Process end of year close

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At year end, it is always necessary to do the following tasks:

• Make adjustment entries that reflect transactions from the previous year.

• Print reports, including financial statements.

• Back up data.

• Create a new fiscal year and transfer opening balances.

Create and post a closing sheet

A company might print a trial balance sheet to look for inconsistencies and make any adjustments necessary before closing the period. To make adjustments in Finance, you can do either of the following tasks:

• Make typical journal entries, depending on adjustment.

• Use the Closing period adjustments page.

Consider the following information when you use the Closing period adjustments page:

• It shows an advanced view of the balances on accounts, and you can perform year-end postings directly from it.

• The postings to the page typically occur in the closing period of the fiscal year.

• You can create several specific closing sheets (for revenue, expenses, balance accounts, and so on) and then load the balances from the General Ledger into the closing sheet. After you load the transactions, make transfers from one account to another.

• It resembles a journal because you can create as many new closing sheets as needed and you can post several lines of entries.

It is not possible to make transactions to the Opening period in a closing sheet; use the Opening option only for a beginning balance transaction. You can make adjustments, however, to the regular period(s) and to the closing period(s). Usually, this field is set to Closing.

The determination of which columns to populate is made based on the Close option that is selected when you set up each account in the chart of accounts.

Post the closing period adjustment

After the necessary transfers or adjustments are complete, select the Post button to post the closing period adjustment. The Closing period adjustment only posts to the closing period.

At this time, you should also run reports and verify results before closing the period and transferring ending balances into the new year as opening balances.

To post the closing sheet, open the closing period on the Periods page. After you post the closing sheet, ensure that you change the period back to On hold.

Financial reporting

Financial reporting for Finance allows financial and business professionals to create, maintain, deploy, and view financial statements. It moves beyond traditional reporting constraints to help you efficiently design various types of reports.

To learn more about financial reporting, see the link in the Summary unit at the end of this module.

Year-end close

At the end of a fiscal year, you must run the year-end close process to transfer opening balances to the new year. Most companies will run the year-end close process multiple times. The first time would be to move the balances into the new fiscal year. The year-end close can then be run again, as many times are required, to move the balances from adjusting entries into the new fiscal year.

Two types of possible transactions are created during the year-end close process. An Opening transaction is always generated and is used to create the opening balances in the new fiscal year. The Opening transaction shows the balance sheet ledger account balances in the new fiscal year and balances from the profit and loss ledger account balances in the retained earnings ledger account in the new fiscal year. The Closing transaction is optionally created to bring the balances of the profit and loss accounts down to zero in the fiscal year that is being closed.

The year-end close includes unsettled transactions for the beginning balances. To allow for easier settlement of beginning balance transactions each fiscal year, organizations can select to keep transaction details for unsettled transactions for the main accounts identified in the ledger settlement. To ensure consistency between beginning balances and unsettled transactions, settlements can only be performed within the fiscal year.

In the Unsettled transactions report, users can specify a From and To date to view unsettled transactions within their organization. The report uses the settlement date to determine which transactions are settled as of the To date.

Optimize year-end close

The Optimize year-end close feature helps ensure that the year-end close processing will run on the microservice when the Optimize year-end close service is installed on Dynamics 365 Lifecycle Services and the Optimize year-end close feature is enabled in Finance. The Optimize year-end close feature also provides year-end close results. Besides running the year-end close logic in the microservice, it specifies balance sheet financial dimensions in detail when you close a year.

To learn more, see Optimize year-end close.

Prepare to run the year-end close

Before you run the year-end close process, validate the following settings.

On the Main account page:

• Validate that the Main account type is defined properly for each main account. The Main account type is used to determine whether the balance of the main account will be brought forward as an opening balance or closed into retained earnings in the Opening transaction.

• The Opening account field can be used to transfer the balance of the main account to a new main account during the year-end close. The new main account is entered in the Opening account field. Typically, this field will be used for balance sheet main accounts when the main account is inactivated, and a new main account is used for the new fiscal year.

On the General ledger parameters page, under Fiscal year close:

• The Delete close of year transactions option is used to specify whether the system-generated Opening transaction from a previous year-end close should be deleted when the year-end close is run again. If this option is set to Yes, the previous Opening transaction is deleted, and a new Opening transaction is created based on the current balances. If this option is set to No, the previous Opening transaction remains, and an additional Opening transaction is created to move the balances forward from adjusting transactions that are posted after the previous year-end close.

• The Create closing transactions during transfer option is used to create Closing transactions in the fiscal year that is being closed to bring the balances of the profit and loss accounts to zero. If this option is set to Yes, the Opening transaction and Closing transaction are created. If this option is set to No, only the Opening transaction is created in the next fiscal year to transfer the balances. The profit and loss account balances remain at the end of the fiscal year.

• The Set fiscal year status to permanently closed option is used to set the fiscal year to a permanently closed status. Use this setting with caution because all periods with a permanently closed status cannot be reopened, preventing adjustments from being posted to the fiscal year. It's a best practice to set this option to No.

• The Voucher number must be filled in option is used to define whether a voucher number is required when you are running the year-end close process. It's a best practice to require a voucher number to help you easily identify the Opening transaction.

On the Fiscal calendar page:

The next fiscal year must exist before you run the year-end close. The next fiscal year is required to create the beginning balances in the opening period.

On the Ledger calendar page:

Optional: Each fiscal period for the fiscal year that is being closed can be set to On hold to prevent new transactions from being entered. When adjusting entries are identified, the On hold periods can be reopened to post adjusting entries, even if the year-end close process has already been run.

Define year-end close templates

After the system is configured, the year-end close process can be run. On the Year-end close page, a template can be defined for the group of legal entities for which the year-end close process will be run. The template will be reused at each year-end close but can be modified if your organization changes.

First, define the Group name for the template and select the fiscal calendar. The group name should identify the group of legal entities that are included. For example, the templates could be set up based on geography, with separate groups created for North American legal entities, EMEA legal entities, and APAC legal entities.

Next, the legal entities can be added to the template. Legal entities can be added by selecting an organizational hierarchy or by selecting the legal entities. If an organizational hierarchy is selected, only legal entities within the hierarchy that use the selected fiscal calendar will be added to the template. If you use legal entities to add to the template, only legal entities with the same fiscal calendar can be added. The same fiscal calendar is required because the year-end close is run by selecting a fiscal year, which can vary from calendar to calendar.

After the legal entities are added, define the retained earnings main accounts for each legal entity. The Date of last year-end close field will be updated each time the year-end close is run for the legal entity.

The Financial dimension tab is used to define which financial dimensions will be used on the Opening transaction. The settings that you are defining are relevant to only the legal entity that is selected in the Legal entities grid. You will repeat the setup for each legal entity in the grid.

The Transfer balance sheet dimensions option is used to define whether the financial dimensions on transactions that are posted to balance sheet accounts should be maintained on the Opening transaction. It's a best practice to set this option to Yes.

The Transfer profit and loss dimensions option is used to define which financial dimensions on transactions that are posted to the profit and loss account will be transferred to the retained earnings main account. First, identify the financial dimensions that are relevant to the selected legal entity, including any financial dimensions that are posted against during the year, even if the financial dimension is not part of an active account structure.

Next, define each dimension as either Close single or Close all. The default is Close all, which maintains the original financial dimension values from posted transactions and uses them for creating the opening balances for the retained earnings account. Separate retained earnings beginning balances will be created for each unique combination of financial dimension values.

If Close single is selected, all transactions that are posted with that financial dimension will be summarized into a retained earnings beginning balance for the dimension value that is entered in the field after Close single.

For example, assume that all transactions for the fiscal year were posted with the account structure of Main account - Department. On the Department financial dimension on the template, Close single is selected and 100 is the value entered. If the total income of all transactions that are posted to departments 200, 300, and 400 is USD 100,000, then one opening balance will be created for Retained earnings - 100. If you select Close single and leave the financial dimension value blank, then all transactions will post to retained earnings with that dimension value being blank.

The year-end close process doesn't adhere to account structures. The reason is because account structures can change throughout a fiscal year and it's not always possible to identify the relevant account structure due to those changes. When opening transactions are created, the balances will be brought forward with financial dimensions, as defined in the year-end close template. The beginning balances entries could include financial dimensions that are no longer in the current account structure and segment combinations that are no longer valid in the current account structure. If your organization wants to exclude a financial dimension for the retained earnings beginning balance, set the financial dimension to be Close single and leave the dimension value empty.

Run the year-end close process

After the year-end close templates are created, you can initiate the year-end close process by selecting Run fiscal year on the Action Pane. Either select all or a subset of legal entities from the template for which to run the year-end close. When running the year-end close for the first time in a fiscal year, you will likely choose all the legal entities to create beginning balances for all the legal entities. If you're running the year-end close again, you could choose to run the process for only the legal entities for which adjusting entries were posted.

Select the fiscal year that you want to run the year-end close process against. If more than one closing period exists for the last period of the fiscal year, the Period name field will become available so you can select which closing period to post the Closing transaction, if setup is defined to create the Closing transaction.

Enter a voucher number, which or might not be required, depending on the setup in General ledger parameters. The same voucher number will be used for all the legal entities that are selected for the year-end close process. The voucher number is not generated by using a number sequence. It's a best practice to enter a voucher number, even if it's not required. Entering a voucher number helps make it easier for you to find the Opening transaction in the new fiscal year. If a voucher number isn't entered, the voucher will be blank for the Opening transaction.

If you want to reverse a previous year-end close for the selected fiscal year, set Undo previous close to Yes. The year-end close will be reversed, but the process can be rerun at any time. If you reverse a year-end close, the Date of last year-end close will be unavailable.

The year-end close process defaults to run in batch mode. We recommend that you run the process in batch mode to allow the user to return to other activities. After the year-end close process is complete, the Date of last year-end close will be updated with the session date.

Prepare the closing period

When you create a new fiscal year, you might have to control or stop transactions from updating the ledger accounts during the closing process. To stop transactions, set the period or periods to On hold.

This process differs from setting it to Permanently closed, because you can reopen an On hold period, but you cannot reopen a Permanently closed period. When a period is closed, the system displays a warning message that requires a confirmation to indicate that the period should be closed because the action is irreversible.

When a fiscal year is being closed, you can enable the Set fiscal year status to permanently closed option on the General ledger parameters page.

This approach sets all periods in a fiscal year to a Permanently closed status. You can also enable the Check journalizing option on the General ledger parameters page if you want to verify whether periods are journalized before they are put on hold or permanently closed.

Transfer opening balances by running year-end close process

After you verify ending balances, you can transfer ending balances into the new year as opening balances.

Go to General ledger > Period close > Year end close page to run the fiscal close process for selected legal entities.

Select OK to select the fiscal year that you want to close and select whether to undo the previous close. Enter a value for the Voucher field and select OK to run the fiscal close.

In the opening transactions process, Finance creates:

• A line for the opening transaction. This line makes up the opening balance for the new year.

• A transaction for each currency and financial dimension. It is necessary to maintain this transaction to keep statistics and financial reporting available to the user. You can transfer balances as frequently as needed during the year-end close process.

Process sales tax

To settle sales tax balances on the sales tax accounts and offset them to the sales tax settlement account for a given period, use the following procedure:

1. Go to Tax > Declarations > Sales tax > Settle and post sales tax.
2. Enter a value in the Settlement period field and then, in the From date field, enter a date.
3. In the Transaction date field, enter a date.
4. Select OK.

You can view posted sales tax transactions from various pages, depending on what you need to view.

1. Go to Tax > Inquiries and reports > Sales tax inquiries > Posted sales tax.
2. Select desired criteria to filter through the posted sales tax transactions.
3. Close the page.
4. Go to Tax > Indirect taxes > Sales tax > Sales tax settlement periods.
5. Expand the Period intervals section.
6. Select the interval that you are interested in.
7. Display posted sales tax transactions for the selected settlement period interval, by selecting Posted sales tax in the Action Pane..
8. You can further filter the list of posted sales tax transactions.
9. Close the page.
10. Go to Tax > Indirect taxes > Sales tax > Sales tax codes.
11. Select the interval you are interested in.
12. On the Action Pane, select Sales tax code.
13. Select Posted sales tax.