Year-End Closure - Italian Requirements - Introduction

To provide a full audit and ensure data integrity, a year-end procedure generates journals for the close of each accounting year.

Closing journals zerorise all Profit and Loss and Balance Sheet accounts in an adjustment period separate from normal trading periods. For example, period 15 (assuming period 13 is for accounting adjustments, and period 14 is for audit adjustments). The first journal transfers all P&L balances for the year to Retained Earnings, and a second journal zerorises the Balance Sheet.

Specific accounts are used for zeroing account balances: P&L Closing; Balance Sheet Closing; Balance Sheet Opening.

An opening journal brings forward the balances for all Balance Sheet accounts, again in an adjustment period preceding trading periods for the year, typically period 00. Usually this is the second part of a reversing journal, where the first part zerorised the Balance Sheet at the previous year-end.

This has the added advantage that all accounts, both Profit and Loss and Balance Sheet, are fully supported by underlying transactions, irrespective of archived data, by year.

The visibility of these journals within the General Ledger is either a legal or regulatory (that is, audit) requirement in several countries.

After year-end closure, adjustments for audit and/or tax reasons are made in separate periods in order not to impact the posting periods (typically 1 through to 12). For example, periods 13, 14, 15, etc.

The year-end journal is normally run sometime (possibly months) after the last period of the year has been closed, when all adjustments for that year have been finalized.

This also represents a hard close of the year to prevent further postings in the closed year/period.

The year-end journals are a legal requirement for Italy. Italy requires a separate document type for these postings, with the postings visible in the document journal. The closing entry must be made with the document and posting date equal to the last day of the fiscal year to be closed, while the opening entry must correspond to the first day of the new fiscal year.

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