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By default the system tracks yearly, quarterly, and monthly fiscal periods. Monthly periods are children of quarterly periods, and quarterly periods children of yearly. Period numbers mean different things for each. For yearly periods the period number is just the year. Quarterly and monthly period numbers are the number within the year. Each period also has a reference to the previous period.
These periods can be the same as or different from calendar periods or in other words a fiscal year may or may not match the calendar year by its from and thru dates. Periods are 'owned' by a specific internal organization in the system so different organizations may have different periods. The system will automatically create current and next periods as needed over time, or they can be generated well in advance by starting with a manually created period and then using the button on the Accounting => Time Periods screen to create the next period.
There is also an internal service (not exposed in the standard user interface) that can be used by a developer or system administrator to create bulk periods going as far back in time as needed. This is mostly used for intitial system setup when transactional data going into the past is imported or migrated from another system.
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Closing a period prevents transactions with a date within that period from being posted. The main exception to this is that accounting transactions with the types Period Closing Adjustment (for manual adjustments) and Net Income Period Closing (for net income booking) may be posted to a closed period. A user with a special permission may also 'force post' to a closed period, and this must be done explicitly with the Force Post button on the Edit Transaction screen.
GL transactions are typically created and posted automatically based on invoices, payments, asset receipt and issuance, financial (single entry balance) account deposits and withdrawals, and so on. Transactions may also be created manually. However they are created and posted if there are any issues with the transaction, including a period covering the date of the transaction being closed, the transaction will automatically be added to the Error Journal configured for the organization and will be left unposted. When you try to close a period it will make sure there are no unposted transactions with a date within the period.
Period closing is a tool that a CFO, controller, or other senior accountant can use to stablize the books for more official reporting. If a bookkeeper or other user records an invoice or any other transactional record that results in a GL transaction and it has a date in a closed period then it will be added to the error journal instead of posting as described above. A more senior accountant responsible for financial reporting can then review that transaction and decide whether the date on the transaction should be changed, or it is a case where it does need to be posted in a closed period along with the business implications involved.
How often or frequently you choose to close periods is mostly based on organization requirements. In some organizations yearly closing is adequate to stabilize books for tax reporting and reporting to investors and creditors. In other organizations quarterly closing is required. It is not as common that monthly closing is required but for faster paced organizations or if you just want to run a tighter ship this is supported.
To close a period all periods it depends on must be closed, including prior and child periods. For example to close a year the prior year must be closed and all quarters in the year must be closed, and for each quarter to be closed all months within the quarter must be closed. In other words when closing periods start with months, then close quarters once all months in the quarter are closed, then close a year once all quarters in the year are closed. Periods may be closed one at a time using the Close Period button on the Accounts tab of the Accounting => Time Period screen. For convenience a period and all prior and child periods can be closed all at once using the Close Period + Depends button.
There are typically various business activities that lead up to period closing including reviewing and clearing the error journal, reconciliation with invoices (see the Invoice Reconciliation report), bank account reconciliation, fixed asset depreciation, and so on.
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Balances from income statement accounts can be posted to the Net Income account (in the default chart of accounts 850-000) using the GL transaction type Net Income Period Closing. This type of transaction can be posted at any time, even after the period is closed. Posting these transactions after a period is closed is generally best to avoid GL account balance changes that modify the income statement amounts that need to be booked.
These transactions are handled differently from other transactions and do not modify the amounts shown on the Income Statement report. These transactions do have an effect on the Balance Sheet report. If you look at the Balance Sheet for a period before posting the net income closing transactions you'll see the amount not yet booked in the Unbooked Net Income line. Once all income has been booked for the period this line should show a zero amount.
While net income closing transactions can be created and posted manually the system can do this automatically for you with the Net Income Closing Transactions form on the Accounts tab of the Time Period screen. This looks at the ending balance (including 'Net Income Period Closing' type transactions already posted) of each income statement account and uses that amount to zero out each account as of the end of the period you run it for. When you run this you can choose whether to post transactions or not (if not posted they will be generated and left unposted), specify an optional journal to add the transactions to for tracking, and which GL account to post it to (if there are multiple Net Income accounts, or you want to post it directly to a retained earnings account).
When the automatic Net Income Closing Transactions are run it will create a GL transaction for each GL Account Class on the income statement with a transaction entry for each income statement GL account and a balancing entry for the selected Net Income or other GL account to book the income to.
To see what has already been posted to the Net Income account over time you can use the Account Balance History report. The 'Find Options' to use to narrow the results are typically the Period Type, the Organization, and the GL Account (like the 850-000 Net Income account).
On the Accounts tab of the Time Period screen you can also see a summary of GL account balances for the period. The Ending column shows the ending balance. Before running Net Income Closing Transactions the ending balance for income statement accounts will be the amount that needs to be booked, and after running it the ending balance in that table should be 0.00 for all income statement accounts.
While you can book directly to a retained earnings account it is generally the better practice to book to the Net Income account, and then do manual transactions to distribute the Net Income balance to the retained earnings or other desired equity accounts. When doing this use the Period Closing Adjustment transaction type. This helps keep track of these and similar tranasctions and allows them to be posted in closed periods.
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TODO: use 'Net Income Closing Transactions' form, view results on Account Ledger report for the period and the target account (ie 850-000)
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