Oracle ERP - Year End Closing Journals

 

Many organizations follow specific procedures to generate special journal entries to close and open fiscal years. These closing entries apply to both the income statement and balance sheet. Auditable closing procedures vary considerably, depending on country reporting requirements, generally accepted accounting practices in a country, and organization business needs.

General Ledger is equipped to create actual closing journals for year-end and other closing periods. If your organization has multiple legal entities, you can create closing journals for multiple ledgers simultaneously with ledger sets. You also have added security through data access sets because you can only run the closing journals programs against ledgers you have full read and write access to through your data access set. To process year-end closing journals, we recommend you:

Set up the last day of your fiscal year as an adjusting period.

Set up the first day of your new fiscal year as an adjusting period.

Ensure the period you are closing is an Open period.

Complete your routine accounting before the last day of the year.

Post your adjustments and closing entries in the adjusting period.

Define your ledger set if you plan to submit the closing journals programs for multiple ledgers simultaneously.

In the last adjusting period of the fiscal year you want to close:

Run the Create Income Statement Closing Journals process to transfer income statement year-end account balances of your revenue and expense accounts to the retained earnings account.

Run the Create Balance Sheet Closing Journals process to close and zero out the year-to-date balances of all balance sheet accounts: assets, liabilities, and owner’s equity.

In the first adjusting period of your new fiscal year:

Run the Open Period program to open the first period of the new year.

Reverse and post the balance sheet closing journals to reopen those balances.

Note: You are closing actual journals. You cannot close budget or encumbrance balances.

 

Data Access Sets

The Data Access Set assigned to your responsibility controls whether or not you can run the closing journals programs against a ledger.

Full Ledger Access: You must have Read and Write access to the ledger and all of its balancing segment values or management segment values in order to run the closing journals programs for a ledger.

To obtain full ledger access, your data access set must be one of the following types:

The Full Ledger data access set type that provides read and write access to the ledger.

The Balancing Segment Value data access set type that provides read and write access to all balancing segment values for a ledger using the All Values checkbox.

The Management Segment Value data access set type that provides read and write access to all management segment values for a ledger using the All Values checkbox.

Partial Access:If you have Read Only access to a ledger or read and write access to some of its balancing segment values and management segment values, you will not be able to run the closing journals programs against a ledger.

If you use reporting currencies (journal or subledger level), be sure to include the proper access to your reporting currencies in your data access set to be able to run the closing journals programs.

Related Topics

Year End Close Checklist

Income Statement Closing Journals

General Ledger provides two options for the Income Statement Closing Journals. You can choose to zero out each income statement account, and post the balance to the retained earnings account. Alternatively, you can post the reciprocal of the net income balance to an income statement offset account instead of zeroing out each revenue and expense account.

The Income Statement Closing Journals program generates journals to close out the year–to–date (YTD) actual balances of a range of revenue and expense accounts. This program can be submitted for any open period for a single ledger, or ledgers in a ledger set, so long as you have read and write access the entire ledger through your data access set.

The Income Statement Closing Journals program can accept two account templates as parameters for the closing journal.

The Retained Earnings account template

The Income Statement Offset account template

The Retained Earnings account template is a required parameter. The Income Offset account template is an optional parameter.

Option 1: Income Statement Close

When you run the process, Create Income Statement Closing Journals, and you enter an account for the field, Closing Account in the Parameters window, entries are posted against each revenue and expense account in the account range processed. It is the reciprocal of the account’s YTD balance and zeroes out each account. The amount posted to the retained earnings account is effectively the net sum of the revenue and expense accounts’ YTD balances.

If there are income statement balances in both the ledger currency and entered currencies of a ledger, the closing process produces a journal batch that contains separate journals for each currency processed. For the ledger currency, the journal will only have entered amounts as converted amounts do not apply. For entered currencies, the journal will have both entered and converted amounts.

Stat account balances are not processed by the program.

Option 2: Income Statement Offset

When you run the process, Create Income Statement Closing Journals, and you enter an account for the fields, Closing Account and Income Offset Account in the Parameters window, the journal generated will be similar to that described above except for the following:

The revenue and expense accounts included in the specified account range will not be zeroed out. Instead, the program will take the net sum of the revenue and expense accounts. This sum includes the balance in the income statement offset account. It will then post the reciprocal of the net sum to the income offset account, in the appropriate debit (DR) or credit (CR) column.

The amount posted to the retained earnings account will be the reciprocal of the amount posted to the income offset account. This retained earnings amount will then also be equal to the net sum of the revenue and expense accounts processed.

Examples

The examples that follow show the two types of journals that are generated by the Income Statement Closing Journals program. Scenario A shows the resulting Income Statement Closing Journals if only the retained earnings template is specified. Scenario B shows the resulting Income Statement Closing Journals if both the retained earnings and optional income statement offset templates are supplied.

For these examples, assume the following transactions, shown in the tables below, are posted for the period to a ledger whose ledger currency is GBP.

Transaction 1

Currency: GBP

Account	Entered DR	Entered CR
Cash	6,000
Revenue		6,000
COGS	2,000
Inventory		2,000

Transaction 2

Currency: CAD, Rate Type: Spot, Exchange Rate: .125

Account	Entered DR	Entered CR	Converted DR	Converted CR
Cash	10,000		1,250
Revenue		10,000		1,250
COGS	3,000		375
Inventory		3,000		375

Transaction 3

Currency: CAD, Rate Type: Spot, Exchange Rate: .1

Account	Entered DR	Entered CR	Converted DR	Converted CR
Cash	4,000		400
Revenue		4,000		400
COGS	1,000		100
Inventory		1,000		100

Balance Summary

Account	Entered GBP	Entered CAD	Total GBP
Cash	6,000 DR	14,000 DR	7,650 DR
Revenue	6,000 CR	14,000 CR	7,650 CR
COGS	2,000 DR	4,000 DR	2,475 DR
Inventory	2,000 CR	4,000 DR	2,475 CR

Scenario A – Income Statement Mode

If only the retained earnings account is specified, the following income statement closing journal batch will be generated. The Income Statement Close Journal Batch will have two journals, shown in the tables below:

Scenario A, Journal 1

Source: Closing Journals, Category: Income Statement Close, Currency: GBP

Account	Entered DR	Entered CR
Revenue	6,000
COGS		2,000
Retained Earnings		4,000

Scenario A, Journal 2

Source: Closing Journals, Category: Income Statement Close, Currency: CAD, Rate Type: User, Exchange Rate: 1

Account	Entered DR	Entered CR	Converted DR	Converted CR
Revenue	14,000		1,650
COGS		4,000		475
Retained Earnings		10,000		1,175

Scenario B – Income Offset

If the income offset and retained earnings accounts are both specified, the following income statement closing journal batch will be generated.

The Income Statement Close Journal Batch will have two journals, shown in the tables below:

Scenario B, Journal 1

Source: Closing Journals, Category: Income Offset, Currency: GBP

Account	Entered DR	Entered CR
Income Offset	4,000
Retained Earnings		4,000

Scenario B, Journal 2

Source: Closing Journals, Category: Income Offset, Currency: CAD, Rate Type: User, Exchange Rate: 1

Account	Entered DR	Entered CR	Converted DR	Converted CR
Income Offset	10,000		1,175
Retained Earnings		10,000		1,175

Running the Create Income Statement Closing Journals Program

Before running the process, Create Income Statement Closing Journals, review the following activities for the ledgers you plan to close. If you use reporting currencies (journal and subledger level), review the following activities for the reporting currencies you plan to close.

Post all revenue and expense adjustment entries to the appropriate periods.

Print General Ledger accounting and analysis reports.

Ensure the period you are closing is an Open period.

If you have accounts you want to process that have any of the following attributes:

Enabled flag was disabled

Allow Posting flag was disabled

Effective date is out of range

Temporarily re-enable the account to post the generated closing journal. The Segment Value Inheritance program can help you temporarily re-enable these accounts. Use the Segment Value Inheritance program to disable these accounts once the closing journal has been posted.

Run the close process, Create Income Statement Journals in the adjusting period that represents the last day of your fiscal year or the period you want to close for your ledger or ledger set.

Note: If you want to run the close process for your primary ledger and the associated secondary ledgers simultaneously, create a ledger set that contains all of the ledgers. Then run the close program for the ledger set so that all of the ledgers are processed from a single submission

In the Parameters window, enter an account in the Closing Account field. The Category field below defaults to display Income Close.

If you are closing a period and you entered an account for the Closing Account and Income Offset Account fields in the Parameters window, submit your request to generate closing journals. The category field below defaults to display Income Offset.

Post the income statement closing journals to update year-to-date actual balances or period to date actual balances. If you chose the Income Statement Offset option, proceed to your next open period.

Note: Should you need to make adjustments for your ledger after their income statement closing journals are posted, reverse and post the original closing entries, make your adjustments, then rerun the closing process to capture the new adjustments for that ledger .

Run the Open Period program to open the first period of the new fiscal year. This program closes out all revenue and expense accounts to the Retained Earnings account. However, because posting of the closing journals has already zeroed out the revenue and expense accounts to the Retained Earnings account, there are no balances to transfer and no further effect on Retained Earnings.

If revenue and expense adjustments need to be made after opening the new fiscal year for your ledger, posting those back–dated adjustments will automatically update the beginning balances of the Retained Earnings account for all open periods in the new year. However, amounts in the closing journal will not reflect the adjustments. For accuracy, you must reverse the closing journals, post, enter your adjustments, run the Create Income Statement Closing Journals, and post for your ledger.

Income Statement Closing Journal Attributes

General Ledger automatically creates a separate journal batch for each ledger in a ledger set if the closing program is submitted for that ledger set.

The effective date of your closing journal entries is the last day of the period you specify in the parameters window, typically the adjusting period on the last day of your fiscal year.

The closing journals you generate are marked for reversal in the same period the journals were generated. The reversal method defaults to Change Sign. To change the default reversal method, see Changing The Default Reversal Method, below.

General Ledger closes the ledger currency and entered currency balances with different journal entries within a ledger’s journal batch:

Ledger Currency: Journal entries reflect only entered amounts. Journal entries do not address entered converted or accounted amounts. General Ledger closes functional and foreign currency balances with different journal entries:

Foreign Currency: Journal entries reflect both entered amounts as well as the converted amounts. You journal will display a conversion Type of User and a Rate of 1.

Capturing Changes

If you experience accounting changes you want to capture after you have run the Create Income Statement Closing Journals program for a particular ledger, consider the following options:

Option 1, Retained Earnings Account Template: If you are only using the Retained Earnings Account Template, reverse all the journals created by the last run of the Create Income Statement Closing Journals program, then run the program again to capture your changes.

Option 2, Income Statement Offset Account template: If you are using the Retained Earnings Account Template and the Income Statement Offset Account Template, run the Create Income Statement Closing Journals program to capture the accounting changes made since the last run of the program. Note the following conditions:

The account range you specify can be a different range but it must include the original account range you submitted before accounting changes were realized.

The account range you specify must include the income offset account.

Changing the Default Reversal Method

Choose the reversal method you want to use for your journal category before you run the Create Income Statement Closing Journals process.

If you are using a journal reversal criteria set, choose the reversal method in the Journal Criteria Set window. If you are using the default reversal method for your category, you can change the reversal method by creating a journal reversal criteria set with the reversal method you want and assign it to your ledger.

OR

After you run the Create Income Statement Closing Journals process, navigate to the Journal Entry window, query your generated journals and change the reversal method.

Additional Information:

Journal and Subledger Transaction Level Reporting Currencies: You need to run the Create Income Statement Closing Journals program separately for the ledger and for each of the reporting currencies (journal or subledger level). However, you can run the program simultaneously for a ledger and its associated reporting currencies (journal or subledger level) by grouping them together in a ledger set and running the program for the ledger set. This results in a journal batch for each ledger and for each reporting currency (journal or subledger level) and entered currency. You need to post your generated closing journals separately as well.

Average Balance Ledgers: The Create Income Statement Closing Journals program creates journal entries for standard account balances for ledgers with average balancing enabled. Companies using average balance processing should create an accounting calendar with two adjusting periods at the end of the fiscal year you want to close. The first adjusting period, representing the last day of the fiscal year, is used to generate the Closing Journals program. The second adjusting period, also representing the last day of the fiscal year, is used to reverse the closing journal. This ensures that average balance calculation is unaffected.

Non-Consolidating Ledger: The effective date of the closing journal entries is the last day of the specified period unless you assign effective date rules for the journal source called Closing Journals in the Journal sources window. See: Journal Sources, Oracle General Ledger Implementation Guide. When the closing journals are posted, the standard and average balances are both updated.

If the closing account is specified as an income statement account, the revenue and expense account balances are transferred to this closing account. There is no effect on average balances.

If the closing account is specified as a balance sheet account, and the defined period is the last period of the fiscal year, the average balance of the closing account is updated. The average balance of the Net Income account and the net average of all income statement accounts is also updated.

Consolidating Ledger: The Create Income Statement Closing Journals will only create closing journals for standard account balances, not average account balances.

To create income statement closing journals:

Navigate to the Submit Request window.

Choose to Submit a single request.

The Submit Request Window appears.

In the Request Name field, select Close Process: Create Income Statement Closing Journals program.

Complete the following parameters:

Ledger/Ledger Set: Enter a ledger or ledger set. If your data access set has a default ledger and you have full access to the default ledger, this ledger is defaulted. You can only select from ledgers or ledger sets where you have read and write access to the entire ledger through the responsibility’s data access set.

If you use reporting currencies (journal or subledger level), you can enter a reporting currency in the Ledger/Ledger Set field.

Period: General Ledger defaults with the latest open period when a ledger is specified. You can only select from periods that are open for your ledger or ledger set. Typically, you specify an adjustment period that represents the last day of your fiscal year.

Account From: Enter the starting account range.

Account To Range: Enter the ending account range.

The range can span multiple balancing segments and include your entire chart of accounts listing. General Ledger only extracts balances of revenue and expense accounts within the range you specify.

Closing Account: Specify a closing account, typically the retained earnings account on the balance sheet. If you are closing multiple balancing segments, General Ledger creates separate closing accounts for each balancing segment.

Note: If the balance sheet closing account is within the range you specified, General Ledger ignores this account when extracting balances.

Income Offset Account (optional): Enter an income statement account for your offset account.

Category: Two default categories can be displayed:

Income Statement Close: If you entered a closing account for the field, Closing Account only.

Income Offset: If you entered a closing account for the field Closing Account and an offset account for the field Income Offset Account.

You can change the default category setting displayed.

Choose OK to close the Parameters window.

Submit the program.

The process generates journal entries that you can view in the Enter Journals and Post Journals windows. The journal source, Closing Journals, and the journal category, Income Statement Offset, are assigned to this closing journal. You can specify different names in the Journal Sources and Journal Categories windows.

When the program is submitted for a single ledger, a single request is submitted and a single journal batch is created.

When the program is submitted for a ledger set, a parent request is submitted and a child request is submitted for every ledger in the ledger set. A journal batch is created for every ledger and entered currency. You may review the Ledger Set Submission Report of the parent request to see what ledgers or reporting currencies (journal or subledger level) were submitted or not submitted.

If you use reporting currencies (journal or subledger level), and you submit the program for a reporting currency or a ledger set that includes reporting currencies, a separate request is submitted for every reporting currency and a journal batch is created for every reporting currency.

Post your generated closing journals to update balances before closing the period.

New Fiscal Year Income Statement Account Balances

If you do not need to close your balance sheet, you can close the current period and open the new fiscal year.

To populate new fiscal year income statement account balances:

Navigate to the Open and Close Period window.

General Ledger displays the Latest Open accounting period.

Change the Latest Open accounting period if necessary.

Choose the Open Next Period button to open the new year. Or you can alternatively run the Open Period program from the Submit Request window to open periods.

The Open Period program automatically transfers the Y-T-D income statement balances to Retained Earnings.

Balance Sheet Closing Journals

When you run Create Balance Sheet Closing Journals, journal entries are created to reverse debits and credits of ending year-to-date actual balances for the period you want to close. The balance, which is the net of the reversed asset and liability accounts, is transferred to the closing account you specify.

Note: Your balance sheet should be balanced if you completed the Close Process: Create Income Statement Closing Journals to update the retained earnings account. If the range of balance sheet accounts is balanced, then there is no transfer of balances.

Before running this program, review the following activities for the ledgers you plan to close.

If you use reporting currencies (journal or subledger level), review the following activities for the reporting currencies you plan to close.

Create an accounting calendar that includes two adjusting periods: one for the last day of the fiscal year you are closing, and one for the first day of the new fiscal year. This does not affect account balances in periods used for reporting.

Post any adjustment entries to the appropriate periods.

Print General Ledger accounting and analysis reports.

Ensure the period you are closing is an Open period.

Run the close process, Create Balance Sheet Closing Journals in the last adjusting period of the fiscal year you want to close for your ledger or ledger set.

 

Note: If you want to run the close process for your primary ledger and the associated secondary ledgers simultaneously, create a ledger set that contains all of the ledgers . Then run the close process for the ledger set so that they can all be processed from a single submission.

 

Post the balance sheet closing journals to zero-out balance sheet account balances.

 

Note: Should you need to make adjustments for your ledger after their balance sheet closing journals are posted, reverse and post the original closing entries, make your adjustments, then rerun the closing process to capture the new adjustments for that ledger .

 

In the first adjusting period of the new fiscal year, reverse the balance sheet closing journals to repopulate the balance sheet accounts.

Post the generated reversing journals.

Balance Sheet Closing Journal Attributes

The journal entry that closes the balance sheet has the following attributes:

Only actual balance types are closed out. Budget or encumbrance balances are ignored.

The effective date of your closing entries is the last day of the period you select in the Parameters window, typically an adjusting period representing the last day of the fiscal year.

General Ledger automatically creates a separate journal batch for each ledger in a ledger set if the closing program is submitted for that ledger set.

General Ledger automatically creates a separate closing account for each balancing segment if you specify an account range that includes multiple balancing segments.

Closing journals are marked for reversal in the period following the period the closing journals were generated. To change the reversal method default, see Changing The Default Reversal Method, below.

General Ledger closes the ledger currency balances only. Foreign currency balances are ignored.