Closing one year and opening a new year
While NetSuite is a date-based system, it is best practice to close months and years.
Q1: What is year end closing?
It is the process which prevents users from posting entries to the sub-ledgers and general ledger for the previous year, providing a final position for the financial year.
It also facilitates the transfer of net income to retained earnings (for a corporation) or to owner’s equity (for an individual proprietorship).
Q2: What are the different methods for year end closing?
Automatic Close – This method is strongly recommended by NetSuite. By completing the tasks in the period close checklist and subsequently closing the period, net income will be reflected in the amount of Retained Earnings on the Balance Sheet. No manual entries are required under automatic close.
What does the user need to do under Automatic Close?
The user simply needs to close the period by completing the tasks in the period close checklist before clicking Close. Without the need for manual journal entries, net income will be reflected in the amount of Retained Earnings on the Balance Sheet.
Are income and expense accounts zeroed out in Automatic Close?
Nominal accounts are not zeroed out in automatic close even though the balances are included in Retained Earnings.
We have an open enhancement requesting for this feature (which you all should vote on via the SuiteIdeas portlet in the Support tab):
Issue 11185 – Year End Closing > Please provide an automated process for Year End closing of nominal accounts
Manual Close – This method involves the creation of manual journal entries to close income and expense accounts to retained earnings. This method is not recommended by NetSuite. Note that zeroing out the income and expense accounts will prevent viewing income statements for previous periods.
Q3: What is the difference between locking and closing the period?
Locking the period actually means locking the tasks inside the period close checklist while closing the period is changing the status of a period from open to close.
Once a month is locked, users with Override Period Restrictions permission can still post transactions. For example, sales rep are locked from entering new orders but accounts clerks can still enter vendor bills.
Once a period is closed, no one can make GL impacting changes. A closed month can be re-opened by users with the correct permissions.
Users with OneWorld accounts should keep in mind that they have to actually click the Calculate button when they are in the process of performing the task “Calculate Consolidated Exchange Rates” for them to have reliable consolidated reports. The rates are not automatically calculated on the Consolidated Exchange Rates page as stated in NetSuite Help Centre.
Q4: How do you prepare for year end closing?
Before year end close, you need to close all of the periods in the year.
- A checklist of required tasks is provided to guide you through the closing process for each period. Go to Setup > Accounting > Manage G/L > Manage Accounting Periods. Click the Checklist icon for a period. Review the tasks in the checklist. Tasks are listed in the order in which they should be completed.
- If you use multiple currencies, you should revalue open currency balances for each period before you close it.
- It is important to understand the difference between closing a period and locking transactions for a period.
Q5: How do you open a new financial year
This is a two step process, you need to first set up a new financial year, and then you set up your tax year.
Opening a New Financial Year
- Go to Setup > Accounting > Manage G/L > Manage Accounting Periods.
- On the Manage Accounting Periods page, click Set Up Full Year.
- In the first fiscal month field, select the month your fiscal year starts.
- In the Fiscal Year End field, enter or accept the four-digit fiscal year for which you want to generate accounting periods.
For example: 2017
- Select the format you want to use for your accounting periods:
- Calendar Months – This sets up 12 periods, one for each calendar month in the fiscal year.
- 4 Weeks – This sets up 13 periods, each for every 4 weeks in the fiscal year.
- In the Year in Period Name field, select the starting or ending year to include in the period name.
For example: if a fiscal year starts in 2014 and ends in 2015, selecting Ending Year of Period would include 2015 in the name of the period.
- Check One-Day Year-End Adj. Period if you want to include a standalone adjustment period for last day of this fiscal year.
- Click Save.
Setting up Tax Periods for a Full Year
- Go to Setup > Accounting > Taxes > Manage Tax Periods.
- Click Set Up Full Year
- In the First Fiscal Month field, select the first month in your company’s fiscal year.
- In the Fiscal Year End field, enter the year for which you are setting up tax periods.
- In the Period Format field, select one of the following to divide the year into:
- Calendar Months – twelve sub-periods.
- 4 Weeks – thirteen four-week long sub-periods
- Click Save.