Ready to close the year in SAP Business ByDesign?
This blog post:
- Explains how to create new fiscal years and close existing ones.
- Helps you understand the Balance Carryforward process.
- Provides instructions for reopening a closed fiscal year to make adjusting entries.
- Focuses solely on the year-end aspects of the close process.
Note: This blog is not a comprehensive overview of the Closing Cockpit and does not cover the period-end closing procedures.
After reading this blog you will:
1) Understand how to perform the year-end aspects of the closing process in SAP Business ByDesign.
2) Understand when the process needs to be performed.
3) Gain a deeper understanding of what takes place during the year-end close process in SAP Business ByDesign.
In the following, I will explain how to perform the required steps in sequential order. Before performing the steps outlined in this blog, the expectation is that all relevant period-end close procedures within the Closing Cockpit have been performed. Do not begin the steps in this blog until all relevant period-end close procedures have been completed. There is one exception explained in the note below.
Note: If you are performing foreign currency remeasurement, you will need to create a new fiscal year prior to completing the period-end activity of foreign currency remeasurement for the last period in your fiscal year, as the foreign currency remeasurement process requires a subsequent available open period (i.e. January 2016) in order to reverse the entry.
Creating a New Fiscal Year in SAP Business ByDesign
Before beginning the year-end close process in SAP Business ByDesign, a new fiscal year must be created for each Set of Books. A new fiscal year can be created by performing the following:
- Go to General Ledger > Master Data > Set of Books and Assigned Companies.
- Select the desired Set of Books/Company relationship and click the Edit Fiscal Years button.
- Click the New Fiscal Year button and then click the Save and Close button.
- A new fiscal year has been created and is now available in the Open and Close Periods window.
Note: SAP Business ByDesign allows for 3 fiscal years to be open concurrently. For example, I could have 2016, 2015, and 2014 open concurrently. However, if 2016, 2015, and 2014 were open I could not create a new fiscal year for 2017 without closing 2014 first.
Leave Last Accounting Period Open for Closing Steps 990-991
During a period-end close, there is a manual activity in the Closing Cockpit towards the end of the activity list named “Close Accounting Periods for Operational and Closing Postings”. This is performed after all mass data runs (i.e. Depreciation Run, GR/IR Clearing, etc.) are executed and all other manual activities required for generating accurate financial statements are completed.
During a typical period-end close this would be the last step required in the Open and Close Periods window (see screenshot below). However, during a year-end close there are a couple of additional activities that need to be performed prior to closing the period.
The first activity is to change the First Allowed Step to “990 – Closing balance” and the Last Allowed Step to “991 – Profit and loss calculation of retained earnings” (see screenshot below). Making these changes prevents the system from allowing any additional postings to occur in the prior year except for postings related to the Balance Carryforward process.
The second activity is to ensure that the first period of the new fiscal year is open and that the First Allowed Step is “001 – Opening balance”. This allows the system to post entries related to opening balances that result from executing the Balance Carryforward process. Click the Save and Close button within the Open and Close Periods window after making these changes.
Balance Carryforward – Explanation
It’s now time to perform the Balance Carryforward process. Before explaining how to perform the Balance Carryforward process it’s important to understand what takes place during the process, and its impact on the GL. The Balance Carryforward process requires two steps:
Balance Carryforward – Step 1
The first step in the Balance Carryforward process posts three main entries. These three main entries will contain numerous journal entries, however, each journal entry is essentially making the same postings just for different accounts for each entry. The first entry closes the balances of the balance sheet accounts in the old fiscal year. The second entry carries forward the balances of the balance sheet accounts into the new fiscal year. The third entry cumulates the balances of profit and loss accounts and transfers those balances to an income statement closing account.
The screenshot below demonstrates a summary of the three entries. In order to balance the closing and opening entries, there are system provided GL accounts that typically begin with a ‘9’ to represent the closing and opening accounts. The beige highlighted t-accounts in the screenshot below represent the three system provided GL accounts: Balance Sheet Closing Account, Balance Sheet Opening Account, and Income Summary Account.
Image from Business Package Learning Module – General Ledger © SAP AG.
The three screenshots below represent examples of actual journal entries that are posted as a result of the first step of the Balance Carryforward process. The first screenshot demonstrates a journal entry posted on 12/31/2015 that is closing the balance of a cash account and booking the offset to the Balance Sheet Closing Account.
The second screenshot below displays a journal entry posted on 12/31/2015 that is closing the balance of a revenue account and booking the offset to the Income Summary Account.
The last screenshot displays a journal entry posted on 1/1/2016 that is carrying forward the balance of the same cash account shown in the first screenshot and booking the offset to the Balance Sheet Opening Account.
Balance Carryforward – Step 2
If you are an accountant, and you are still following me, then you are probably asking yourself how the Income Summary Account get cleared out, and how opening Retained Earnings gets established. That’s where the second step of the Balance Carryforward process comes in.
The second step of the Balance Carryforward process clears out the balance of the Income Summary Account and establishes the opening balance of Retained Earnings with three entries. The first screenshot below provides a summary example of this. The second screenshot below displays the journal entries posted by the second step of the Balance Carryforward process which clears out the balance of the Income Summary Account and establishes opening Retained Earnings.
Image from Business Package Learning Module – General Ledger © SAP AG.
Balance Carryforward – Process
Now that I have explained what takes place during the Balance Carryforward process let’s discuss how to execute it.
- You can execute the Balance Carryforward run in SAP Business ByDesign from either the Closing Cockpit or from General Ledger > Periodic Tasks > Balance Carryforward. When performing a period-end close for the last period in your fiscal year, the system automatically includes an activity for running the Balance Carryforward run in the Closing Cockpit. The two screenshots below display the two locations where you can initiate the run.
- We are going to initiate the run from the General Ledger > Periodic Tasks > Balance Carryforward work list. From the work list, select New > Carryforward Run. The window displayed in the screenshot below will appear. Supply a Run Description and indicate whether you desire a Test Run.We recommend executing a Test Run first, so you have the opportunity to review the results of the run prior to executing an Update Run. Select a Company and Set of Books. Ensure that the Balance Carryforward Step is “1 – Carry forward accounts” and enter the Year To Be Carried Forward. This should be the prior fiscal year. If you click the Start Now button the run will execute immediately. If you click the Schedule button, then another window will open where you have the opportunity to enter a scheduled time for the run to execute.
- Once the Balance Carryforward run has been executed you can go to the Balance Carryforward work list to view the results of the run (see first screenshot below).
- After clicking the View button, a window will appear displaying the results of the run. The General tab displays general information related to the run, such as whether any errors or warnings occurred. The Data Selection and Messages tabs display the data that was selected for the run as well as any error or warning messages resulting from the run. The Postings tab displays all postings that occurred as a result of the run.There are 4 sub-tabs underneath the Postings tab that display the results of the three main entries discussed in the “Balance Carryforward – Step 1” section of this blog. The first screenshot below displays the closing balance entries that occurred for each balance sheet account. The second screenshot below displays the opening balance entries that occurred for each balance sheet account. The third screenshot below displays the profit and loss accounts being cumulated and transferred to the Income Summary account.
Note: Once you have completed Step 1, you can continue to make postings to the fiscal year being carried forward. However, be aware that such postings increase the number of journal entries that need to be carried forward because change documents have to be posted in addition to the journal entries themselves. Change documents update the closing balances in the fiscal year being carried forward and the opening balances of the affected G/L accounts in the new fiscal year. (source: SAP Business ByDesign Help Documentation)
- After completing the execution of the first step of the Balance Carryforward run, you can proceed with performing the second step. Like the first step, you can initiate the run from the Closing Cockpit, or from the General Ledger > Periodic Tasks > Balance Carryforward work list. The steps to complete the run are identical to the first step with the one exception being that the Balance Carryforward Step needs to be set to “2 – Calculate and carry forward profit/loss” (see screenshot below).
Note: Do not run the second step of the Balance Carryforward process until all postings to the prior fiscal year have been made. After running the second step of the Balance Carryforward run, postings to the prior fiscal year can no longer be made, unless you reverse the second step of the Balance Carryforward run. While it is recommended to run the second step of the Balance Carryforward process in a timely manner (so that you can formally close the year), you do not have to run it prior to producing financial statements for the current year. The system will calculate opening retained earnings on the balance sheet so that you can produce current year financials until the second step of the Balance Carryforward process can be run. Don’t feel pressured to run the second step of this process prematurely.
- After the second step of the Balance Carryforward run has been executed, you can review the results by following the instructions in steps 3 and 4. The screenshot below displays an example of the journal entries that are posted as a result of the second step. This is the same screenshot seen in the section “Balance Carryforward – Step 2” of this blog.
Closing the Fiscal Year in SAP Business ByDesign
After performing both steps of the Balance Carryforward process in update mode you can block the last period of the fiscal year and proceed with closing the fiscal year. To do this, perform the following:
- Go to General Ledger > Master Data > Set of Books and Assigned Companies.
- Select the desired Set of Books/Company relationship and click the Open and Close Period button.
- Select the last period of the prior fiscal year and click the Close Period button. Click the Save and Close button.
- You should be taken back to the Set of Books and Assigned Companies work list. Select the desired Set of Books/Company relationship and click the Edit Fiscal Years button.
- Select the prior fiscal year. You should see the Carry Forward Posted and Result Posted checkboxes checked. These indicate that step 1 and step 2 were successfully completed. Click the Close Fiscal Year button. This will formally close the year.
Note: It is not required to click the Close Fiscal Year button, as shown in step 5, to prevent postings to the prior fiscal year as closing all the periods will satisfy this. However, you must still close the fiscal year in order to both create new fiscal years as well as close any subsequent years. Remember, SAP Business ByDesign only allows for three concurrent years to be open, so if the fiscal year is not closed, it will prevent you from creating new fiscal years.
Reopening a Closed Fiscal Year for Adjusting Entries in SAP Business ByDesign
You’ve successfully closed the fiscal year, and you’re most likely feeling pretty proud of yourself (which you should!). Then the audit comes, and you’re asked by your auditors to make some adjusting entries in the closed year. Uh-oh, what now?
Fortunately, SAP Business ByDesign is relatively forgiving when it comes to reopening the fiscal year and making adjusting entries. However, there are some steps that need to be performed:
- Go to the Open and Close Fiscal Years window, select the closed fiscal year, and click the Reopen Fiscal Year button. Click the Save and Close button.
- Open the desired periods of the reopened fiscal year and click the Open button. Ensure that the First Allowed Step is at least “020 – Closing entries”.
- Go to the Balance Carryforward work-list, select the run performed for the second step of the Balance Carryforward process, and click the Reverse button (see first screenshot below). This will open a Reverse Carryforward window (see second screenshot below).Click the Start Now button. This will reverse the postings of opening retained earnings and will allow for adjusting entries to occur in the reopened year.
- Post any required adjusting entries using a Closing Step of “020 – Closing entries”.
- After all adjusting entries have been posted, go back to the Balance Carryforward work list. Select the same process selected in step 3, and click the Copy button (see screenshot below).
- Click the Start Now button to execute the run. This will repost the opening retaining earnings entries, taking into consideration the adjustments that had been made.
- After the run has completed successfully, reclose the periods in the prior fiscal year, and reclose the fiscal year by following the same steps in the “Closing Fiscal Year” section of this blog.
I hope this blog helped you develop a deeper understanding of the year-end close process. If you have additional questions surrounding the year-end close process or need assistance with for SAP Business ByDesign, please do not hesitate to contact VistaVu.