An organization’s fiscal year consists of 12 active accounting periods corresponding to the months of the year, plus an optional 13th period for making adjusting entries. Many organizations run on a calendar fiscal cycle, where they close the books on December 31st. Performance is based on activity that occurs between January 1st and December 31st.
Other companies close their books at the end of a different month, such as June 30th, so their fiscal periods and calendar periods are not the same. Inform accommodates all fiscal cycles by defining the start month with a number. A calendar cycle starts with month 01 and a midyear cycle with 07.
Regardless of the fiscal cycle, there is a definitive Year End Close Process that affects a special General Ledger account known as Retained Earnings. This account’s function is to accumulate net incomes and losses over consecutive years of operation. Its balance changes once per year when the books are closed.
In order to recognize the Retained Earnings account, it must be defined in the General Ledger Control Table in the Retained Earnings field. To view your specific account, navigate to Accounting > General Ledger > G/L Control Table > Retained Earnings. Please do not make any changes to this table without consulting with DDI Accounting Support, as there may be adverse effects to your data.
The Retained Earnings account is commonly the highest numbered Balance Sheet account. To function correctly, the number assignment must be lower than the P&L Break Account.
The Retained Earnings account is not an active posting account during the course of the year. The General Ledger Year End Close Process triggers a balance change in the account based on the profit/loss at your year-end. The change in balance is not evident in an active accounting period, but rather in the change in balance between the last accounting period of a fiscal year and the first accounting period of the following fiscal year. For more information on the close process, please refer to Year End Close Process.
- Accounts numbered lower than the P&L Break Account do not have an impact to the balance in Retained Earnings. These accounts appear on the Balance Sheet and are representative of a position at a point in time. At the time of Year End Close, these account ending balances are transferred as opening balances for the new fiscal year.
- Accounts numbered higher than the P&L Break Account have a direct impact to the balance in Retained Earnings. These accounts appear on the Income Statement and are representative of performance over a range of time. At the time of year end close, the balances in these accounts are zeroed out to start the new fiscal year. The net amount of these changes results in a profit if the balance is negative (credit) or a loss if the balance is positive (debit).
It is common for an organization to close the General Ledger for the year before all adjustments are ready. When a previously closed year is re-opened and adjustments are made, the system will recalculate the Retained Earnings balance based on any changes to Income Statement accounts.
A determination must be made regarding the separation of earnings by branch:
- For companies with a consolidated Balance Sheet: All earnings will close into a single Retained Earnings account as specified on the G/L Control Table.
- For companies with separated Balance Sheets: There are options to close all earnings into the default account or to close into Branch specific accounts.
- To close earnings by branch, each distinct branch must be completely in balance for the fiscal year. Go to File > Company > Master: Accounting , Close General Ledger Year End Profit & Loss by Branch and set to Y.
- To prevent the system from closing earnings by branch, set the flag to N. This option is necessary if the individual branches are not in balance.