CLOSING THE ACCOUNTING PERIOD - Special Topic GL-6

You should always close an accounting period on a timely basis and you should follow a specific set of procedures. Although many procedures performed when closing an accounting period are common to all companies, the timing and performance of specific procedures will vary greatly between companies. The following procedures are intended to be general guidelines. Each company should develop its own set of procedures, which should be followed carefully and consistently. However, all companies must perform certain steps, such as posting all journals, printing financial statements, and reconciling material accounts.

In this discussion, we first provide a step-by-step list of procedures, followed by a narrative explanation of each step. You can use this information to develop a closing procedures checklist for your company.

The basic procedures for closing an accounting period are:

Step-by-Step Narrative

1.   Post All Adjusting Journal Entries

When closing your accounting period, make sure you have posted any adjusting journal entries that are necessary. Create required recurring entries in the Create Recurring JEs screen and review them in the Enter JEs screen, where you can change them, if necessary, before posting them.

All journal entries made to Accounts Receivable, Accounts Payable, Fixed Assets, accrued salaries, and labor accounts should be made to the General Ledger only if they are set up to reverse in the next period. To properly maintain the subsidiary ledgers, make any adjustments to these accounts through Cash Receipts, Costpoint Billing, Costpoint Accounts Payable, Costpoint Fixed Assets, and/or Costpoint Labor.

2.   Post All Journals to the General Ledger

After you have posted all the known journal entries to the General Ledger, check all other transactions journals to ensure that all transactions also have been posted to the General Ledger. These journals include Post Labor Distribution, Post Vouchers, Post JEs, Post Fixed Assets Journal, Post Cash Receipts, Post Cash Disbursements, Post Payroll Journal, and Post Inventory Journal. If you fail to post outstanding transactions for the period you are attempting to close, you may have to repeat closing steps. Another way to ensure that all journals have been posted is to run the test function in the Close Periods screen. This function will tell you which journals have unposted records. Make sure that you select the Test radio button and not the Test/Close Pd radio button. The Test/Close Pd radio button will test the journals and then automatically close the period. You can use the Test/Close Pd radio button in the last step of the Close Periods process. Make sure you retain the printed journals when posting, because they will be part of your audit trail. The only way to recreate these journal printouts after posting is by using Impromptu.

3.   Post, Then Freeze the General Ledger

Immediately after posting all known journals and journal entries to the General Ledger, freeze the General Ledger by notifying all staff that no further transactions can be posted to the period being closed, or by disabling data entry in the system. You can disable data entry in individual modules in the Entry Edit Status subtask of the Subperiods or Accounting Periods screen. We advise you to disable data entry for Accounts Payable, Labor, Journal Entries, Cash Disbursements, Cash Receipts, Fixed Assets, and Payroll at this point in the closing process. If data entry is disabled for these modules, no new entries will be allowed in the period. This process will make the closing process run more smoothly. (Note that disabling data entry will not disable posting of transactions that have already been entered. If you do not disable data entry immediately after posting all journals, you should double-check the journals to ensure that they have no unposted transactions.)

4.   Run a "Test" Close

Using the Close Periods screen, run a test close for this fiscal period. A test close will look for any unposted journal entries. Do NOT run the Test/Close Pd function.

5.   Perform the Labor History to General Ledger Reconciliation

Using the Labor History to General Ledger Comparison screen, run this report to ensure that the Labor History tables are equivalent to the General Ledger tables. You should run this utility before starting the revenue and billing processes. For most revenue and billing calculations involving hours, the hours data is taken from the Labor History table, but the related amounts are drawn from the General Ledger. Therefore, the two tables must remain reconciled. If you make journal entries to a Labor account without entering data in the Labor subtask, only the G/L tables, rather than the Labor History tables, will be updated. A failed posting can also cause an out-of-balance condition between these tables. Because hours are crucial in determining revenue and billings for "Loaded Labor" and "Cost Plus Fee on Hours" calculations, you must be sure that you have properly recorded all hours in the Labor History tables. This utility can assist you in that effort.

6.   Update Financial Statement Summary Balances

Run this process to determine whether your General Ledger posting summary (GL_POST_SUM) and Financial Statement summary (FS_SUM_) tables are in balance. These tables should always remain in balance, but failed postings and system crashes may cause these tables to be out of balance. If these tables are out of balance, you could receive some inconsistent data on financial reports. When running this utility, you should use ONLY the Fill Table pushbutton. This will show all of the account/org combinations that are out of balance.

If any are found, call Costpoint General Support before using the Update FS Summary Balances button on the toolbar, because you may need to check some of the data in your table(s) before you start the update process. This utility updates the Financial Statement Summary (FS_SUM) table with data from the General Ledger Summary (GL_POST_SUM) table. Before this is done, you must ensure that the General Ledger Summary (GL_POST_SUM) table is in balance and is correct.

7.   Enter & Post Intercompany Receivables

If you are using intercompany receivables, create and post these entries.

8.   Reconcile Subsidiary Ledgers to Financial Statements

You should complete this critical step at each period close. If you do not reconcile these ledgers each period, they become much more difficult to reconcile. You may find it easier to reconcile the subsidiary ledgers using the trial balance. The subsidiary ledgers that need to be reconciled are Accounts Payable, Accounts Receivable, and Fixed Assets. In addition, you must reconcile Costpoint Travel and all bank accounts once each accounting period; it is easiest to include this as part of your closing period process. Make and post any needed adjusting journal entries to reconcile.

9.   Load Labor Rates for Billing and Revenue

If you have any "Loaded Labor" revenue or billing formulas, you must run this process before calculating billings or revenue. This process loads the billing rates specified in the Define Rate Sequence screen in Costpoint Project Setup into the Labor History table. The Compute Revenue and Calculate Billings processes use these rates to calculate revenue and billings. Because each rate is multiplied by the related hours, it is imperative that the hours are properly stated in the Labor History tables. You can check this by making sure you have performed Step 5.

10. Process and Post Billings

Most companies will want to compute and process billings as soon as possible. However, you can perform this step any time during the period closing process after completing steps 1 through 10, and before finishing the financial statements and reconciliations. If you run billings at actual rates, you need to compute your indirect rates before starting the billing process. See the Costpoint Billing documentation for more detailed information on calculating billings. You must process billings before computing revenue if you are using any "Revenue Equals Billings" revenue formulas. You may also want to run the Print Unbilled Analysis screen in Costpoint Billing after completing the revenue and billings, to assist you in analyzing the unbilled receivables balance.

11. Perform Pool Maintenance

Run the Check Pool Acct/Org Setups utility (in the Miscellaneous Toolkits screen in Costpoint Cost and Revenue Processing) to review your pool setups.

Warning: Before removing any accounts from a pool base, contact your Costpoint consultant or Costpoint general support.

 12. Compute and Process Indirect Rates

After all journals have been properly posted to the General Ledger, you will be ready to compute and print indirect rates. Keep in mind that the indirect rate computation uses amounts from the General Ledger; therefore, it is crucial that the information in the General Ledger be current and correct before you begin this process. The Statement of Indirect Expenses (the Compute & Print Pool Rates screen in Costpoint Cost and Revenue Processing) will be printed at the end of this process. Carefully review this report and make corrections if necessary. If adjustments need to be made, you will need to recompute the indirect rates and possibly recalculate the billings. It is important to complete this step before running the Compute Burden Cost screen, particularly if you post variances or have service centers that allocate costs directly to projects.

13. Post Indirect Rates

Using the Post Pool Journal screen (in Costpoint Cost and Revenue Processing), post all indirect rates for all pools to this fiscal period.

14. Reconcile statement of indirect expenses to the Income Statement

Costs on the income statement should match the allocated costs on the statement of indirects  and should match costs to be allocated on the statement of indirect expenses (both in the Compute & Print Pool Rates screen in Costpoint Cost and Revenue Processing). You may have small rounding differences between costs to be allocated and the indirects. At this time, review the pool base on the statement of indirect vs. the income statement.

You should reconcile the statement of indirect expenses to the financial statement lines on a pool-by-pool basis. This will ensure that all pool expenses have been included in the rate calculations.

15. Compute Burden Cost

This process (in Costpoint Cost and Revenue Processing) is the starting point for all cost and revenue computations. It is crucial that you compute burden cost at the correct time and for all subperiods within each period. This process builds the Project Summary (PROJ_SUM) and Project Burden Summary (PROJ_BURD_SUM) tables. The system uses these tables to calculate revenue, produce Project Summary Reports, and produce the Revenue Summary. The Compute Burden Cost process is computed on a subperiod basis. Therefore, you must compute burden for each subperiod. Each time you make an adjustment after the closing process has begun, you must re-compute burdens, or the adjustment will not be reflected in revenue or on any project reports. Most problems arising in the cost and revenue areas are the result of not computing burden cost at the correct times.

16. Compare Project Ledger to GL

Use the Compare Project Ledger to General Ledger utility (in the Miscellaneous Toolkits screen in Costpoint Cost and Revenue Processing) to prepare a report of cost differences between the two ledgers.

17. Process Revenue, Then Post

After completing all of the above steps, you can begin the revenue process. See the Projects Special Topic PJ-8, "Revenue Processing," for a step-by-step guide to the revenue process. Once you have computed and posted revenue, you can review the financial statements and reconcile them using the Revenue Summary Report.

18. Update PSRs and Create Project Report Tables

Use the Update Project Status Report Table screen and the Create Project Report Tables screen (in Costpoint Inquiry and Reporting) to prepare project data for financial statements.

19. Update Financial Statement Summary Balances

You should repeat Step 6 at this point in your closing process, because additional postings have been performed for revenue and billings.

20. Print and Review Financial Statements

You can now print and review the financial statements. You should use this set of statements (Balance Sheet, Income Statement, and Statement of Cash Flows) for reconciliations and for identifying areas that require adjustment. You may want to print the income statements at the highest and lowest levels of the organization to identify missing and incorrect amounts as well as misclassifications between organizations.

21. Reconcile Income Statement to Organizational Cost Summary, PSR, and Revenue Summary

This reconciliation will help ensure that you have run the Compute Burden Cost process at the correct time. The data on the Organizational Cost Summary report comes from the Project Summary (PROJ_SUM) and Project Burden Summary (PROJ_BURD_SUM) tables, while the data on the Income Statement comes from the General Ledger Posting Summary (GL_POST_SUM) table. If you cannot reconcile the two reports, entries may have been posted to the General Ledger and burden not recomputed. As a result, cost and revenue is misstated on the project reports and revenue is misstated on the financial statements. This reconciliation will also help identify areas where misclassifications exist between organizational units.

22. Reconcile Unbilled Analysis to Balance Sheet

Run the Unbilled Analysis Report in Costpoint Billing and reconcile it to the Balance Sheet. You can also use this report to analyze components of the "unbilled" balance after completing the closing process. Keep in mind that you will have to create the Unbilled Analysis Report table before you can run this report.

23. Reconcile Other Material Balances on the Financial Statements

Make sure that any other material balances not previously identified are reconciled to supporting documentation.

24. Make Adjustments

You should now make any adjustments necessary to correct any problems that were found while completing the above steps. If any of these adjustments affect income or expense accounts, you will probably need to rerun some or all of the steps.

25. Print Final Financial Statements

After making all adjustments and reconciliations, you should print the final financial statements. Keep a copy of these statements in a safe place, because these are the statements that will be distributed to management and outside sources.

26. Close Period

After completing all of these steps, it is time to close the accounting period. You may want to do a test close before closing your period. The test close will evaluate various journals and identify any journals that cannot be closed because of unposted transactions. The program will test for unposted entries in the following areas: cash disbursements, vouchers, journal entries, cash receipts, allocation journal entries, manual bills, unit usage, intercompany receivables, labor distribution, fixed assets and inventory transactions. If any of these are unposted, you will be unable to close the period. The program will also test some other areas for unposted entries, such as the Standard Billings, Customer Product Billings, Project Product Billings, and Payroll journals. The system will give you a warning on these transactions and ask you if you want to continue. In many cases, you will want to continue.

Once the test close is complete and successful, you can close the period. The Close Periods program will set the status of the period to Closed in the Accounting Periods screen and will set the subperiods in that period to Closed status. The Entry Edit statuses in both screens will be set to Not Available. If you purchased Costpoint Payroll, the timesheets that have been posted to the General Ledger and computed for Payroll will be deleted from the Enter Timesheets screen. They will still exist in Timesheet History, however. If you do not own Costpoint Payroll, the timesheets are deleted during the period close process, as long as they have been posted to the General Ledger.