Defining the Relationship of Interim Close to Year End Close

Once you have determined to use interim close, you should run it consistently for the daily, monthly, or quarterly period chosen. If at any time you do an ad hoc interim close, you should subsequently perform an undo of that close.

If you do not use an offset to the retained earnings account when performing interim closes, the P/L accounts are closed and the balance is transferred to the retained earnings account as shown in the following example:

P/L Balance 410000	Retained Earnings Offset 360101	Retained Earnings 360100
100 CREDIT 100 DEBIT		100 CREDIT

When the interim closes are performed consistently, the P/L accounts is correctly closed at year end and the correct amount is recorded in the applicable retained earnings account. Completing the year end close then involves closing any remaining unclosed P/L accounts to retained earnings.

If you use an offset to the retained earnings account when performing interim closes, the offset must be defined as the target for the year end close. All P/L accounts must be closed to the offset account rather than to the retained earnings.

This is because when using an offset account for interim close, the P/L accounts retain their balances—they are not zeroed out during interim close. The following example shows the results of an interim close in which account 360101 offsets the amount in the revenue account 410000 and the revenue is correctly reflected in the retained earnings account 360100:

P/L Balance 410000	Retained Earnings Offset 360101	Retained Earnings 360100
100 CREDIT	100 DEBIT	100 CREDIT

When the final interim close is performed, the year end closed must be performed with the P/L accounts closed to the offset account 360101.