Explaining the Periodic Closing Process

Objective

After completing this lesson, you will be able to explain the order in which closing activities are carried out

Periodic Closing Process

Flowchart shows monthly accounting tasks. Old Month: GR/IR clear, accruals, payroll, goods issues. New Month: valuations, AUC, profitability, cost centers, controlling, documents, end closings.

Preclosing Activities

The preclosing activities that occur on the last day of previous month are as follows:

  • Technical

    Open a new accounting period in Financial Accounting (FI), close the previous month in materials management (MM), close subledgers in FI, and perform a preliminary close of the general ledger (G/L) in FI.

  • Financial Accounting (FI)

    As part of preclosing activities, process purchase order accruals, enter manual accruals and deferrals, process recurring entries, and process bad debt expenses in accounts receivable (AR).

  • Materials Management (MM)

    Maintain the goods receipt and invoice receipt (GR/IR) clearing account, and post material revaluations.

  • Human Resources (HR)

    Post payroll expenses.

  • Sales and Distribution (SD)

    Post goods issues for deliveries to customers.

Managerial Closing Activities

The managerial closing activities are as follows:

  • Perform Controlling (CO) allocations and reposting.
  • Lock the old accounting period.
  • Reopen the G/L for adjustment postings.

Closing Activities for External Reporting

The closing activities for external reporting purposes are as follows:

  • FI

    Perform valuations of open items in foreign currency.

  • Technical

    Close the previous period.

  • FI or CO

    Create document reports like tax reports, asset history sheets for external reporting, and managerial reports for internal purposes.

Year-End Closing Process

Year-end financial process flowchart: Old Year tasks like inventory and costing to New Year tasks and documentation. Finalizes accounts and opens new fiscal year.

For the final period of the fiscal year, in addition to the regular month-end closing activities, year-end closing activities are performed.

Preclosing Activities

The preclosing activities that begin in the old month are as follows:

  • Technical

    Open the first accounting period of the new fiscal year in FI, and perform the balance carryforward centrally in FI.

  • MM

    Perform a physical inventory count, which may be performed on a monthly basis.

  • Production Planning (PP) or CO

    Update product cost estimates, which may be performed more frequently.

  • MM

    Perform lowest value determination, and perform Last In First Out (LIFO) or First In First Out (FIFO) valuation.

  • AA

    Perform asset valuations and investment support.

  • FI

    Conduct balance confirmations for customers or vendors.

Note

All subledgers must always be closed before the general ledger in a fiscal year. If this basic principle is not considered, this can lead to inconsistencies with the general ledger balances (In particular, this applies in relation to the FI-AA subledger). For further information, see SAP Note 619969.

Closing Activities for External Reporting

The closing activities for external reporting purposes are as follows:

  • FI

    Perform GR/IR clearing account analysis, reclassification of receivables and payables, reconciliation of prior year to new year, and other adjustment postings.

  • Technical

    Conduct final closing of the old period for accounts receivable and accounts payable (AR/AP) and the G/L.

  • FI or CO

    Create external and internal reports.

Learning

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