Are you sweating year-end already? Somehow, it’s almost that time of the year again already! As a financial accountant before joining New View Strategies, this time of year would quickly set off alarms in my head. What do I need to start doing soon? Where were my notes from last year? What was that step I was supposed to remember this time around? Let me help relieve some of that concern with a few posts on some of the more intricate steps in closing your year. If you’re an accountant and would like more in-depth best practices and guidance for a smoother year-end, please join my
Not all surprises are good
Let’s take a look at a key step in closing your year: closing your Income Statement. It’s almost time to close the income statement in Business Central, but it’s been a whole year since you did it. Or maybe this is your first time doing it, like for Margie. Margie opens the Close Income Statement function, fills out all the information, and then progresses to a field titled “Dimension.” She clicks on the options to see what is available, and she sees all her company’s Dimensions. Suddenly she feels overwhelmed and doesn’t know what to do with these Dimensions.
Year-end is already painful enough and being forced to choose whether to include Dimensions in the closing entry can be a real stressor. I’m here to tell you that it’s going to be okay! There is a fairly significant choice here, so let’s walk through the pros and cons of each approach. You will notice that in most cases, the pros of one are the cons of the other, and vice versa. As you probably have already guessed, I recommend having this discussion in your company BEFORE closing the books, so that you aren’t held up at this stage of the game once you’ve already put so much work in.
The Pros – Using Dimensions will clear all account balances by Dimension, meaning that there is no risk of carry-over to future reporting at the Dimension level. This means squeaky clean accounts for the start of the next fiscal year – what accountant doesn't like that?! It may also be easier to identify and segregate different groupings of income classified by Dimension, meaning that the user can close out the income or loss to multiple retained earnings accounts (if necessary) without doing a lot of additional analysis. For example, if a company is using Dimensions to classify various sector or business unit income, Dimensions on the closing entry will allow for identification the income specific to each sector or business unit within the entry. (This can also be done with Business Units).
The Cons – Using Dimensions in closing entries will never be the wrong answer but may be the more painful and time-consuming one. Depending on the numbers of Dimensions set up and required, a 100-line closing entry could easily multiply to 1000+ lines with all the different combinations of accounts and Dimensions! In addition, often the closing entry isn’t posted until 1-3 months into the following fiscal year, meaning that Dimensions requirements and usage may have changed in the current year. I learned the hard way that blocking Dimensions from being used in current and future periods will cause an issue if you need to include these blocked Dimensions in the closing entry. The same thing can happen with changes to the Allowed Values filter.
At this point you may be asking, “If I use Dimensions, do I need to use them ALL?” Nope! The user has the flexibility to choose which Dimensions to include or exclude in the entry. This is especially helpful for reporting on some accounts and dimensions with rolling balances, but not others. Minimizing the Dimensions included will also minimize the number of lines in the entry. This can also minimize the chance of error within the entry.
Not Using Dimensions
The Pros – Generating and posting a closing entry without Dimensions is usually nice and easy. Only one line will be created for each income statement account, meaning that the entry will generally be short. The user doesn’t need to worry about dimensions that have been blocked since the beginning of the new year. However, read on to the disadvantages to see why this may not be an option for all companies.
The Cons – One of the biggest disadvantages of not using Dimensions is that the account setup may not allow for this. Accounts that require Dimensions for posting will have the same requirements in closing entries. This should be one of the main considerations when deciding whether to use dimensions. Another side effect of not using Dimensions is that the balance by each account and Dimension combination never truly clears out from the G/L. For example, if an Office Supplies account has positive balances in both the Admin and Sales department dimensions, a closing entry that does not use the departments will leave the positive balance in Office Supplies for Admin and Sales, and a negative balance in Office Supplies account with a blank dimension. This only poses an issue if reporting by account balance is done at the Dimension level in future periods. Finally, it may be more difficult to identify revenues and expenses by sector or type if that is being tracked in Dimensions. For most companies this is not a deal-breaker but can require some calculations outside of the journal entry to get the breakdown. (Note that sector income can also be tracked using Business Units, as mentioned above).
Okay, so which way is better?
The right decision will depend on your company’s needs and what level of detail is desired in the General Ledger. I can tell you from personal experience that if a company has no requirements for Dimensions, I favor the route of generating a closing entry without them. I have found this route to be smoother in the posting process.
Don’t be caught off-guard like Margie when the time comes to close the income statement! Have this discussion before year-end so your team’s decision-makers have time to weigh the pros and cons and figure out company requirements ahead of time. If you’d like to have an outside opinion of how well you’re using your Business Central / NAV system, let us know at [email protected].
Blog by: Cari Corozza,