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Hello, in my accounting class we learned that at period end (month end) the nominal or temporary accounts such as the revenue and expense accounts get closed out (zeroed out) so each new period can begin with a zero balance and we can gauge each new periods P&L. The amounts get netted into Retained Earnings.
I was told GP does not zero out the revenue and expense accounts at month end. Why not? How does this work in GP then? How does Retained Earnings get updated each month if the accounts are not closed out. This goes against all the accounting we learned in school!
Gi
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For current year, the Row Format GL Link is your P&L account range, i.e. 4000-9999. That will capture all P&L accounts and display the net as current year retained earnings. For Prior Year RE, you specify the RE account on that line. Then you sum the two to get total RE. You can hide the two separate lines and display only the total if you wish.
I guess what I’m trying to say is, GP has a setting in financial setup to specify a retained earnings account, but according to everyone, this account only gets updated only at year end, not month end. Therefore I can’t use that account on my monthly balance sheet (since it only gets updated once a year at year end) so what do I use for my retained earnings line in my FRx balance sheet? On the Income Statement it’s calculated. But on the Balance Sheet it should come from the Retained Earnings account but, as I stated, that account is not updated at month end. So what do I use for my BS?
Your monthly Retained Earnings is the total of all your P&L accounts. You need two Retained Earnings lines on the BS - one for prior year (which is the balance in your RE account) and one for current year - which is the net of your P&L activity for the current year.
Make sense?
Using FRx, at the end of every month I would like to prepare a Balance Sheet and an Income Statement. At the bottom of my IS is my net income, which in FRx is a calculated field. This needs to be my Retained Earnings on my BS. But you say..."All balances for balance sheets accounts get brought forward and all profit and loss accounts get rolled into Retained Earning when you close the fiscal year" So how do I get my Retained Earning on my BS in FRx each month if GP only rolls P&L into Retained Earnings at year end? Thanks Gi
There is no right or wrong here. Just because you were taught something a certain way does not mean that is the only way possible. You can probably find just as many links showing that closing entries are done yearly, not monthly. Some examples:
blog.accountingcoach.com/closing-entries-2
blog.accountingcoach.com/nominal-account
Dynamics GP only does the closing you describe (also referred to as a 'hard close') on a fiscal year basis. Monthly/period numbers are easily accessible in GP by month/period with no hard close necessary. You can see monthly numbers for your P&L (aka nominal) accounts in many different ways, including:
1. Inquiry | Financial | Summary Inquiry.
2. SmartList | Financial | Account Summary.
3. Using FRx (or MR) to enter each period in a separate column.
4. Reports | Financial | Trial Balance (either Summary or Detail) and choose Subtotal by Month or Period.
Hi,
You are right, some accounting systems do have period end process which clears out the balance of revenue and expense accounts. However, GP does not have such routine. I think the advantage of not clearing balance at end of each month is you can easily view Year to Date balance of accounts. Example: if you want to know how much company spent on Travel this year , you can simply view the account balance for individual months or the year to date value (Period Balance). You can use the Summary Inquiry window (Inquiry >> Financial >> Summary) to view the balance. Additionally, there are lesser overheads for closing the month.
If you are looking for Income Summary or Expense Summary for each month, you can easily use the Account Rollup Inquiry window (Inquiry >> Financial >> Account Rollup) to create such inquiries. Example: you can add all expense accounts to create Expense Summary rollup. Refer to following posts about using the Account Rollup Inquiry window.
gp2themax.blogspot.com/.../account-rollups-not-as-tasty-as-fruit.html
dynamicsgp.wordpress.com/.../account-roll-ups-getting-the-combined-balance-on-a-range-of-accounts
If you are using FRx or Management Reporter, you can also create Income Summary or Expense Summary reports using these tools
Rubal,
It says at the end of your accounting period which is the end of the fiscal year. This is why you define fiscal periods within your fiscal year in every accounting program. Any financial report you write will look at the periods setup with the fiscal period. For most companies this is each month of the year. GP has a summary table that tracks balances at the end of each month. If you go to Cards->Financial->Accounts and enter any GL account and then click on the Summary button there are those values. So at the end of the year during the GL year end closing process, the current year gets marked as historical and then all balances are rolled into the next year and you start over again.
Hello, thanks for responding but I am not confusing year end with period end. I was taught that each "period" end the nominal accounts are closed out. Here are some links that prove my point:
www.quickmba.com/.../closing-entries
www.simplestudies.com/what-accounts-are-not-closed.html
Note that they say "period" end. When you say there is no reason to close out the accounts at each month end, then how do you know your p&l for the period? If I had to guess it's probably just going by dates.
There is no reason to close out accounts at the end of each month. These accounts gets closed at the end of your fiscal period, which is normally at year end. All balances for balance sheets accounts get brought forward and all profit and loss accounts get rolled into Retained Earning when you close the fiscal year. Sounds like you are confusing month end with year end. There are month end procedures for AR and AP and then at the end of the year you run the year end closing procedures for GL.
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