Clear and Close Last Year

Use the Clear and Close Last Year function to clear and close revenue and expense accounts to specified capital accounts. This function clears the accounts for all periods - you cannot use it to close account by period.

To see retained earnings at the end of each period, set up a financial statement to print the total of the necessary account balances in the balance sheet.

Clearing and Closing

When you clear and close by step, the system enters a matching debit in the GL Journal for the actual balance of each revenue account. Then it enters an offsetting credit for posting to a capital account.

For expense accounts, the opposite takes place. The system enters a matching credit for the actual balance of each expense account, then it enters an offsetting debit to the capital account.

The net balance posted to the capital account is the difference between the total revenues and the total expenses - that is, the profit (if it is a credit balance) or the loss (if it is a debit balance) for that year.

The Clear and Close Last Year function has no effect on budget or forecast balances.

Clear and Close Capital Accounts

Before you run this function for the first time, you must use the Chart of Accounts function to designate the clear and close capital accounts for each revenue and expense account. Thereafter, you can use the Clear and Close Last Year function to clear and close the accounts automatically.

Each account in the GL Master has a Clear To Account field where you can specify the account to close to. In the Step field, you can enter the step in which to close the account.

Before you close the books for the first time, follow these steps:

  1. Determine which accounts are to be closed to the capital accounts and at what step that will occur (you can have up to 9 steps).
  2. Enter the capital account number that each revenue and expense account is to be cleared to.
  3. Enter the step number under which the clearing will take place.
  4. If you have additional accounts to be cleared to the capital accounts (such as dividends paid), set them up in the same way. This should be the last clearing step.

Close in Steps

There are three alternatives for closing:

  • Clear and close all income statement accounts in one step, which is the fastest method. Then you can use the Statement Layout, Statement Contents, and Build Statements functions to calculate the year-end figures you need.
  • Close all segments to the first segment. The Trial Balance Report and financial statements show the total amounts for income statement accounts, rather than a breakdown by segments.
  • Audit automatic closing by closing the accounts in steps. For example, if you close the operating expenses in one step, the income statement shows the total gross profit or operating margin. If you close the COGS account in the next step, the income statement shows your gross income. When you clear the revenue accounts in the next step, you are ready to distribute the net income.

Distribute Net Income

The closing procedure you use depends on how your business is organized.

To distribute the income to more than one equity account (for example, if your company is a partnership), use this procedure:

  1. Use the Chart of Accounts function to add an income summary account to temporarily hold the net income.
  2. Use the Chart of Accounts function to enter the income summary account in the Clear To Account field of each revenue and expense account. You can clear these accounts to the income summary account in one or several steps.
  3. When you have finished all the clearing steps, the income summary account has a credit balance showing the net profit for the year or a debit balance showing the net loss. Use the Transactions function to credit (or debit) each equity account for the proper amount. Then enter an offsetting debit (or credit) to the income summary account for the total amount distributed, reducing that account's balance to zero.

Clearing and Closing Last Year

  1. Enter the range of steps to clear and close in the Step From and Step Thru fields. Step 1 From and Thru will default the first time you run the function. If Step From 2 Thru 2 is displayed, the function has been run and should not be run again for Step 1.
  2. Select the Use Fiscal Period you wish to have closing entries created in. The last period setup will be defaulted in to the field. Press Enter to accept the default value.

    NOTE: Always use the extra (13) period for this function. If you use a normal period you will have 0 for your income statement accounts for the period you clear and close to.

  3. The system will summarize the number of Accounts To Close. This information is read-only and cannot be updated.
  4. The system summarizes the Total Revenues and the Total Expenses to be closed out. This is determined by the account types set up for each account.
  5. Enter any Comments.
  6. Click a command button to
    7. Click To
    OK Begin clearing and closing last year.
    Activity Display the Activity Log to view prior activity.
    Reset Set all fields to their default values.

After Each Closing Step

When you finish each step, follow this procedure:

  1. Change fiscal years to the previous year using the change fiscal year function.
  2. Print the GL Journal or the Activity Report for the closing period. If some closing entries are missing, check the account record -- the account may not be set up with either a clear to account or clearing step.
  3. When everything is correct, save the journal and activity report as part of the audit trail.
  4. Post the journal to the GL Master for the company whose accounts you cleared and closed, using the closing period. Posting updates the account balances with the transaction just entered.
  5. Print an Audit Trial Balance Report and make sure that the accounts closed in that step have a zero balance.

Repeat the procedure for all of your steps.

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