Are you sweating by the end of the year already? Somehow, it’s almost that time of year again already! As a financial accountant before joining New View Strategies, this time of year would send alarms fast in my head. What do I need to start working soon? Where were my notes from last year? What was that move I was supposed to remember this time? Let me help alleviate some of that anxiety with a few posts on some of the more complex steps towards closing out your year. If you are an accountant and want in-depth best practices and guidance for a smoother year-end, please join our
Not all surprises are good
Let’s look at a key step in closing your year: closing your income statement. It’s almost time to close Business Central’s income statement, but it’s been a full year since I did. Or maybe it’s the first time you’ve done it, like Margie. Margie opens the income statement closing function, fills in all the information, and then advances to a field titled Dimension. You click options to see what’s available, and you see all the dimensions of her company. Suddenly you feel exhausted and don’t know what to do with these dimensions.
The end of the year is already painful enough, and having to choose to include dimensions in the closing entry can be a real stressor. I’m here to tell you it’s going to be fine! There is a rather important option here, so let’s go over the pros and cons of each approach. You’ll notice that in most cases, the pros of one are the cons of the other, and vice versa. As you’ve probably guessed, I’d recommend having this discussion in your company before closing the books, so you don’t get stopped at this point in the game once you’ve already done a lot of work.
Pros – Using dimensions will clear all account balances by dimension, which means there is no risk of carrying over to future reports at the dimension level. That means blatantly clean accounts for the start of the next fiscal year – what accountant wouldn’t love that?! It may also be easier to identify and separate the different income groups categorized by dimension, which means that the user can close the income or loss in multiple retained earnings accounts (if needed) without doing a lot of additional analysis. For example, if a company uses dimensions to classify the income of a different segment or business unit, the dimensions in the closing entry will allow the specific income to be determined for each segment or business unit within the entry. (This can also be done with business units).
Cons – Using dimensions to close entries will never be the same wrong An answer, but it can be more painful and time consuming. Depending on how many dimensions are set up and required, a 100-line closure entry can easily be multiplied to over 1,000 lines with all the different combinations of computations and dimensions! In addition, the closing entry is often not carried over until 1-3 months into the next fiscal year, which means that the requirements for dimensions and their use have changed in the current year. I’ve learned the hard way that preventing dimensions from being used in the current and future periods will cause a problem if you need to include these forbidden dimensions in the closing entry. The same can happen with changes to the allowed values filter.
At this point, you might ask, “If I use dimensions, do I need to use them all?” No! The user has the flexibility to choose the dimensions to include or exclude in the entry. This is particularly useful for reporting some accounts and dimensions with rolling balances, but not others. Reducing the inline dimensions will also reduce the number of lines in the input. This can also reduce the chance of error in the entry.
Do not use dimensions
Pros – Creating and posting a dimensionless closing entry is Usually Beautiful and easy. Only one line will be generated per income statement account, which means the entry will generally be short. You don’t have to worry about the dimensions being blocked since the beginning of the new year. However, read about the drawbacks to see why this may not be an option for all businesses.
Disadvantages – One of the biggest disadvantages of not using dimensions is that the account setup may not allow this. Accounts that require dimensions for posting will have the same requirements as closing entries. This should be a major consideration when deciding to use dimensions. Another side effect of not using dimensions is that the balance by each account and group of dimensions is not really removed from the general ledger. For example, if the office supplies account has positive balances in both the admin and sales department dimensions, the closing entry that doesn’t use the departments will leave a positive balance in the admin office supplies and sales, and a negative balance in the office supplies account with blank dimensions. This poses a problem only if the account balance is reported at the dimension level in future periods. Finally, it can be difficult to identify revenues and expenses by sector or type if this is tracked in dimensions. For most businesses, this is not a deal breaker but can require some calculation outside the journal entry for details. (Note that segment income can also be tracked using business units, as noted above.)
Well, what is the best way?
The right decision depends on your company’s needs and the level of detail required in the general ledger. I can tell you from personal experience that if a company doesn’t have dimensions requirements, I’d prefer the route of creating a closing entry without them. I’ve found this to be a much smoother way to post.
Don’t be surprised like Margie when it’s time to close the income statement! Have this discussion before the end of the year so that the decision makers on your team have time to weigh the pros and cons and know the company’s requirements beforehand. If you would like an outside opinion on how well you can use the Business Central / NAV system, let us know at [email protected].
Blogged by: Cari Corozza,