are importing before running the process, this includes primarily the highlighted fields.

In addition to the above, there is an additional option to close by; Business Unit Code, Dimesnions and Inventory Periods.

• Business Unit Code: this is very important when you have a consolidation company in the company group, in which there are several business unit codes for every company. Closing by business unit is essential in this case.
• Dimensions: This will let you selecte the dimensions to be used for the closing, which will create an entry for each dimension-GL account combination in the closing entry.
• Inventory Periods Closed: this indicates that inventory period has been closed.

As you run the process, the system will generate the closing entry based on the criteria that you have selected. Go to the specific batch in the specific template you have mentioned to check and post the closing entry.

The next step is to simply validate the closing entry and post it.

Important Information Related to Year End Closing

Posting Restriction 

It is a common understanding that closing the year or practically closing accounting periods will prevent end users from posting to a closed period. Although, this is not the case in Dynamics 365 Business Central

By default, end users can practically post to any date if there is no restriction in the system to prevent them from doing so. In other words, if the system has the following accounting period configured:

• 2018
• 2019

and the user by miskate posted to 2009 … the system will accept it.

The correct practice is to configure the system properly so that end users will only post to a spefific open period, so the concept is quite logical and practical.

To do so, you have to limit the posting periods on both: General Ledger setup or User

1. General Ledger Setup:
   This is the general rule for all the system users. On this setup screen, there are two fields which are “Allow Posting From” and “Allow Posting To”. Entry the range to which end users are allowed to post. Any data out of this range is going to be restricted.
   
2. User Setup:
   Through this window, we can override the general setup by providing specific posting restrictions for specific users. This might be important when opening periods for the head of the accounting team to make audit entries after closing the year ( just in case it is needed)
   

Posting Entries “After” Closing the Year

This is a common practice as well, because there would always be a need to post entries after closing the year, especially when it comes to the financial Audit. In this essence, there is no restriction other than the “Posting Restriction” mentioned above. Although, you have to do the following:

• Allow posting date is to be specific for a specific user for the previous selected period to be able to post.
• Post corrective entries, the system will mark any entry to a closed period as “Prior Year Entries”. This can be simply reported from the system to determin that these entries have been posted after closing the year.
• Re-run the close income statement process, the prior year entries might be affecting income statements accounts, and as a result the retained earning. For that purpose, you need to run the “Close Income Statement” process again and it will generate another closing entry as per the explanation above.

Closing Entries Posting Date

Close entries have a date which starts with “C” to distinguish closing entries. So practically, there will be several general ledger entries in the 31/12 of any year. When closing the year, the system will post the closing entries to C31/12 of that selected year.

In this essence, including or excluding closing entries is quite simple with this function, let’s take the “GL Account Balance” navigation window as an example, it will show that you can simply include or exclude closing entries with a click.

Balance Sheet Accounts – BBF ( Balance Brought Forward ) 

When closing income statements, balance sheet accounts does not generate a closing entry for the balance brough forward, the close income statement is priamrily for the income statement accounts. In this essnence, when calculating BBF for a specific balance sheet account, the system retrieves all prior entries and provide a begining balance.

Optional Activities for Year End Closing 

As per Microsoft Docs, there are a set of “optional” processes and activities for the closing, i would rather call some of them “mandatory” because no company can close their books in case they have not done it. Lets shed a light on these activities in brief:

General Ledger
There are several tasks which are neccessary to be considered when closing the year, this includes primarily the posting restriction mentioned above, posting corrective / adjusting entries and making sure to update your recurring journals ( if any ).

Sales and Receivables
It’s important to post all the sales journals, invoices, orders …etc related to the year that is to be closed. In addition, remember to update all recurring journals as well (if any)

Purchasing and Payables
It’s important to post all the purchase journals, invoices, orders …etc related to the year that is to be closed. In addition, remember to update all recurring journals as well (if any)

Fixed Assets Management
It’s important to post all FA related costs and journals in the year to be closed, in addition, most importantly you have to finalize the fixed assets depreciation

Reporting
Upon finalizing all of the above processes, it is important to print the sub ledger reports (For instance, AP and AR Detailed Trial Balance) and reconcile them with the general ledger to ensure that all balances are matching without any variances.

Important Note
When inventory management is implemeted, there are several additional activites related to the closing in such as stock count taking, reconciling inventory with the GL, costing entries related to cost adjustments .. etc. We will shed a light on this topic in depth in future articles. 

More interesting articles are to come on Dynamics 365 Business Central …

Best Regards,
Mahmoud M. AlSaadi