Lesson 8.3: Closing the Books: Soft vs. Permanent
One of the most important internal controls in accounting is “Closing the Books.” This process locks down financial data for a specific period to prevent accidental changes to historical data that has already been reported to your Board, funding sources, or the IRS. FastFund Online provides a flexible two-tiered closing system—Soft Close and Permanent Close—allowing you to secure your data while maintaining the flexibility needed during audits or review periods.
This lesson explains the difference between the two closing types, how to execute a close, and the strict rules regarding the 24-month posting window.
Soft Close vs. Permanent Close
FastFund distinguishes between a temporary lock and a permanent lock. Understanding the difference is key to managing your fiscal year-end workflow.
1. Soft Close (The “Manager’s Lock”)
• Definition: A Soft Close prevents standard users from adding, editing, or deleting transactions in the closed period.
• The Exception: Users with Company Administrator permissions can still post or edit transactions in a soft-closed period.
• Best Use Case: Use this during your annual audit. You can soft close the fiscal year to prevent staff from accidentally changing numbers while the auditors are working. However, as the Administrator, you can still enter the adjusting journal entries provided by the auditors without reopening the books for everyone else.
2. Permanent Close (The “Vault Lock”)
• Definition: A Permanent Close strictly locks the period for all users, including Company Administrators. No transactions can be added, edited, or deleted in a permanently closed period.
• Best Use Case: Use this once your audit is finalized, tax returns (Form 990) are filed, and financial statements are published. This ensures your historical data remains consistent with your filed reports forever.
The 24-Month Rule
FastFund allows you to keep the books open for a maximum of 24 months past the Permanent Books Closed date.
• Why? This prevents an organization from having too many years of “open” data, which increases the risk of accidental postings to the wrong year (e.g., typing 2020 instead of 2022).
• Enforcement: If you attempt to post a transaction dated more than 24 months after your Permanent Close date, the system will block the transaction and prompt you to close older periods.
How to Close the Books
Closing the books is a simple utility process. You do not need to make manual journal entries to close revenue and expenses; the system handles the calculation of Net Assets automatically based on the closing date you set.
1. Navigate: Go to Utilities > Miscellaneous > Books Closing.
2. View Current Status: The window displays the current dates for the Soft Close and Permanent Close.
3. Select Type: From the Close Type dropdown, select either Soft Close or Permanent Close.
4. Enter Date: Enter the Close Date.
◦ Constraint: The date must be the last day of a month (e.g., 06/30/2023 or 12/31/2023). If you enter a mid-month date, the system will automatically adjust it to the end of that month. You cannot enter a future date.
5. Execute: Click the CLOSE BOOKS button and confirm OK.
Note: If your Soft Close date is earlier than your Permanent Close date, moving the Permanent Close date forward will automatically update the Soft Close date to match it.
Correcting Errors in Closed Periods
A common question is: “What if I find a mistake in a Permanently Closed period?” Because the period is locked to preserve the audit trail, you cannot delete or edit the original transaction. Instead, you must Reverse it.
The Reversal Process:
1. Find the transaction in the Control Register.
2. Open the transaction. You will see that the fields are grayed out (locked).
3. Click the Reverse option (or button) in the transaction window.
4. Important: The system will ask for the Reversal Date. You must enter a date in the current open period.
5. Result: The original error remains in the closed period (preserving history), and the correction (reversal) appears in the current period, fixing your current balances.