Solution: Retained earnings accounts and the Close Fiscal Year task

General Ledger treats retained earnings accounts differently than other accounts when you close the fiscal year. General Ledger updates the balance boxes (Setup , Accounts - Balances (Accrual) or Balances (Cash)) on your retained earnings account as follows:

1. The amount in the Current balance box replaces the amount in the Year end 1 year ago box. The Year end 1 year ago box replaces the Year end 2 years ago box and so on until General Ledger replaces all the amounts in the year end boxes with the appropriate amounts.
2. General Ledger determines the closing entry from your income statement accounts and then updates the Current balance and Future balance boxes on your retained earnings account with that amount.
   Note: The closing entry is dated with the last day of your fiscal year, but this amount is not added to the Year end 1 year ago box.
3. The activity boxes on the Activity (Accrual) and Activity (Cash) tabs all roll down one period. The first future period becomes the new current period and so on. General Ledger does not add the closing entry to any of these boxes. There are amounts in the activity boxes only if there have been direct entries to the retained earnings account.
4. General Ledger does not maintain the other balance boxes on the Balances (Accrual) or Balances (Cash) tab of your retained earnings account. Do not rely on any balances saved within these boxes.
5. The closing entry posts directly to the General Ledger history file. This entry never prints on the Current Ledger or the Year-to-date Ledger.

General Ledger entries dated for the prior fiscal year but posted in the current year are prior year adjustments. Prior year adjustments affect your account balances as soon as they post. The only thing prior year adjustments do not affect is retained earnings. Your ledger is out of balance in the current year until you close your prior year adjustments to retained earnings.

Reclose your fiscal year with the Close Fiscal Year task to update retained earnings and bring your ledger back into balance when you have prior year adjustments. You may need to reprint financial statements for last year since your retained earnings balance changed. See the link below for more information on verifying and closing prior year adjustments to retained earnings.

What close fiscal year does

1. Creates the entries that clear the current balances of the Income and Expense accounts and posts the profit or loss to the retained earnings account(s). The closing entries are not reflected in the actual activity field for the last month of the fiscal year. This retains the actual activity prior to closing, which is necessary for reporting purposes.
   Closing entries are posted to the history.glt file. If a history.glt file is not found in your current data folder, this process creates one.

2. Advances the year end balances one year.

3. Advances the current account activity balances one period.

4. Advances the fiscal year end and period end dates.

5. Provides you the opportunity to define the calendar for two years in the future. For example, if you are closing 2013, you will have the opportunity to define the period end dates for 2015.

Verifying retained earnings

When running Close Fiscal Year you should have a copy of your Income Statement to verify the amount posting to retained earnings. If the amounts agree, you may continue with the process. Otherwise, before proceeding, you need to determine why the amounts differ. To do so, complete the following steps:

1. Cancel out of the Close Fiscal Year process.

2. Print a chart of accounts and review the account type of each account. If an income statement account is incorrectly set up as an asset or liability account, or if a balance sheet account is incorrectly set up as an income, expense or cost account, this results in an incorrect earnings calculation. Only Income, Cost, Expense and Other income account types are used to calculate the amount closed to retained earnings.

3. Print a current ledger report for the suspense account and check the suspense account balance. Close Fiscal Year does not close out the suspense account.

4. Make the necessary corrections.

Why did the fiscal year ending balance for retained earnings not change after closing the year?