Lesson 8.4: Year-End Close Procedures

While closing the books at the end of a month is a routine internal control, closing the fiscal year involves specific accounting actions to zero out temporary accounts and update your Net Assets. In many legacy systems, this required manual journal entries to close out Revenue and Expenses. FastFund Online automates this process while providing specific tools to handle audit adjustments (often called “13th period” entries).

This lesson explains how the automatic year-end closing works, how to manage the “Net Asset Closing Account,” and how to properly record Year-End Journal Entries for audit adjustments.

1. The Automatic Closing Entry

In FastFund Online, you do not need to make manual journal entries to close your Revenue and Expense accounts. The system handles this automatically when you perform a Books Closing for the last month of your fiscal year.

How it works:

• Revenue and Expenses: The system calculates the excess or deficiency of revenue over expenses for the entire fiscal year.

• Zeroing Out: It creates an entry to debit Revenue and credit Expenses (or vice versa) to bring their balances to zero for the start of the new year.

• Net Assets: The difference (the surplus or deficit) is posted to the Net Asset Closing Account.

• Fund Specific: FastFund creates a separate closing entry for each Fund. This ensures that the Net Assets for your Operating Fund, Restricted Fund, and Endowment Fund are updated individually and remain balanced.

2. The Net Asset Closing Account

For the automatic close to work, FastFund needs to know which Net Asset account should receive the year’s surplus or deficit. This is defined during your initial Chart of Accounts setup.

• Definition: The Net Asset Closing Account (often called Fund Balance) is the specific equity account where the year-end result is posted.

• Setup: This is typically the first Object Code in your Net Asset account range (e.g., Account 3000).

• Verification: Before running your year-end close, ensure that each Fund in your system has a designated Net Asset Closing Account. This is usually handled automatically when Funds are created, but it is good practice to verify your Chart of Accounts setup.

3. Recording Year-End Audit Adjustments

After your fiscal year ends, your auditors may provide a list of adjusting journal entries (e.g., depreciation, accrued payroll, deferred revenue). FastFund provides a specific transaction type for these adjustments called Year End Journal Entries.

Why use this specific type? Marking an entry as a “Year End Entry” effectively treats it as a “13th month” transaction. This allows you to run reports that either include or exclude these audit adjustments, which is helpful when comparing your internal management numbers against your audited financial statements.

To record a Year-End Entry:

1. Navigate to Transactions > General Journal > Journal Entries.

2. Date: You must enter the last day of your fiscal year.

3. Options: In the top right “Options” area, check the box labeled Year End.

    ◦ Note: This checkbox will be grayed out (unavailable) if the transaction date is not the last day of the fiscal year.

4. Enter the debits and credits for the adjustment.

5. Click Save.

4. Reporting Across Fiscal Years

A common concern for nonprofits is grant reporting. Grants often run on a timeline that does not match the organization’s fiscal year (e.g., a grant from July to June, when the fiscal year is January to December).

FastFund handles this seamlessly. Even after you close the fiscal year and zero out the income statement accounts:

• Project/Grant Reporting: When you run a Statement of Activities or Revenue and Expense Report for a custom date range that crosses fiscal years, FastFund ignores the closing entries. It calculates the actual activity for the period selected, ensuring you get accurate grant reports regardless of your fiscal year-end procedures.