A treasurer's crown jewel, the closing, consists of taking stock of the accounting situation at the end of a fiscal year.
The life of an organization is divided into accounting periods. Each of them leads to the presentation of annual accounts. At the end of these, the organization must close its accounts and reopen them the following year.
This article will cover the following points:
Preparing for the closing
If the closing takes place at the end of the fiscal year, it is better to prepare it in advance in order to simplify the task when the time comes.
Definition of the closing
The closing consists of :
- Freeze the fiscal year - it will therefore be impossible to modify the entries of the fiscal year afterward,
- Laying the foundation for the next fiscal year,
- Generate financial statements, including the income statement and the balance sheet.
This makes it possible to present the accounts to the general assembly or to third parties (accountants, communities, etc.).
Checks and prerequisites
To be able to close, the status of the fiscal year must be in closing, i.e. :
- That the end date has passed,
- That the previous fiscal year is closed.
You can work on several fiscal years simultaneously, regardless of whether their status is "open" or "closing". Closing is done one year at a time, starting with the oldest.
It is also customary to perform certain checks before closing:
- Third-party accounts (class 4) not balanced: take stock of outstanding debts and receivables.
- Balanced balance: check the assets and liabilities balance. This is normally always the case because AssoConnect automatically generates all the necessary entries.
- Bank reconciliation: compare accounting entries and bank transactions to detect possible omissions or duplications.
- Negative cash account: impossible to close if a cash account (Petty cash) is negative because it is not normal to withdraw more cash than there is. In this case, you must identify the forgotten entry.
Implications of the closing
Transfer of year-end balances
Following the principle of independence of the fiscal years (an entry belongs to the fiscal year to which it relates), the closing makes it possible to establish the link between two accounting periods.
At the time of closing, the year-end balances are established for each account. The software totals the movements in the accounts (debits, credits) and calculates the year-end balance. This balance is taken as the opening balance for the following year.
This operation is the same on your bank statements: the balance at the end of the month determines the balance at the beginning of the following period.
This mechanism is done through the automatic generation of balance carried forward entries. It also determines a beginning balance when you make your initial balance.
You can find all the balance carried forward entries from the Accounting > Documents > Journal page by filtering by the category of the same name.
The software generates these entries as follows:
- By debiting all accounts with a debit balance at the end of the previous fiscal year (and crediting "Opening balance sheet");
- By crediting all accounts with a credit balance at the end of the previous fiscal year (and debiting "Opening balance sheet").
In order to avoid creating inconsistencies, the balance carried forward entries cannot be deleted or modified. We also advise against entering them manually.
Allocation of the profit or loss
In principle, each income/expenditure entry is attached to the fiscal year to which it relates.
In the event of a timing difference, adjustment entries may be made at the end of the fiscal year, for example, to recognize deferred income or an invoice that has not been received.
At the end of the financial year, the allocation of the result is done as follows:
- The accounts of income and expenses are balance
- The profit/loss is calculated as the difference between income and expenses,
- The profit/loss is carried forward to the balance sheet of the year via a carry-forward entry
- The profit/loss is carried forward