Unit 4: Posting Periods Process Contents: Process overview Defining periods – highlights Post transactions to periods Internal Reconciliation Process - monitor and perform internal reconciliation Period-End Closing - at the month end vs. at year end

Posting Periods Process: Unit Objectives After completing this unit, you will be able to: Discuss the process of defining, managing and closing periods. Utilize the process of internal reconciliation in G/L accounts and business partners (system and user). Review system reconciliations. Perform internal reconciliation (manual). Prepare for Period-End Closing. Perform Period-End Closing.

Posting Periods Process: Course Overview Diagram Posting Periods Process Topic 1: Process Overview Topic 2: Take a Look at Defining Periods Topic 3: Internal Reconciliation Process Topic 4: Period-End Closing

Process Overview Posting Periods Process Topic 1: Process Overview Topic 2: Take a Look at Defining Periods Topic 3: Internal Reconciliation Process Topic 4: Period-End Closing

Process Overview: Topic Purpose After completing this topic, you will be able to: Discuss the process of: Defining Managing Closing periods.

Process Overview: Business Example (1) You are implementing SAP Business One at a new customer, OEC Computers. You explain to Maria, the accountant, that a mandatory step in creating the company database is defining the company Posting Periods: The Main Posting Period - the Fiscal Year, which usually corresponds to the calendar year. The Sub-Periods in the fiscal year. You both discuss the financial processes in OEC Computers. The company creates the annual financial statement once a year. However, they need twelve posting periods for their internal controlling. You create a new company database and define the Fiscal Year as the calendar year and the sub-periods as Months. You define settings that relate to posting periods. Maria asks what she needs to do in order to record a certain document or a journal entry to a posting period or sub-period. You tell her that SAP Business One determines automatically which posting period the transaction belongs to based on the transaction’s posting date.

Process Overview: Business Example (2) Since OEC Computers creates the annual financial statement once a year. They will use the twelve posting periods for their internal controlling. They will not run the Period-End Closing process at the end of each month, they will do it at the end of the main Posting Period - the Fiscal Year. There are many tasks they do at month end. You discuss those tasks, for example - sending debtor statements for outstanding debts. You also tell Maria about the Internal Reconciliation Process and how it can help her in managing the business partner accounts at the end of each month. You discuss the steps Maria will have to take before Year-End Closing.

*Optional Posting Periods – Process Overview Fiscal Year: 2010 Settings Additional settings Period End Tasks: Year End Closing Period End Closing Year End Tasks Change Period Status Posting date Sub-period Sub-Periods: Months ……. Settings Period End/ Year EndClosing Operational

Reflection Question: Posting Periods Let us discuss an example of a company that closes a period on a quarterly basis: A delivery note with a large amount of items was posted on March 31 st. The A/R Invoice for this delivery was issued on April 2 nd. Would that be a problem in the Profit and Loss report for the first quarter?

Take a Look at Defining Periods Posting Periods Process Topic 1: Process Overview Topic 2: Take a Look at Defining Periods Topic 3: Internal Reconciliation Process Topic 4: Period-End Closing

Take a Look at Defining Periods: Topic Purpose After completing this topic, you will be able to: Discuss the tasks for defining periods.

Take a Look at Defining Periods: Business Example You ask Maria, the accountant, how she wants to define the company Posting periods: You both discuss the financial processes in OEC Computers. The company creates the annual financial statement once a year. However, they need twelve posting periods for their internal controlling. Maria decides to create a calendar year as the main posting period (the Fiscal Year) and define Months for sub-periods. You create a new company database and define the periods. You define settings that relate to posting periods: Period Indicator, Document Numbering, G/L Account Determination.

Defining Posting Periods Quarters Months Days Year Fiscal Year 1

Posting Periods Caveats Bear in mind the following important caveats: The beginning of the fiscal year can only be the first of the month. Periods Order - it is recommended to create the posting periods from the oldest and up. Consider the oldest data you would like to migrate to determine the first period. You cannot have overlapping posting periods. G/L account determination is saved by period and is copied from the previous period to the next. You can change the G/L account determination before starting to work with a new period. You need to make decisions together with the client accountant.

Internal Reconciliation Process Posting Periods Process Topic 1: Process Overview Topic 2: Take a Look at Defining Periods Topic 3: Internal Reconciliation Process Topic 4: Period-End Closing

Internal Reconciliation Process: Topic Purpose After completing this topic, you will be able to: Utilize the process of internal reconciliation in G/L accounts and business partners (system and user). Review system reconciliations Perform internal reconciliation (manual)

Internal Reconciliation Process: Business Example Maria asks you about the Internal Reconciliation Process. She remembers you told her that, among other processes, it relates to Period- End Closing: Maria is happy to hear that most internal reconciliations are performed automatically by SAP Business One  these are the System Reconciliations. You give Maria examples of the automatic reconciliations: In the Business Partners Master Data accounts when an Incoming Payments is based on an A/R Invoice (or a Credit Memo on an A/R Invoice). In clearing G/L Accounts when you deposit a check received by an Incoming Payment. You tell Maria that SAP Business One also performs Partial System Reconciliations if, for example, a customer partially pays an A/R Invoice. However, there will be cases where Maria will perform internal reconciliations herself – these are the User Reconciliations. For example, when OEC Computers pays a vendor in advance and receives the A/P Invoice later on, Maria will have to internally reconcile the Vendor Master Data and match the Payment with the A/P Invoice transactions.

Reflection Question: Internal Reconciliation Process When Maria looks at the vendor’s account balance, it reflects the advanced Outgoing Payment and the A/P Invoice transactions. Then why is it important for Maria to reconcile the vendor master data internally?

Internal Reconciliation Process: System Reconciliation - Full Reconciliation Outgoing Payment based on an A/P Invoice (or invoices) DebitCredit Bank Account202 Vendor202 A/P Invoice DebitCredit Vendor202 Expense / Clearing account 202 Automatic Internal Reconciliation in the Vendor Master Data * Could be multiple A/P Invoices that are fully paid by the same Outgoing Payment 1 2 2

Internal Reconciliation Process: System Reconciliation - Partial Reconciliation Outgoing Payment based on an A/P Invoice DebitCredit Bank Account100 Vendor100 A/P Invoice DebitCredit Vendor202 Expense / Clearing account 202 Automatic Partial Internal Reconciliation in the Vendor Master Data Balance Due: Credit = 102 Balance Due in the Vendors Liabilities Aging Report 1 2 2

SelectedOriginPosting DateAmountBalance DueAmount to Reconcile IN IN RC24.08( ) RC24.08( ) IN ( ) Internal Reconciliation Process: User Reconciliation – Manual Type: Business Partner Account      In this example, Customer Master Data Manual Internal Reconciliation in the Customer Master Data 0.00

Internal Reconciliation Process: User Reconciliation User Reconciliation: G/L Account If your company uses the perpetual inventory system you usually reconcile the Allocation account that is being credited when you issue a Goods Receipt PO and debited in an A/P Invoice. You can perform user reconciliation in this account (and in general) using one of the three reconciliation types: Manual Automatic Semi-automatic A/P Invoice Good Receipt PO

Demo - Internal Reconciliation Process: User Reconciliation - Manual

Internal Reconciliation Process – Terminology Internal Reconciliation: System Reconciliations Statuses: Full Partial User Reconciliations Types: Manual Automatic Semi-automatic User reconciliation statuses: Fully reconciled: – Fully Closes transactions – Creates a journal entry to post the difference as an adjustment that results in the selected transactions becoming reconciled. – Note: for business partner reconciliation you can also create an incoming or outgoing payment as an adjustment. Partially reconciled: of one (or more) of the transactions by changing the Amount to Reconcile for the transaction

Manage Previous Reconciliations Account Account Cancel Reconciliation

Exercise - Internal Reconciliation Process

Period-End Closing Posting Periods Process Topic 1: Process Overview Topic 2: Take a Look at Defining Periods Topic 3: Internal Reconciliation Process Topic 4: Period-End Closing

Period-End Closing: Topic Purpose After completing this topic, you will be able to: Prepare for Period-End Closing Perform Period-End Closing

Period-End Closing: Business Example Let us go back to the business example we discussed in the first topic of the unit – the Process Overview: Since OEC Computers creates the annual financial statement once a year. They will use the twelve posting periods for their internal controlling. They will not run the Period-End Closing process at the end of each month, they will do it at the end of the main Posting Period - the Fiscal Year. However, there are many tasks they do at month end - Period End Tasks. For example – internal reconciliation and sending debtor statements for outstanding debts. You discuss the steps Maria will have to take before Year-End Closing.

Move all P&L account balances to the Retained Earnings account and zero the P&L accounts Period-End Closing: at the Month End vs. at Year End *Optional Period End Tasks: Year End Closing Period End Closing Year End Tasks Change Period Status to Locked Period End Tasks and Year End Tasks: SAP Business One supports such activities in a variety of ways. It is possible to carry forward the balances of Balance Sheet accounts and Business Partners using the Period-End Closing window for the following localizations: Austria, Belgium, Chile, Costa Rica, Czech Republic, France, Guatemala, Hungary, Italy, Mexico, Portugal, Slovakia, and Spain. Change the Period Status to Closing Period Change to Closing Period

Reflection Question: Period-End Tasks (1) Let us go back to the example of a company that closes a period on a quarterly basis: A delivery note with a large amount of items was posted on March 31 st. The A/R Invoice for this delivery was issued on April 2 nd. We discussed the effects of this scenario on the periodic financial reports. Let us see the journal entries including the involved accounts, of the documents that were issued in different periods: the Delivery and the A/R Invoice based on that delivery.

Reflection Question: Period-End Tasks (2) Effects on the P&L Accounts: DeliveryA/R Invoice DebitCredit Cost of Goods Sold acc Inventory acc DebitCredit Customer44000 Income account Period 1 Period 2 Delivery - the costs of the good sold causes a negative effect on profitability in period 1. A/R Invoice - the revenue are booked to period 2. Reflects the periodic Financial Reports: If the business is closing periods and reports on a quarterly basis, it shows a ‘loss’ for period 1 and a ‘gain’ in period 2. Therefore, one of the Period-End Tasks will be: To ensure you invoice all deliveries in the same period.

Prepare for Period-End Closing: Period End Tasks Here are more examples for Period-End Tasks : Make sure that all transactions for the period were posted properly, including adjustments and accruals. Make sure all Journal Vouchers are posted. Internal Reconciliation of Allocation and Expense Clearing Accounts. Tax and legal reports for the local authorities. Print: Trial Balance (a balance of each account and a current status). Vendor Liabilities Aging and Customer Receivables Aging reports to reconcile receivable accounts with the G/L Inventory Audit report to reconcile inventory with the G/L Financial Statements Make a backup of your database and put it in an off-site storage location

Prepare for Year-End Closing: Year End Tasks Here are some examples for Year-End Tasks : Post final transactions for the period in all modules Post any final adjusting entries in the G/L Close the last period of the fiscal year Print a final detailed Trial Balance Print Financial Statements Set up a new fiscal year (if not done already). Backup – to save the status of the previous fiscal year. Post Doubtful Debts – refer to the next slides Post exchange rate differences, conversion differences See additional tasks in the appendix– Adjustments with Automatic Reversals Deferrals with Automatic Reversals Refer to the Tips for Year End Closing How-To Guide.

Account Clearing Before Period Closing – Business Example: Period end process Validate transactions Manual journal entries Perform cross checks Match balances with sub-ledger Print financial reports & sub-Ledger reports Internal reconciliation Validate automatic journal entries on a regular basis to ensure correct transactions Create accruals and provisions (like doubtful debts), periodic entries and corrections Some cross-checks to match the taxes to the sales and purchasing. Validate ‘suspense accounts’ and high risk accounts like price & exchange rate difference accounts Ensure the internal and external reconciliations are done. Match the account receivables accounts with the aging reports Match the inventory accounts with the inventory audit report Print the trial balance, P&L statement together with relevant sub-ledger reports (aging, inventory audit report, etc….)

Doubtful Debts Due Date of Invoice Time + x Days + y Days + z Days Adjustments for Doubtful Debts (Control Account) 250 Transfer to Doubtful Debts (Expense Account) Customer %5% 3%

Perform Period-End Closing And now perform the Period-End Closing: Run the period-end closing routine to close the fiscal year : Zero all Profit and Loss account balances to the Retained Earnings account (a Balance Sheet account  Capital and Reserves drawer), that now contains the total brought forward cumulated profit. Adjust the Balance Sheet accounts. Close or inactivate the period by locking it using the posting period window. Move all P&L account balances to the Retained Earnings account and zero the P&L accounts Period-End Closing Change Periods Status to Locked

Period-End Closing Utility Accept and Post Proposal Proposal Water Expense Account Balance DebitCredit Water Expense Account11500 Period-End Closing Account11500 Posting Date: December 31 st DebitCredit Period-End Closing Account11500 Retained Earning Account11500 Posting Date: January 1 st Period-End Closing period Following posting period Automatic Journal Entries:

Demo - Period-End Closing

Exercise - Period-End Closing

Posting Period Status Locked Closing Period Current period - Unlocked Previous fiscal year Current fiscal year Locked or Unlocked

Reflection Question: Period-End Closing and the Financial Reports (1) What would be the influence of the Period-End Closing on Financial Reports such as Balance Sheet and Profit and Loss?

Reflection Question: Period-End Closing and the Financial Reports (2) Balance Sheet – When issuing the report while in the following posting period - the total brought forward cumulated profit (or loss) will be reflected in the Retained Earnings account balance (refer to the dates in the automatic journal entries created by the Period-End Closing utility). Profit and Loss – For previous periods – SAP Business One allows you to issue the report for previous periods with the expense and revenue account balances before the Period-End Closing. For the following posting period – The period begins again collecting P&L data that is relevant to it  the expense and revenue account balances will not show the previous period balances allowing you to issue a clean report.

Main Terms: Posting Periods: Main Posting Period - the Fiscal Year. Sub-Periods in the fiscal year. Period-End Closing process: Period End Closing Year End Closing Period Status Profit and Loss account balances; Retained Earnings account Internal Reconciliation Process System Reconciliations Statuses: – Full – Partial User Reconciliations Types: – Manual – Automatic – Semi-automatic User reconciliation statuses: – Full – Partial Period-End Closing: Unit Summary