We have had several clients inquire about the impact on the Retained Earnings Account during the Year End Close process. Here is an explanation.
During the Year End Close process, Microsoft Dynamics GP uses the Posting Type of each account to determine which accounts are Balance Sheet vs. P&L accounts. For all of the P&L accounts, Dynamics GP generates a net change which is equivalent to your Net Profit (or Net Loss). Dynamics GP generates a journal entry composed of the Balance Brought Forward for the Retained Earnings Account from the year you are closing and a P/L entry for the Net Profit/Net Loss for the year you are closing and the journal entry goes into Period 0 (which represents the beginning balance period) for the New Year.
Incorrect Posting Type
If the change that Dynamics GP generates is not equal to your Net Profit (or Net Loss) for the year, it is usually because you have set up an account with the incorrect Posting Type. This is why you should always review your accounts prior to closing a fiscal year to make sure that each account has the correct Posting Type.
If you look at the Summary Financial Inquiry for the Retained Earnings Account and compare one year to another year, the ending balances for one year are never the same for the next year. This is because during the Year End Close, Dynamics GP calculates the net change of your Profit and Loss Accounts and adds an entry into the Beginning Balance. You can see this when you look at the Summary Inquiry in the Beginning Balance row. Highlight the row and then click on the wording ‘Net Change’ in the column header to drill back to the Detail Inquiry where it will show you all of the BBF (Balance Brought Forward) and P/L (Net change of the Profit and Loss accounts) that were generated during the Year End Close process.
Another factor could be that you entered an entry into the closed year, which will automatically create additional BBF entries to update the beginning balance for the current year.
Example
I’m using a local install of Dynamics GP for this example. In 2015, the ending balance is $ -409,894.35.
In 2016, the beginning balance is $39,354.87, which is made up of BBF entries totaling $ -409,894.35 as a credit and $ +449,249.22 P/L entry as a debit. (Click on image to enlarge)
I hope this helps clarify the impact on the Retained Earnings Account during the Year End Close process and how Microsoft Dynamics GP uses the Posting Type of each account to determine which accounts are Balance Sheet vs. P&L accounts. If you have questions or need some assistance, visit our support page for more help.
