How Closing Journals for Balance Sheet Accounts Are Created

Use the Create Balance Sheet Closing Journals process to meet audit requirements. The process creates a journal entry that closes the balances for the selected balance sheet accounts to zero.

The process:

Generates journals that reverse the debits and credits of the ending year-to-date actual balances for the selected accounts and period or year that you have selected to close.
Transfers the balance, which is the net of the reversed asset, liability, and equity accounts, to the closing account that you specify.
Must run in an open period. The recommended period is the last period of the fiscal year being closed, which should be an adjusting period.

Tip: Adjusting periods are recommended to avoid large balance fluctuations in your standard accounting periods.

Before running the process:

Set up the last day of your fiscal year as an adjusting period.
Set up the first day of your next fiscal year as an adjusting period.
Ensure that the adjusting period is open.
Complete and post all adjustment entries related to the period or year you're closing.
Print your general ledger trial balance and other end-of-month or end-of-year reports.

After running the Create Balance Sheet Closing Journal process in the last day of the fiscal year's adjusting period:

Open the first period of the next fiscal year by running the Open Period process.
Reverse and post the balance sheet closing journals to repopulate the balance sheet accounts.

Understanding the Balance Sheet Closing Journal attributes:

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

Closes only actual balance types. Ignores budget and encumbrance balances.
Uses the last day of the period that you select in the Parameters window as the effective date of the closing entries.
Creates a separate closing account by Primary Balancing segment. If multiple balancing segments are used, it creates a closing account by the combination of Primary, Second, and Third Balancing segments.
Accept the application's default setting of the journal reversal in the period after the period in which the closing journal was generated. Optionally, manually change the reversal method.
Closes the total ledger currency balances of each balance sheet account, including the converted amounts to the ledger currency from foreign currency journals. The resulting balance sheet closing journal is only in the ledger currency of the ledger.

Caution: If you use secondary ledgers or reporting currencies, you must define a journal conversion rule to prevent replication of your year-end closing journals from your primary ledger. Replication can cause unbalanced journal entries if different currencies and conversion rates are used in the ledgers. Instead, run your closing journal processes directly in your reporting or secondary ledgers to ensure that the balances are reduced to zero.

Note: To make adjustments after posting the balance sheet closing journals:

Reverse the original closing entries and post the reversal.
Make your adjustments.
Rerun the closing journal processes to capture the additional adjustments.