Finance Manual - Performing period-end accounting
Performing period-end accounting
This chapter describes the process of performing period-end accounting.
When you close a period (a month, quarter, etc.), you should perform various checks and make journal entries to obtain a clear picture of the period result. These checks are described in this chapter. The options described should not be considered as mandatory, nor do they have to be performed in a particular order. Which steps you perform and in which order depends on your organization.
Allocating expenses and revenue
It is common practice to allocate expenses incurred and expenses expected to the period(s) to which they belong, although the actual payments may be made in another period. Only when expenses are allocated in this way, will you be able to obtain a clear picture of the period result. This naturally also applies to revenue.
To allocate both prepaid and accrued expenses to the correct periods, journal entries should be made.
For expenses that relate to the current period but will be paid in a subsequent period (an accrual), the following journal entry could be made in the general journal:
General expenses-,--
//General expenses to be paid-,--
For expenses that relate to the current period but were paid in a previous period (a prepayment), the following journal entry could be made:
General expenses-,--
//Prepaid general expenses-,--
Suppose, however, that the following entry was made in the period in which the expenses were paid:
General expenses-,--
//Bank-,--
Strictly speaking, this entry is incorrect, since the expenses paid relate to a different period. To correct this error, the following entry could be made in the period that the payment has been made, using the same amounts:
Prepaid general expenses-,--
//General expenses-,--
A similar principle applies to revenue. You should check whether revenue in the current period should be considered as revenue of the current period or whether revenue that belong to the current period is expected in the future.
Reconciling fixed assets
If you use a fixed asset accounting system, the data should correspond with the (totaled) data in your general ledger. In other words, the total amounts on asset cards should correspond with the cards of the appropriate general ledger accounts.
If you use Exact Assets to record your fixed assets, you can use the asset cards and other asset overviews in [ Master data, Reports, Assets ], to compare the total amounts with the amounts shown on the relevant ledger accounts in [ Ledger, General ledger cards ].
Checking the consistency of your accounts
When you close a period you should check the consistency of your general ledger. Exact Financials offers a consistency check on your debtors, creditors and general ledger [ File, Financial control, Data management, Consistency check ]. Inconsistencies will be displayed on the overview. If no inconsistencies are found, the overview will not display any balance for the general ledger accounts, but it will show balance for the debtors and creditors. The balance of the debtors should be the same as the balance of the creditors.
Comparing bank account balances with general ledger account (and journal) balances
If the opening balance of a bank statement does not equal the balance in the general ledger account of the bank account and/or the opening balance of the journal, not all bank statements have been entered completely or correctly.
Use [ Ledger, Journal entry, Overview entered periods ] to check whether all entries in the bank journal have been posted. If they have not, you can use the same overview to check the opening and closing balances of the individual bank entries. Correct the entries in [ Ledger, Journal entry, Entry procedure, Bank journal ].
If all entries have already been posted, you should make a correction entry using the entry number (number of the bank statement) for which the incorrect or incomplete entry was made. If an entire bank statement was omitted, enter it in [ Ledger, Journal entry, Entry procedure, Bank journal ].
It is essential that the opening and closing balances of a bank journal correspond with the same balances on the bank statements. Although an incorrect opening and closing balance in the bank journal will not influence the consistency of your accounting system (as long as the difference between the two is correct), it reduces the checking options available. It is therefore preferable to correct the opening balances in the bank journals in [ Ledger, Master data, Maintenance, Journals ] once you have performed the checks described in this paragraph.
Entering depreciations and other recurring entries
At period-closing, several entries have to be made. These include depreciations, recurring allocations to reserves and other recurring expenses such as rent payments. To automate these entries you have the following options:
- Using automatic depreciations. See Depreciation.
- Defining recurring entries for the purchase, sales and general journals. See Creating recurring entries.
Example
To build up a reserve by regularly allocating money to cover unforeseen expenses such as the repair of fire damage, create the following recurring entry in the general journal:
Insurance expenses-,--
//Self-insurance reserve-,--
Comparing the cash balances to the general ledger account (and journal)
Check whether the cash balances equal the general ledger accounts to which cash payments are posted. If the balances are not correct, check whether all cash statements have been entered and posted.
Use [ Ledger, Journal entry, Overview entered periods ] to check whether all cash journal entries have been posted. If this is the case, compare the transactions to the cash statements and make any corrections necessary. Use the original entry number for the correction.
Checking balances of suspense accounts
Suspense accounts sometimes never reach a balance of zero because there are so many transactions.
Transactions that belong together should have a zero balance shortly after they have arisen, because there are normally only a few days between an item being entered and the same item being writing off. In the meantime however, new entries are likely to have been made. The balances of suspense accounts should therefore be checked regularly and accounted for.
Use the matching functions in [ Ledger, Matching general ledger accounts ] to link debit and credit entries in the general ledger accounts. Entries that do not have counterparts are unmatched entries. The origin of these journal entries should be specified. See also Matching.
When generating financial statements, use the zoom options to retrieve the individual transactions that make up the balance sheet items.
Checking outstanding items
To be able to take appropriate (additional) measures in time, you will need to examine your debtors' outstanding items. One reason for this check may be a very large debtor balance. You may consider transferring the amounts of long-term outstanding items to a general ledger account for doubtful debts. The balance of such an account should be evaluated from time to time. If certain items turn out not to be collectable, these items should be debited to the result. To divide these expenses equally, it is common practice to create a provision fund. The regular allocations (i.e. made every period) to this provision fund are included in the period result.
The overviews of outstanding items in Exact Financials offer a clear picture of the size of outstanding items and the age. Most checking functions are in the [ Debtors ] and / or [ Creditors ] menu. Which overview you select depends on the information required. See Checking outstanding items.
Checking budgets and actuals
If you work with budgets, you will need to compare them to the period results. The period end (or the beginning of the next period) is usually the best time to make these comparisons. You may decide to adjust budgets or find out exactly why differences have occurred.
Viewing the period result
At period end it is important to have a clear picture of the period result so that you can take any action necessary.
Exact Financials offers various options to view information on the period result. One of the options is:
- Balance sheet overviews
The options in [ Ledger, Financial statements ] offer various financial statements, ranging from overviews at classification level to detailed financial statements. Use the zoom options to view the origin of an item in the financial statement.
If you enter the required periods and enable the setting 'Period figures', the profit and loss accounts will display only the figures for the period selected. The balance sheet accounts, however, will display the cumulated balances of all periods (including period 0).
Select {Same periods previous year} or {Final figures previous year} in 'Preferences' to compare the figures in the previous year.
After, the period-end accounting, you can prevent entries from being made in the period in question by closing the period in [ File, Financial control, Close/open periods ]. If necessary, you can reopen the period later. You can call up an overview of closed periods in [ File, Financial control, Report closed periods ].
Finance Manual > Contents > Performing period-end accounting
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Support Product Know How |
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06.840.317 |
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Exact Financials (v3)
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01-10-2007 |
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