Hello Jules,
The "closing entries" are created as part of the fiscal year end activities in NAV/BC.
They are needed to get the income statement accounts "cleared" for the next fiscal year.
On "Income Statement" (Profit and Loss) accounts you always need to start the new fiscal year with a zero balance, other than on the "Balance Sheet" accounts where you always want the ending balance from the last fiscal year being the starting balance for the current year.
In NAV/BC the balance sheet account just keeps all transactions and the ending balance from the last fiscal year is automatically the starting balance for the current year. in NAV/BC there is no action needed for the balance sheet accounts.
Many ERP systems achieve this year shift in a different way.
They start a new fiscal year with a zero balance on all accounts by default.
So instead of having the need to bring the income statement accounts down to zero they need to take care about getting the "starting balance" in.
There is no clear rule how to get there. But the income statement accounts need to start with 0 balances whereas the balance sheet accounts need to have the starting balance.
So ... the need of having zero balances on income statement accounts is why in NAV/BC we run the "close income statement batch" when the normal business for the old year is finished and transactions have been registered.
And here it is important to understand that:
- before you run the "close income statement batch" you close the fiscal year.
- usually the administrator will set the "Allow Posting From Date" in the General Ledger Setup to a date in the new fiscal year in order to prevent users from posting normal transactions to the closed fiscal year.
- you can still post to the closed year. Entries posted after the fiscal year is closed get a certain "flag". They are marked as "Prior-Year Entry".
Here is it very important to understand that a user should not create entries with the "closing date" manually (although this is techincally possible). Only the lines created by the "close income statement batch" should have the closing date.
- you can run the "close income statement batch" more than just once
like, you run it when the normal business is done to have good "Balance to Date" figures on the income statement accounts for the new fiscal year periods and you run it again after the accountant / tax advisor did some more transactions as part of the fiscal year end activities.
Or in other words once entries are posted to the closed fiscal year after the last use of the "close income statement batch" please make sure to run the batch again ... in order to make sure the starting balance for the income statement accounts is zero again.
Hope this helps
