Introduction
Greg has started working in the general ledger accounting department. As part of his learning, he is going to participate in the month-end and year-end close. He has completed the prerequisite courses so he has some SAP finance knowledge, but this is his first time working on the financial close.
After meeting with his manager, the expectation is that he will gain some insight into the typical local G/L closing steps that occur at month and year-end. He is not learning all the steps, just the relevant ones that his manager suggests he focus on. Also, he will learn which close steps can be started before the month-end, verses which steps need to wait until the end of the month or year.
To report the financial results, the accounting period must have all valid postings recorded, including any adjustments. To ensure completeness and accuracy, the G/L department will commence a month-end close which will encompass a sequence of steps to close the books. Once this is complete, the old accounting period is then closed and the finance department can produce their reports, both for internal and external purposes.
Important Steps for Month-end and Year-end Close
As part of the month and year-end entity close, let’s first look at some of the necessary steps.
Month-end Closing Process
Year-end Closing Process
The year-end close is similar to a month-end close but additional steps are required in order to close out the year. The accounting department can utilize the special periods if necessary. Once the new fiscal accounting period is opened, the G/L balances can be carried forward as many times as required, and any adjustment postings in the old period will automatically roll forward once the balance carried forward is executed.
Pre-closing and Closing Activities
Certain closing steps can be performed before the end of the month.
These are known as pre-close steps and are as follows:
- Setup of accruals and deferrals
- Recurring entries
- Automatic clearing of G/L accounts
- Open the new period
Closing Activities are:
- Manual journal postings
- Ledger specific journal postings
- Foreign Currency Valuation of G/L balances or open items
- Close the previous period