Did you know that Business Central allows you to post documents and entries without creating Accounting Periods? Similarly, there is no real “month-end close” button or function, just managing posting dates in the system. As such, you might be wondering what the purpose of Accounting Periods are. In this post, we will define an accounting period and its relevant uses, and explain how to create one.
What Is an Accounting Period?
According to Microsoft, Accounting Periods (aka reporting periods), are periods of time for which a company or organization reports financial performance by generating, for example, their income statement or balance sheet. In other words, the collection of weeks (4-4-5) or months that, when combined, create a fiscal reporting year.
Practical Use of Accounting Periods
So, how does Business Central use Accounting Periods? There are a few places the system benefits or requires the definition of accounting periods:
- Quick Filtering: When running reports or filtering lists, the ability to use P4 to quickly generate the date filter for 05/01/23..05/31/23 in a fiscal year beginning on February 1st, 04/30/23..05/27/23 in a 4-4-5 scenario, or the month of April in a calendar year.
- Reporting Options: Interval options in Financial Reporting, Analysis by Dimension, and Budgeting include: Day, Week, Month, Quarter, Year, and Accounting Period.
- Close Income Statement: At the end of your fiscal year to close the current year’s earnings to Retained Earnings.
- Note: Proper identification of Account Type as Balance Sheet or Income Statement is important to this function.
- Data Compression Tasks: Analysis Views entries and copied Budget entries can be compressed on creation by Period.
Create Accounting Periods
The creation of Accounting Periods is as difficult as your fiscal year. If you have a calendar year or a 12-month fiscal year, it’s as simple as a button click and a few pieces of information.
In the example below, years 2020 through 2022 have already been created. By selecting the Create Year function on the Accounting Periods table, the option box to create the year pops open. When the automation is used to create the year, the beginning of the following year will also be created, along with the box checked to indicate it is a New Fiscal Year. This company’s year begins in January and is 12 calendar months.
Click OK and all 12 months, descriptions, and the beginning of the next year are created.
Now, what happens if your fiscal year changes? Perhaps a merger or acquisition occurred and now you must report a short or long year to adjust. Can you just delete the periods that are no longer a part of this year or adjust? The answer is yes if you haven’t closed the year yet. Closing a year, while not preventing you from posting into that year, does prevent you from deleting the periods. Make sure your year is really closed before pressing that Close Year button.
As long as that Date Locked field is unchecked, we can make changes. Highlight the months to remove, click Delete, and reset your New Fiscal Year checkbox.
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If your company’s reporting periods are not month- or day-based, you will have to manually enter each line. If you use Excel to calculate your periods, go ahead and copy/paste those values directly into Business Central.
Close Year
As mentioned above, once a year is closed, there is no modifying your fiscal year. Personally, I use the Close Year function immediately before I close my current year’s income into retained earnings. By that time, there should be no further changes to your fiscal year.
Like the Create Year function, the system knows which year needs to be closed, based on the status of the New Fiscal Year and Closed fields of prior periods.
Final Thoughts
So, are Accounting Periods really needed? My answer is YES! The quick entry for periods alone is worth the 30 seconds each year it takes me to create my periods. Who wants to manually close the income statement retained earnings every year? One of my favorite things about Business Central is the ease at which I can close my year. Gone are the days of those Net Income offset journal entries to close the income statement.
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