Properly setting up your financial reporting periods is crucial for automating your year-end process. This guide explains how to manage these periods and what happens during the automated year-end procedure.
1. Managing Reporting Periods
Setting Up and Locking Periods
Before your financial year ends, make sure your reporting periods are set up correctly. Once a financial year is complete, you can lock the reporting period to prevent any new transactions from being entered. This ensures the integrity of your financial data for that year. ?
Changing dates of financial reporting periods
2. The Automated Year-End Process
How Retained Earnings Are Updated
At the end of a financial year, Clear Books automatically updates your retained earnings. The system calculates the new Historic retained earnings balance for the upcoming year by combining three values from the completed year:
- Historic retained earnings
- Cumulative profit/loss
- Dividends
For example, if the previous year's balances were:
- Historic retained earnings: £0
- Cumulative profit/loss: £2,995
- Dividends: -£200
The new Historic retained earnings balance for the new financial year will be £2,795. This combined value automatically appears on the balance sheet for the new financial year.
3. Understanding Retained Earnings Balances
Why Balances May Differ Between Reports
Sometimes, you might notice a difference between the Historic retained earnings balance on the Trial Balance or Balance Sheet and the balance shown on the Transactions report. This is a common point of confusion, but there is a clear explanation.
The key difference lies in how these reports calculate the balance:
- Trial Balance and Balance Sheet: These reports show the total calculated balance of retained earnings. This includes the automated year-end movement that combines the profit/loss and dividends.
- Transactions Report: This report only displays transactions that were manually entered and directly debited or credited the retained earnings account. The automated year-end process does not create a journal entry and, therefore, does not appear on this report.
In short, the automated year-end movement is reflected in the total balance on the Balance Sheet and Trial Balance but is not a physical transaction that appears on the Transactions report.