Fiscal Year-End Closing Procedures

Year-end closing of the General Ledger is a fairly simple task. An automated procedure completes the first closing step. The second (optional) step requires the user to do calculations and general ledger entries.

Step 1 - Automatic Year-End Closing

The year end closing, as defined in accounting terms, is the removal of balances from the General Ledger accounts that appear on the Income Statement. These accounts are sometimes called the temporary or nominal accounts due to the fact that they are only used for the period of one year. These accounts are always closed against some form of historical Equity account found in the Equity section of the Balance Sheet (such as Retained Earnings).

The transaction made to cause this ‘removal’ of balances is conducted automatically through the General Ledger Year-End Closing program. A separate fiscal period (called perhaps ‘Year End’) should be set up into which all year-end transactions may be made. This will make it so that the current period income in the final period of the year will not be affected.

Note that only General Ledger balances will be affected by a year-end closing. The accounting system is designed to track Job Costs from the inception of a project to the completion and final billing of the project. Thus, the Job Budgets File is never adjusted by the close of a fiscal reporting period. In the same vein, tracking of vendor histories, customer histories and employee histories need not be changed. These files have an accumulation of data to which a subdivision by fiscal period would give no additional meaning. Feel free to take advantage of this ‘opportune moment’ (the year-end closing) to remove as much of the various accumulated histories as possible.

Once the Year-End Closing program has been run, and the resulting transaction Batch has been proof listed, backed up and posted, and all year-end reports have been printed, it will be necessary to prepare for the next year’s processing.

Subsequent Year End Closings

If adjustments are made to the final period of the fiscal year after the year-end closing procedure has been performed, a second year end closing must be performed to once again zero out the Income Statement accounts. For any subsequent year end closing, both the "Last Fiscal Period of Year to be Closed" field and also the "Fiscal Period Closing Transactions Will Be Posted To" field must be filled with the Year-End Fiscal Period.

Optional Step 2 - Preserving General Ledger Balances For Job Cost Control Accounts

The next consideration is the preservation of General Ledger balances reflecting current job expenses and income. Although this step is optional, it may be included with the automated year end closing procedure by checking the appropriate box on the year end closing procedure window.

As the balances of the income statement were adjusted to zero, this included the Work in Process accounts that are maintained in the Cost of Construction section of the Income Statement. This step need only be completed if the contractor is using the Percentage of Completion accounting method which places the Job Cost Control accounts in the Expenses section of the Income Statement.

The preservation of the balance between the Subsidiary Job Cost Ledger and the General Ledger Work in Process accounts is absolutely essential for proper control. This makes it necessary to adjust the balances of Job Cost Control accounts in the General Ledger to match job to-date totals found in the Job Cost Summary by Code Type report. An offsetting entry must be made to the ‘Contra’ account labeled Past Years Costs. As this is a complex, sometimes confusing entry, it will be described here in detail.

First, notice that after the Year-End Closing process has been run, all Income Statement account balances will be zero, making the job cost portion of the Summary Trial Balance Listing look something like this:

Notice how the Ending Balance column contains all zeros in preparation for the new year’s processing. In most Income Statement accounts this is desirable; however, control accounts such as the Job-to-Date J/C - Labor account should hold balances that reflect the total job costs for all open jobs to-date. To find the required balances, print a Job Cost Summary by Cost Type Report. It will look something like this:

The totals at the bottom of each column are the numbers which should reconcile to the account balances on the year-end "Summary Trial Balance" listing.

To find the required balance for the Contract Revenue-Open Jobs account, print a Job Cost Billings vs Income Summary Report. It will look something like this:

The total at the bottom of the Amount Billed column is the number which should reconcile to the account balances on the year-end "Summary Trial Balance" listing for the Contra Revenue-Open Jobs Account and the Contra: Past Years Job Revenue accounts.

A G/L Journal Entry must be made to insert these balances into the general ledger. The debits made to the control accounts will be offset by credits made to the corresponding Contra accounts. This entry will reconcile the Job Costing to the General Ledger, while maintaining the zero beginning balance of the Income Statement. Once this Batch has been proof listed, backed up and posted, the Summary Trial Balance listing will look like this: