Accounting

How To Close Year-End in MS Dynamics 365 Finance

Jan 04, 2022 | By Shivang Patel

Year-End Close on Microsoft Dynamics 365

Year-end close. Time to shine for the accounting team.

Finance teams are increasingly becoming invaluable strategic partners for senior management, helping with decision-making and providing insightful analysis on the company's past and future financial performance.

But traditionally, accounting teams have shone brightest in the year-end closing of the books. Like the North Star guiding ancient seafarers or a lighthouse warning captains of danger, accountants safely guide companies in calm and turbulent waters.

Fortunately, tools like Microsoft Dynamics 365 Finance bring user-friendly functionality that can make the year-end process run smoother. And we’ll break down the steps required for a year-end close in Microsoft Dynamics 365 Finance.

What is the year-end close in Microsoft Dynamics 365 Finance?

Running year-end close requires updating and verifying the accuracy of your accounting records at the end of your fiscal year. By reconciling balance sheet accounts, like fixed assets and accounts receivable, the year-end close measures the company's performance.

An accurate and streamlined year-end close also helps you calculate taxes owed and plan for the future. You can compare results with previous year-end close results to see trends and make operating adjustments. 

The year-end close is an absolute must for all successful businesses.

Need assistance with the year-end close?

Enterprise resource planning (ERP) accounting software like Microsoft Dynamics 365 Finance makes the year-end close easier. It can help you streamline labor-intensive processes and catch errors or missing information. And it can help avoid backtracking.

Microsoft Dynamics 365 Finance works best for medium- and large-sized businesses. It is the replacement for Microsoft Dynamics AX.

How to complete the year-end close in Microsoft Dynamics 365 Finance

Before starting your year-end close, finishing all bank account reconciliations for the fiscal year is essential. Collect any past-due invoices. Enter all your payables. Calculate depreciation. And record all your accruals. Make sure you have all business expense receipts in hand.

A year-end close template will help ensure you don't miss any steps and follow the correct order when closing the books. While it's possible to make post-closing adjusting journal entries, the general ledger gets messy, and it can raise questions with your external auditors.

Let's move on to completing the year-end close step by step in Dynamics 365 Finance.

Step 1: Finish the preparation steps

As the first preparation step, take the time to make a backup copy of all your financial information.

Then move forward with a couple of other prep tasks.

Designate a closing account

Click General ledger > Posting setup > Accounts for automatic transactions

You need to specify the main account that Microsoft Dynamics 365 Finance will use to close out the profit and loss accounts for the year. This should be your retained earnings account.

Most of the time, you will see the year-end results automatically assigned to the retained earnings account on this screen. If not, you will need to make this change.

Create the new fiscal year

Click General ledger > Period close > Fiscal calendars

You may already have the upcoming fiscal year set up and ready to go inside Microsoft Dynamics 365 Finance. If not, you must create it in this window before closing the old fiscal year.

Step 2: Select parameters for year-end close

Click General ledger > Ledger setup > General ledger parameters

Scroll down to the fiscal year close section. The majority of people will only need to verify the settings for the four following items:

  • Select Yes to delete close-of-year transactions during the transfer
  • Select No for creating closing transactions
  • Select No for setting the fiscal-year status to permanently closed
  • Select Yes to enter a voucher number for the process

In the legal entities section, click on the entities you want to close.

In the financial dimensions section, set the transfer balance sheet dimensions to Yes.

Step 3: Run fiscal year-end close

Click General ledger > Period close > Year-end close

Click the "Run Fiscal Close" menu in the window. Select the buttons for all the legal entities you want to include with the year-end close. Click the OK button.

Next, in the close for MPC section, select the fiscal year you are running with this closing process. You should enter the voucher number you want to use in the text box. In the batch processing section, move the slider button to Yes.

The other settings should be pre populated correctly for the majority of businesses. However, if you need to change any of them to match your specific needs, you can do so on this screen. Finally, click the OK button at the bottom of the window.

Step 4: View the close-of-year report

Click General ledger > Inquiries and reports > Period end reports > Close-of-year transactions report

Look through the transactions report for the year’s transactions. Look for any oddities that could indicate incorrect or missing data. If you find inconsistencies, you may need to go back, fix the problems, and rerun some of the year-end close steps.

This is also a good time to review your chart of accounts for unused accounts and make them inactive. This can prevent staff from posting entries to the wrong general ledger account. 

Step 5: Close the fiscal periods

Click Tools > Setup > Company > Fiscal periods

After you view your reports, you likely will want to mark all periods for the fiscal year as closed. This would prevent other people in the company from posting transactions to these old periods.

If you need to add a transaction to a closed period later, you can reopen the period using this same screen. If the new transaction is important to the year-end close, you would need to rerun the closing process.

Step 6: Generate financial statements

Once you’re satisfied that your fiscal year is closed, you’re ready for financial reporting. Create and review your company’s financial statements, including:

  • Trial balance
  • Balance sheet
  • Income statement
  • Statement of cash flow

Many different tools exist to help you have a successful year-end close.

Microsoft Dynamics 365 Finance is a popular selection among software packages to help with year-end close. And it has numerous integrations that make implementing it a breeze. Even though it only became available late in 2016, it’s a frequently used option that can save you time and stress.

Shivang Patel
Shivang Patel is the Senior Director, Growth Markets at FloQast. Prior to joining the team in 2015, Shivang was an accounting manager and early FloQast user before making the leap and starting as an account executive at FloQast. Since then, Shivang has launched and scaled FloQast's Sales Engineering team before taking on his current role in early 2022.

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