Overview
This article reviews how the closing of an accounting year in the Accounting Periods section of SoftLedger triggers a system generated Retained Earnings entry automatically. This automation will move the Revenue and Expense activity for the fiscal period into Retained Earnings for the subsequent fiscal year. This will be booked per Location per Ledger Account into the Closing Ledger.
How it works
When a user is closing the Year icon for a full Accounting Year, the following happens:
Before closing any Accounting Year, a user must set the Ledger Accounts to be used in the Financial Close section under Settings>Accounts of:
Accumulated Other Comprehensive Income (utilized if operating with multiple location reporting currencies)
Other Comprehensive Income (utilized if operating with multiple location reporting currencies)
Retained Earnings
A system generated Journal Entry is created for each Location, and is booked in that Locations reporting currency.
The Journal Entry books a line for each Revenue and Expense Type Ledger Account with activity for that fiscal period and the difference between those values going to Retained Earnings.
The Journal Entry is booked to the Closing Ledger and on the first day of the subsequent fiscal year (e.g. January 1st for a calendar year fiscal then ends on December 31st).
A Simple Example of the Retained Earnings Journal Entry
A single Journal Entry is booked for the April 1st, 2022 calendar fiscal year in the location USD Location (which reports in USD) as per below:
Account | Debit (USD) | Credit (USD) |
Cash | $100 |
|
Revenue |
| $100 |
Now when you close the year, this retained earnings entry will be booked on January 1st, 2023 in the closing ledger:
Account | Debit (USD) | Credit (USD) |
Revenue | $100 |
|
Retained Earnings |
| $100 |