Period End Closure Activities (Monthly/Quarterly/Yearly)

1.1 What "closing the period" actually means

The month-end close is the process of verifying and adjusting account balances at a period end so that the reports produced represent the company’s true financial position — fit to be put in front of management, investors, lenders, auditors and regulators.

In a pre-ERP world that was largely an accounting department exercise. In D365 it is not. Money and material are the same data. A goods receipt that the stores team never converted into an invoice is not a purchasing backlog item — it is a misstated inventory value and a misstated creditor balance. A production order that was reported as finished but never ended is not a shop-floor loose end — it is finished goods sitting in the balance sheet at the wrong cost. The close therefore reaches across purchasing, stores, production and sales, not just finance.

At the end of a fiscal year there is an additional, separate process: the year-end close, which transfers opening balances into the new year and moves profit and loss balances into retained earnings. That is covered in Section 9.

1.2 Why closes slip, and what D365 does about it

When an organisation moves onto an ERP platform, the most common complaint heard within the first year is that the finance period cannot be closed on time, which in turn delays the finalisation of the profit and loss account, the balance sheet and the audit. The root causes are consistent and they are organisational rather than technical:

1. No properly defined process for period closing — it is carried in people’s heads.
2. No defined roles and responsibilities at the level of individual tasks.
3. No definite timelines, and no tracking against them.
4. Communication gaps between departments, so finance discovers a blocker on day six that stores could have cleared on day one.

D365 answers all four with the Financial period close workspace: a configurable list of closing tasks, each with an owner, a task area, a relative due date, a direct link to the page where the work is done, and dependencies on other tasks. The workspace then tracks completion by company, by area and by person. Section 3 covers how to build it. Implementing it is, in practice, the single highest-return decision an organisation makes about its close.

1.3 The four-layer close model

Everything in this handbook hangs off one idea: the close is layered, and each layer must reconcile before the next one starts. Closing out of sequence is the single biggest cause of restated month-end numbers.

Figure 1 — The four layers of a D365 period close and the gate between each one

1.4 What management should expect and ask for

A close that is under control produces the same short set of evidence every month. These are the questions worth asking, and where in this handbook the answer is produced:

1.5 Who owns what

The close fails at handover points, so ownership needs to be explicit. The allocation below is the common pattern; adapt the names to your structure but do not leave a row unowned.

A close only compresses if the sequence is agreed in advance and the dependencies are respected. The timetable below is indicative — a business closing on day five will pull it tighter, a multi-plant manufacturer may need longer for costing — but the order is not negotiable, because each band depends on the one above it.

Figure 2 — Indicative period close calendar, from two days before period end to the period being locked

Two features of this calendar are worth drawing out, because they are the ones that most often get compressed and then cause rework.

• Pre-close housekeeping starts before the period ends, not after. Chasing pending GRNs, gate entries without a material receipt, open purchase orders and undelivered sales orders on the last two days of the month removes most of the blockers that would otherwise surface on day three.
• Foreign currency revaluation runs after everything in the sub-ledger is posted, and before reconciliation. Running it, early means running it again.

The Financial period close workspace helps you track closing processes across companies, areas and people. Depending on the view assigned to a user, they see either all tasks and statuses for a closing schedule, or only the tasks assigned to them. It is the governance layer that sits over everything else in this handbook.

3.1 How the configuration fits together

Configuration is built from the bottom up. Resources, task areas, closing roles, tasks and legal entities feed into a calendar and a template; the calendar and template are then tied to a specific period by a closing schedule, which is what appears in the workspace.

Figure 3 — Structure of the Financial period close configuration

Path General ledger > Period close > Financial period close configuration

3.2 Step 1 — Task areas

Task areas group closing tasks into logical areas of ownership within the organisation. In general terms they are usually your modules: Accounts payable, Accounts receivable, General ledger, Inventory, Fixed assets, Taxation.

Path General ledger > Period close > Financial period close configuration > Task areas > New

Defining task areas

3.3 Step 2 — Closing roles

Closing roles define the type of responsibility that can be assigned within each area — for example preparer, reviewer, approver.

Path General ledger > Period close > Financial period close configuration > Closing roles > New

Defining closing roles

3.4 Step 3 — Resources

Resources answer the question "who does what". You map an employee to task areas and legal entities, and you set the view they get in the workspace. Two options exist, and the choice matters:

• Only assigned tasks — the user sees only their own tasks. Users with this view cannot add, edit or remove tasks from the task list.
• All tasks and status — the user sees every closing task and the status of the overall process. This is the financial controller’s view.

Path General ledger > Period close > Financial period close configuration > Resources > New

Mapping resources to task areas and legal entities

3.5 Step 4 — Calendar

The calendar defines the working days used for scheduling closing tasks, and therefore the target close date. If the intention is to close the month by the fifth working day of the following month, that is expressed here.

Create the calendar for a long horizon — a year or several years — because it can be edited afterwards. After creation, use Edit to mark specific days such as public holidays. Tasks are only scheduled on days where the Control value is Open; set it to Closed for a day on which no closing task should fall.

Path General ledger > Period close > Financial period close configuration > Calendars > New

Defining the period closure calendar and its working days

3.6 Step 5 — Template, task links and dependencies

The template defines every task that forms part of a closing process. A closing task is a recurring work effort assigned to an individual to complete each period — sub-ledger reconciliation, tax reporting, inventory closing, currency revaluation, depreciation posting, and so on.

For each task you define a relative due date: the number of days before or after the period end date that the task is due each period. You also assign a due time, set in the context of your own time zone, which converts to each user’s time zone automatically.

Path General ledger > Period close > Financial period close configuration > Templates > New

Defining tasks within a template, with relative due dates

Task navigation links

The task name in the workspace is a hyperlink to the page where the work is actually done. Setting this turns the workspace from a checklist into a working surface — the user clicks the task and lands on the right page. A currency revaluation task for Accounts payable, for example, links to the Foreign currency revaluation page. External URLs are also supported.

Path General ledger > Period close > Financial period close configuration > Templates > select task > Task link

Attaching a navigation link to a task

Dependencies

Tasks can depend on other tasks. Accounts payable cannot be closed, for example, until vendor foreign currency revaluation has run. A task that is blocked by an incomplete dependency shows a padlock icon in the workspace and cannot be marked complete.

Path General ledger > Period close > Financial period close configuration > Templates > select task > Set dependency

Setting dependencies between closing tasks

3.7 Step 6 — Closing schedule

The closing schedule ties everything together: it assigns a template to a specific financial period that must be closed, along with the calendar and the companies in scope. The tasks from the template are then generated automatically for that period, and the schedule appears in the workspace.

The Period end date on the schedule is what converts each task’s relative due date into an actual due date. If no calendar is assigned, due dates simply use all days of the week. Where a template task is assigned to multiple companies, D365 creates a separate task for each company in the schedule.

Path General ledger > Period close > Financial period close configuration > Closing schedules > New

Mapping task areas, calendar, template, resources and closing roles into a schedule

3.8 Using the workspace day to day

Path General ledger > Workspaces > Financial period close

Select a closing schedule at the top of the workspace; everything below then filters to that schedule.

The Financial period close workspace

Summary tiles

The summary tiles give the state of the process at a glance across every company in the selected schedule: tasks past due, tasks remaining today, tasks due today but blocked by dependencies, and all remaining tasks.

Tasks and status

This section breaks the schedule down by company, by area and by person responsible. Each tab shows both percentage complete and the number of tasks remaining. Filters let you show all tasks, only those due today, or only those past due, and you can show or hide completed tasks.

Selecting the template and working the task list

Two icons carry the exceptions:

• An exclamation point means the task is past due. The due date is also highlighted in red.
• A padlock means the task depends on other tasks that are not yet complete. A blocked task cannot be marked as completed.

Use Attachments on a task to hold the evidence — journal numbers used, comments on a variance, or the report file that was printed for that task. An icon appears in the Attachment column when something is attached. When the work is done, select Task complete; the completed date stamps automatically and dependent tasks unlock.

3.9 Historical analysis and audit evidence

Path General ledger > Period close > All financial period close tasks

This list page holds current and previous period close tasks, with the scheduled due date, the actual completion date and the person who completed each task. It exports cleanly to Excel, which makes it the natural source both for measuring days-to-close and for demonstrating to auditors that the close followed a controlled, evidenced process.

Once a schedule is finished, set the Closed option on it. The task history stays available on the list page, but the schedule drops out of the workspace, and no further tasks can be added, edited or removed.

3.10 A starting task list

If you are building a template from scratch, the list below is a reasonable first draft. Relative due dates are expressed in days from period end; adjust to your own target close day.

The chart below is the whole month-end close on one page. Everything in Section 5 is an expansion of one of these boxes. Read it left to right: sub-ledgers are cut off and proved against their control accounts, inventory and costing are closed and proved against the inventory accounts, and only then does the general ledger work — accruals, allocations, tax and reporting — begin.

Note the three decision diamonds. Each one is a gate. If a gate fails, you go back and fix the cause; you do not carry the difference forward with a note to investigate later, because next month the same difference will be there plus a new one.

Figure 4 — Month-end close, end to en

Every department has work to do before the month can be closed. The activities below are grouped by D365 module rather than by department, because the same process is owned by different departments in different organisations. Adapt the ownership; keep the activities.

5.1 Accounts payable

Post invoices for all received purchase orders

Where material has been received against a purchase order and the MRN / GRN / product receipt has been posted, the invoice must be posted against that purchase order. Until it is, the vendor outstanding is understated and the financial inventory for those receipts has not been posted.

Path Accounts payable > Invoices > Pending vendor invoices

Post all pending invoices received from vendors

Where invoices have been received and entered but not posted, review them all before closing.

Path Accounts payable > Invoices > Vendor invoice journal

Post and settle all payments

Any vendor payment created but not posted must be dealt with before closing. Every open unsettled transaction should be settled so that the vendor statement and ageing are accurate.

Path Accounts payable > Payments > Vendor payment journal

Path Accounts payable > Vendors > All vendors > select vendor > Settle open transactions

Run foreign currency revaluation

Required wherever the company transacts in more than one currency. Run it only after all AP documents for the period are posted.

Path Accounts payable > Periodic tasks > Foreign currency revaluation

Reconcile vendor balances to the control accounts

Reconcile the vendor sub-ledger against the trial balance. Where there is a difference, check whether the trial balance voucher contains transactions with a posting type of Ledger, or any posting type other than vendor balance or vendor settlement — those do not post to the sub-ledger and are a common source of difference.

Path Accounts payable > Periodic tasks > Vendor to ledger reconciliation report

Path Accounts payable > Inquiries and reports > Vendor reports > Vendor balance list

Path General ledger > Inquiries and reports > Trial balance

Set the fiscal period on hold for vendors

Always use On hold rather than Closed. A closed period cannot be reopened if an adjustment is later required.

Path General ledger > Calendars > Ledger calendars > select period > Period status

Further AP activities

• All debit notes relating to short quantity should have been booked.
• All MRNs should be made — there should be no pending MRN against a gate entry.
• All purchase orders should be reviewed to verify actual pendency.
• The effect of pending MRNs to be booked should be taken into provision.
• Debit note and credit note reconciliation.
• Purchase reconciliation against creditors.

5.2 Accounts receivable

Post invoices for all open or delivered sales orders

Where a sales order has been created and relates to the period but has not been invoiced, post the customer invoice before closing so that the customer balance, outstanding and financial inventory for delivered orders are updated.

Path Accounts receivable > Customer invoice workspace

Post all pending free text invoices

Path Accounts receivable > Invoices > Free text invoices

Post and settle all received payments

As with AP, settle every open transaction so that the customer statement and ageing are meaningful.

Path Accounts receivable > Payments > Customer payment journal

Path Accounts receivable > Customers > All customers > select customer > Settle open transactions

Run currency revaluation

Path Accounts receivable > Periodic tasks > Foreign currency revaluation

Reconcile customer balances to the control accounts

The same logic as AP applies: differences usually trace to ledger-type postings that never reached the sub-ledger.

Path Accounts receivable > Periodic tasks > Customer to ledger reconciliation report

Path Credit and collections > Inquiries and reports > Customers > Customer balance list

Path General ledger > Inquiries and reports > Trial balance

Set the fiscal period on hold for customers, then complete the remaining activities

• Sales reconciliation against debtors.
• Produce customer ageing after payments have been adjusted against pending invoices — not before.

5.3 Cash and bank

A bank reconciliation statement compares the cash balance in the company’s books with the corresponding amount on the bank statement. Reconciling the two identifies whether accounting changes are needed, and is one of the few controls that reliably detects both error and cash manipulation.

Path Cash and bank management > Bank accounts > Reconcile

Where advanced bank reconciliation is configured, import the bank statement first and then run the matching process.

Points to confirm

• The balance per the bank statement reconciles to the bank balance in the system.
• Bank charges have been booked as per the statement.
• GST invoices raised by the bank have been accounted for.

Why the two balances differ

The bank’s closing balance and the company’s closing balance are almost always different. The usual reasons:

5.4 Fixed assets

A fixed asset is a long-term tangible item of property or equipment that the business owns and uses in its operations to generate income, and which is not expected to be consumed or converted to cash within a year.

Post all acquisitions and adjustments

Path Fixed assets > Journal entries > Fixed assets journal

Path Fixed assets > Journal entries > Inventory to fixed assets

Assets can also arrive through project elimination or purchase invoices — check those routes too.

Post all sales and scrapping of assets

Path Fixed assets > Journal entries > Fixed assets journal

Path Accounts receivable > Invoices > Free text invoices

Run depreciation for the month

Run depreciation on every depreciable asset carrying a positive net book value.

Path Fixed assets > Journal entries > Fixed assets journal (Proposals > Depreciation proposal)

Reconcile fixed assets to the control accounts

Fixed asset reconciliation shows a summary of book value, together with debits and credits to the fixed asset accounts and accumulated depreciation. It is what ties the balance sheet to the fixed asset register.

Path Fixed assets > Inquiries and reports > Fixed asset balances / Fixed asset statement

Set the fiscal period on hold for fixed assets

Path General ledger > Calendars > Ledger calendars > select period > Period status

5.5 Inventory

The governing principle for inventory at month end is simple: make sure all physical inventory is posted as financial — delivered, received, or reported as finished. Physical-only transactions carry estimated cost, and estimated cost is what produces an inventory value that does not agree with the ledger.

This section lists the month-end actions. The mechanics of the inventory close itself — pre-closing, the two check reports, the close and the reconciliation — are covered in full in Section 6.

Post all required inventory adjustment journals

Path Inventory management > Journal entries > Items

Post inventory counting

Path Inventory management > Journal entries > Item counting > Counting

Close in-transit transfer orders wherever possible

Review all transfer orders with a shipped status and receive everything that can legitimately be received. Anything left sits in goods in transit on the balance sheet.

Path Inventory management > Outbound orders > Transfer orders (filter on Shipped)

Perform inventory adjustments where required

This is for correcting wrongly posted cost on purchase transactions — for instance where 500 per unit was posted instead of 50, an adjustment of 450 is passed against the transaction.

Path Inventory management > Periodic tasks > Closing and adjustment > Adjustment

Run inventory recalculation or inventory closing

Recalculation derives the final valuation and produces the FIFO or LIFO valuation — remember that during the month D365 posts at a running weighted average even where the item model group specifies FIFO or LIFO. Closing additionally settles receipts against issues and locks the period. See Section 6.7 for which to use.

Path Inventory management > Periodic tasks > Closing and adjustment > Recalculation / Close procedure > Close

Reconcile inventory to the trial balance

Match the inventory balance to the trial balance. Where they differ, check for ledger-type transactions posted directly to inventory accounts, and for any item group change made during the month.

Path Cost management > Inquiries and reports > Inventory value reports

Reports to run

• Inventory ageing report against the inventory GLs in the trial balance.
• Inventory value report against the inventory GLs in the trial balance.

5.6 Production

Post picking lists and routes for the current month’s production

Path Production control > Production orders > All production orders

Post adjustments where required

To adjust a posted picking list, report as finished, or route card.

Report as finished

Reporting as finished is what gives you the inventory that has actually been produced and is physically available, at the right cost.

End production orders for the current month

Every production order that has been fully reported as finished must be ended. Ending is what produces the final cost of the finished goods and the financially closed inventory. An order left un-ended carries its cost outside the trial balance.

Path Production control > Production orders > All production orders (Process > End)

Further production activities

• All production orders should be reviewed; the Balance production order report is useful for this.
• Production orders that have been started should be completed in the system at month end.
• Rejection of material at the shop floor should be punched into the system.
• Inventory taking of all material at the shop floor, including inventory in shop-floor warehouses and material in excess warehouses.

5.7 General ledger

Post all adjustments

Path General ledger > Journal entries > General journals

Post provisions

Most bills are not received by the end of the month but relate to it, so provisions are the better practice. Typical items:

• Electricity bills.
• Salary payable.
• Contract-based charges — rent, AMC, subscriptions.
• Review of employee imprest balances, with deduction from monthly salary where the imprest is not recurring in nature. Most organisations take employee-wise balances from the staff register: some carry credit balances such as conveyance and hotel bills, others carry debit balances such as imprest advanced, bills not received, and monthly salary deductions.

Post expense allocations to profit centre dimensions

Path General ledger > Allocations > Process allocation request

Generate all financial reports

Run the reporting pack and match balances against the respective ledger accounts — trial balance, balance sheet and statement of profit and loss.

Path General ledger > Inquiries and reports > Financial reports

Additional general ledger tasks recommended by Microsoft

• Complete all tasks for every other module first.
• Verify that all journals are posted.
• Settle transactions for each ledger account.
• Journalise transactions and review the Ledger journal report.
• Perform consolidation, using either a consolidation company or financial reporting.
• Set ledger periods to On hold so that no further posting occurs; restrict a period to a specific user group while period-end activities are under way for tighter control. Do not set periods to Permanently closed — a permanently closed period cannot be reopened.

Validate main account types before a year end

So that D365 derives the correct retained earnings balance, confirm that all revenue, expense and profit-and-loss type accounts are typed correctly — those are the accounts considered for retained earnings.

Path General ledger > Chart of accounts > Accounts > Main accounts

5.8 Tax and statutory (India)

These activities sit on the critical path in Indian entities because the filing deadlines are fixed and external.

Inventory period closure calculates the costing for the period and closes inventory transactions up to the defined date. It is the layer that most often delays a close, and the layer where mistakes are most expensive, because a bad inventory close contaminates cost of goods sold, gross margin, the balance sheet and every subsequent month until it is unwound.

The inventory close process settles issue transactions against receipt transactions, based on the inventory valuation method selected in the item’s item model group. As part of that settlement you can specify that the general ledger be updated to reflect the adjustments made. Until inventory close or recalculation has been run, issue transactions are posted at the calculated running average cost price — whatever the item model group says.

How often inventory close runs varies by company, but transaction volume should drive the decision. In general, most companies run inventory close as part of their month-end close and reconciliation procedures. Microsoft recommends running it during off-peak hours so that computing resources are spread more evenly.

6.1 The sequence

Four steps, always in this order.

Figure 5 — The inventory close checklist

6.2 Inventory close parameters

Path Inventory management > Setup > Inventory and warehouse management parameters > Inventory accounting tab > Closing

Inventory close parameters under Inventory accounting > Closing

6.3 Step 1 — Pre-closing

Pre-closing settles the non-financial inventory transfers. Where costing is not maintained at location level but the same item sits in several locations within one warehouse, transfers between those locations create inventory transactions that have no financial impact. Pre-closing settles them automatically.

Where costing is maintained at site level, inter-site transfers are financial transfers and intra-site transfers are non-financial — it is the latter that pre-closing clears.

Path Inventory management > Periodic tasks > Closing and adjustment > Pre-closing

Launching pre-closing from the Closing and adjustment page

Enter the date up to which pre-closing should run — normally the month end date — and select OK.

The pre-closing dialog

The system generates a voucher of type pre-closing. No accounting entry is posted, because this is the settlement of non-financial transfers only.

The pre-closing voucher on the Closing and adjustment page

6.4 Step 2 — Check open quantities

This report lists the inventory transactions that will remain open after the inventory close is performed. You select an expected closing date to tell the system when you intend to close.

Take an item with an inventory physical receipt for a quantity of 10 and an inventory financial issue for a quantity of 3. The open quantity report will include an open quantity of 3, because that financial issue cannot be settled against anything. Selecting Show receipts additionally shows all physical receipts posted for the item and the open quantities that will remain after the close date — in other words, it brings in what has been received but not yet invoiced.

Path Inventory management > Periodic tasks > Closing and adjustment > Close procedure > Check open quantities

Select the expected closing date, tick Show receipts, and select OK.

Check open quantities parameters

Check open quantities — report format

6.5 Step 3 — Check cost prices – Not mandatory

This report flags cost prices that deviate from expectation by more than a threshold you set. You enter a maximum deviation as a percentage and a minimum deviation as an amount, and you choose the basis for comparison: the item cost price, the median cost price, or item-or-median.

For example, with a maximum deviation of 50 per cent and a minimum deviation of 1.00: an item carrying a cost price of 5 is invoiced on a purchase order at 15. Fifteen is more than 50 per cent above five and more than 1.00 in absolute terms, so that line appears on the report.

Path Inventory management > Periodic tasks > Closing and adjustment > Close procedure > Check cost prices

Check cost prices parameters — expected closing date, maximum percentage deviation, minimum amount deviation and calculation basis

Check cost prices — report format

6.6 Step 4 — Run the inventory close

Once the checklist is worked, close the inventory period to finalise cost and stop users transacting into the closed period.

Path Inventory management > Periodic tasks > Closing and adjustment > Close procedure > Close

General tab

Inventory close — General tab

Batch tab

Always run the inventory close in batch. Batch processing uses multi-threading and cuts the elapsed time substantially. Select Batch processing, enter a task description, choose the batch group, and select OK.

Inventory close — Batch tab

An infolog is generated by the system.

To monitor progress, check the batch job — you can see status, completion percentage, start date and end date.

Path System administration > Inquiries > Batch jobs > Batch jobs

Returning to Closing and adjustment, the system will have created an additional voucher of type closing, with a posting date and an execution date. Select Details > Voucher to see the cost adjustment posted.

The closing voucher on the Closing and adjustment page

The cost adjustment voucher posted by the inventory close

6.7 Recalculation or close — which one

The two are not interchangeable, and the difference is about whether the period stays open.

Figure 6 — Choosing between inventory recalculation and inventory close

Inventory recalculation adjusts on-hand inventory and inventory transactions but does not make settlements. Both processes affect whichever ledger account was linked to the original inventory transaction — which has an important consequence:

To review the ledger voucher posted by either task: on the Closing and adjustment page, on the Overview tab, select the update to review, then select Details > Voucher.

6.8 The inventory value reconciliation process

This is the routine that proves inventory to the ledger. Run it every month.

1. Run the Check open quantities report with the expected close date and Show receipts ticked. It lists every purchase order, sales order and production order that is not financially closed.
2. Close all the inventory transactions that can be closed, so that the financial transaction is updated.
3. Run inventory recalculation or inventory close, one month at a time, in batch.
4. Run the Inventory value report and reconcile it to the general ledger.
5. For the accrual account, use the Accrued purchases excluding sales tax report.

Path Accounts payable > Inquiries and reports > Purchase > Accrued purchases excluding sales tax

Where the differences usually come from

• Some ledger-type transactions have been posted directly to inventory main accounts.
• An item group was changed part-way through the month, so the main account mapping changed underneath the balance.
• Product receipts have been posted but the vendor invoice has not, so cost has not flowed — check the GRN not invoiced report.
• Production orders reported as finished but not ended — check the Pending production order report.
• Expenses loaded onto inventory after the material was booked, where inventory close has not yet run.

6.9 The inventory close log and its warnings

After the close completes, a message may report that a unit cost price might be incorrect because a transaction could not be fully settled. Before that message appears, the system reports the item number and the affected transaction, and explains that the cost amount used was not updated by the close. The message appears when an issue-type transaction cannot be settled.

During the close, the system checks each financial dimension to see whether there are more issues than receipts up to the specified closing date. That imbalance typically arises when an inventory transaction from a purchase order is not fully posted financially — either the vendor invoice has not been received, or bill of materials components included in a higher-level production are not financially posted because the sub-production has not been cost-calculated. In that case the close cannot adjust all issues to the correct cost price, because there is not enough receipt information available.

Where the log produces many warnings, the recommended actions are:

• Update receipts financially — post the outstanding vendor invoices.
• Advance the closing date.
• Re-evaluate the business procedures that are producing the gap.

In some circumstances nothing can be done. If marking is used and the marked purchase order has a financial date after the closing date, the closing date cannot be changed.

6.10 Reversing a completed inventory close

Occasionally a completed inventory close has to be reversed to return settlements to the state they were in before adjustments were made. Reversing reopens inventory for posting in the period the close covered, and related changes may also be made in the general ledger. Once the adjustments are finished, run inventory close again for that period.

Ledger period closure puts a period on hold or closes it, preventing further financial accounting entries. If April’s financials are finalised, April should be put on hold or closed so that users cannot post into it and change a trial balance that has already been reported.

It is not technically a mandatory activity, which is precisely why it gets skipped — and why reported numbers then move after the fact. Treat it as mandatory.

7.1 The ledger calendar

Path General ledger > Calendars > Ledger calendars (also General ledger > Period close > Ledger calendars)

This page is where you change the status of a period, module or sub-ledger, and define which users or user groups may post to a specific period or module.

The Ledger calendar page

Fields on the page

7.2 Period status lifecycle

Figure 7 — Period status transitions, and which ones are one-way

7.3 What each module parameter actually controls

The module list on the ledger calendar is not self-explanatory, and setting the wrong one produces either a false sense of security or an unexpected posting block. This is what each parameter governs:

7.4 Mass financial period close — closing many legal entities at once

Where you run several legal entities on the same fiscal calendar, you do not need to open each one. The ledger calendars page updates period status and module access across companies in one pass.

Path General ledger > Period close > Ledger calendars

1. Select Edit.
2. Select the period whose status you want to modify.
3. Select the legal entities to update. To select all quickly, use the check mark at the upper left of the grid.
4. Select Update module access to define posting access to a module. You can also edit records one by one in the grid, but the button is far quicker across multiple entities.
5. In Application module, choose the module to update, then Select.
6. In Access level, choose All, None, or a specific user group, then Select.
7. Select Update.
8. Select another period, choose the legal entities, then Update period status and set On hold, Open or Permanently closed.
9. Select Update.

At the year end, every organisation has to post adjustment entries to comply with accounting practice and statutory audit requirements. There are two ways to do it. You can put them through a general journal — but then nothing distinguishes an operating entry from a year-end close adjustment. Or you can use the closing period adjustment form, which keeps the two populations separate. For anything that will be looked at by an auditor, use the second.

8.1 Creating the closing sheet

Path General ledger > Period close > Closing period adjustments

1. Select New to create a line for a closing sheet in a particular posting layer for the fiscal year being closed. The posting layers available are Current, Operations and Tax.
2. Enter or select an identifier and a name for the closing sheet. Several closing sheets can be created for each year, but each must have a unique identifier in the Closing sheet field.
3. Select a value in the Type field. To make closing adjustments for the whole year and keep them separate from the daily postings in the last period, select Closing.

Creating a closing sheet

1. On the General tab, specify the period the adjustments apply to — enter the financial year start and end dates in the From and To fields.
2. In the Post field, specify the posting date for the adjustments.
3. Select Closing accounts.

The General tab, and the Closing accounts button

8.2 Loading balances and posting adjustments

1. The closing sheet form opens. Select Load balances.

Loading balances into the closing sheet

1. Select Filter to choose the accounts to bring onto the closing sheet.
2. Select the Delete existing accounts check box to clear what is already there, then OK. The balances of the selected accounts appear in the Closing accounts form.
3. Select an account and choose Transfers to adjust the balance of one account and transfer it to another.

The Transfers button on the Closing accounts form

1. In the adjustment transfer form, select the main account, enter a description, select the offset account and the amount. Save and close the form.
2. Select Post to post the balances and adjustments on the closing sheet.

Posting the closing sheet

At the end of a fiscal year you must run the year-end close process to transfer opening balances into the new year. Most organisations run it more than once: the first run moves the balances into the new fiscal year, and the process is then re-run as many times as required to move the balances from adjusting entries into the new year. Re-running is normal and expected, not a sign that something went wrong.

9.1 What the process actually creates

Two types of transaction are possible.

Prerequisites

• A fiscal year must exist for the year the balances are being transferred to.
• A retained earnings ledger account must exist in the balance sheet for the retained earnings amount to be transferred to.

9.2 Preparing for the year-end close

Figure 8 — Year-end close: preparation

9.3 Validate the fiscal year close parameters

Path General ledger > Ledger setup > General ledger parameters > Fiscal year close

General ledger parameters — Fiscal year close section

9.4 Year-end close posting setup

Confirm that a main account is listed for the Year-end result automatic transaction. This should be your retained earnings account. Without it the close has nowhere to put the profit and loss balances.

Path General ledger > Posting setup > Accounts for automatic transactions

Accounts for automatic transactions — Year-end result

9.5 Validate main accounts

Path General ledger > Chart of accounts > Accounts > Main accounts

• Verify that the Main account type field is correctly set for each main account. The main account type determines whether a balance is brought forward as an opening balance or closed into retained earnings.
• The balance of a main account can be transferred to a different main account during the year-end close by entering the new account in the Opening account field. This is typically used for balance sheet accounts where an account is being deactivated and replaced for the new year.

9.6 Define the year-end close template

The template defines the group of legal entities the close will run for. It is reused each year and can be modified as the organisation changes.

Path General ledger > Ledger setup > Year-end close template setup (or from General ledger > Period close > Year-end close)

1. Set the Group name and select the fiscal calendar. The group name should identify the group of legal entities included — many organisations set templates up by geography.
2. Add legal entities, either by selecting them individually or by selecting an organisational hierarchy. Only legal entities that use the same fiscal calendar can be grouped together, because the year-end close runs by selecting a fiscal year rather than a date, and fiscal years vary between calendars. Where a hierarchy is chosen, only entities within it that use the selected calendar are added.
3. Define the retained earnings main account for each legal entity.

Year-end close template — group, fiscal calendar and legal entities

The retained earnings account populates per legal entity

9.7 Financial dimensions — the decision that drives performance

The Financial dimension tab defines which financial dimensions are used on the opening transaction. The setup applies only to the legal entity selected in the Legal entities grid, so it must be repeated for every entity.

Financial dimension settings on the year-end close template

Transfer balance sheet dimensions

This specifies whether the financial dimensions on transactions posted to balance sheet accounts are maintained on the opening transaction. As a best practice this should be set to Yes.

The balance sheet setting does not affect existing balances in retained earnings — those are determined by the profit and loss dimensions. If fiscal year 2019 was the first year closed and Close all was used for Department and Cost center, a separate retained earnings account was created for each department-and-cost-centre combination. When 2020 is closed, the retained earnings from the previous year remain exactly as posted, even if Transfer balance sheet dimensions is set to No. Balances posted to retained earnings from previous year-end closes are never changed.

Transfer profit and loss dimensions — Close all versus Close single

This specifies which financial dimensions on transactions posted to profit and loss accounts are transferred to the retained earnings main account. First identify the dimensions relevant to the legal entity — which includes any dimension posted against during the year, even one that is no longer part of an active account structure. Then define each as Close all or Close single.

9.8 Validate year-end close

From Dynamics 365 Finance version 10.0.41, the Validate year-end close feature runs checks before the close, detects issues and suggests a resolution. It helps ensure accurate ledger balances in both accounting and reporting currencies, and advises on best practice for managing large dimension sets. Select the target legal entity and the target year.

Path General ledger > Period close > Year end close > Validate year-end close

9.9 Run the year-end close

Figure 9 — Year-end close: execution

Path General ledger > Period close > Year-end close

1. Select the year-end close template. New templates can be added or existing ones modified from here by selecting Year-end close template setup.
2. On the Action Pane, select Run year-end close (shown as Run fiscal close in earlier versions).

Selecting legal entities for the year-end close run

1. Select all legal entities, or a subset. On the first run of a fiscal year you will usually select all of them to create beginning balances everywhere. On later runs, select only the entities that adjusting entries were posted for.
2. Select the fiscal year to run against. Where more than one closing period exists for the last period of the year, the Period name field becomes available so you can choose which closing period the closing transaction posts to.
3. Enter a voucher number. The same voucher number is used for every selected legal entity, and it is not generated from a number sequence. Include the fiscal year in the voucher number — it makes the year-end voucher trivial to find later.
4. Leave the default batch execution on. The year-end close defaults to batch because it is a long-running process; once initiated you can return to other work.

Year-end close run parameters

After completion, a record is created for each combination of legal entity and fiscal year. You see records only for legal entities you have access to. Each record carries the system date and time the process ran, and a direct link to the vouchers created.

9.10 Re-running versus reversing

These two are frequently confused, and the difference matters because one deletes your entries and the other does not.

9.11 Close-of-year transactions report

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

Select the year-end date for which to run the report.

Close-of-year transactions report parameters

Close-of-year transactions — report format

9.12 Making the year-end close faster

For organisations with large data volumes, the year-end close can become the longest single process in the finance calendar. Four levers are available.

Optimize year-end close

The Optimize year-end close service add-in moves the heavy year-end processing out of the Application Object Server and onto a microservice. The benefits are improved performance and a much reduced impact on the SQL database during the run, which frees resources that would otherwise affect other users’ daily operations. It is available from Dynamics 365 Finance version 10.0.31, and was backported to 10.0.30 and 10.0.29 with the latest quality update.

To use it, install the Optimize year-end close service add-in and enable the Optimize year-end close feature in Feature management. The close then checks whether both prerequisites are met and, if so, creates a year-end close service job per legal entity and runs the close on the microservice; Finance listens for completion and updates the results. Disabling the feature returns you to the standard closing logic.

With the feature enabled, two new columns — Results and Status — appear on the Year-end close page, in the Year-end close results dialog, and in the balance sheet financial dimension transfer options. A Balance sheet financial dimensions FastTab also becomes available on the template, letting you specify balance sheet dimensions in the same level of detail already possible for profit and loss accounts.

Clean up dimension sets

When the year-end close runs, each dimension set balance is rebuilt, which has a direct impact on performance. Many organisations accumulate dimension sets that were used once or created speculatively, and every one of them is rebuilt at year end. Evaluate them and delete what is unnecessary. Unnecessary sets also slow the BudgetDimensionFocusInitializeBalance batch job.

Path General ledger > Chart of accounts > Dimensions > Financial dimension sets

Close as many dimensions as possible using Close single

Closing to a single dimension value — which can be a blank value — means the system calculates far less detail when determining retained earnings balances. Evaluate the organisation’s genuine reporting requirement and use Close single wherever the detail is not actually needed in the opening balance.

Identify and constrain highly volatile dimensions

A highly volatile dimension provides little or no reuse, either by itself or in combination. There are two kinds: one that is individually volatile, typically appearing on only a single transaction or small sets of transactions; and one that becomes volatile in combination with other dimensions because of the permutations generated. Either can significantly affect year-end close performance. Define all of them as Close single.

The year-end close moves balances. It does not prepare the system to transact in the new year. That is a separate exercise, and one that can and should be done in advance — ideally before the year actually turns, because the alternative is a first working day on which nobody can raise a purchase order.

10.1 Identifying what needs to change

Three categories of number sequence need to be reviewed:

1. Financial journal names where the number sequence runs by month or by period.
2. Source documents, including the voucher number sequence for the source document on the number sequence template — for example purchase order and sales order numbers, which may be defined by site.
3. Posting voucher number sequences for source documents on the number sequence template — internal invoice number, credit note voucher and similar, which affect the accounting entries.

Once identified, compile the sequences into Excel in the upload format so they can be loaded through data management rather than keyed.

10.2 The new-year checklist

10.3 GST reference number sequence group

GST transactions are differentiated by a unique number sequence. Where a different sequence is required for the address of each warehouse or legal entity, create a reference number sequence group and assign it to the addresses.

Path Tax > Setup > Sales tax > India > GST reference number sequence group

1. Select New.
2. Enter a name and a description.

Creating a GST reference number sequence group

1. On the Details FastTab, define number sequences for each reference.

Assigning the group to the legal entity

Path Organization administration > Organizations > Legal entities

1. On the Addresses FastTab, select More options > Advanced.

1. On the Tax information FastTab, select Add.

1. In the Name or description field, enter a value.
2. On the GST FastTab, in the GSTIN/GDI/UID field, select a value.
3. In the Reference number sequence group field, select a value.
4. Set the Primary option to Yes, and select Yes to acknowledge the message.

GST FastTab with the reference number sequence group assigned

1. Save the record and select Close. Repeat for all other required addresses for the legal entity.

Assigning the group to warehouses

Path Inventory management > Setup > Inventory breakdown > Warehouses

1. On the Addresses FastTab, select Advanced.

1. On the Tax information FastTab, select Add.

1. Enter a name or description; on the GST FastTab select the GSTIN/GDI/UID value.
2. Set Primary to Yes, and select Yes to acknowledge the message.

Warehouse tax information with GST details set as primary

1. Save the record and select Close.

Everything in this section comes from differences that actually arose and had to be rectified. There is a common thread running through almost all of them: master data that is changed part-way through a financial year does not retrospectively change what has already been posted, so the sub-ledger and the ledger diverge and stay diverged until somebody passes a journal.

11.1 Accounts payable

If a change has already been made

• If a vendor group was changed mid-year, post a journal voucher crediting the balance of the original summary account to the new main account used.
• If an item group needs to be changed, post the corresponding journal voucher.
• Maintain a separate account for manual adjustment entries to vendor balances, used only for year-end adjustments.
• Where expenses are loaded onto inventory after the material is booked, a single ledger account is credited as expense with the offset being the inventory movement, per the item posting profile Profit/Loss posting types. If separate ledger accounts are needed, add a charge code on the purchase order for the service item being loaded and configure it — the item adjustment account posted through the posting profile is then nullified.

11.2 Accounts receivable

If a change has already been made

• Where a customer group was changed, use a journal voucher to debit the existing balance of the original summary account to the new main account associated with the changed group.
• Where an item group was changed on an item, post a journal voucher to reconcile sales and the other ledger accounts associated with the original item group.
• Maintain a separate account for manual adjustments to customer balances, used only for year-end adjustments.

11.3 Stock transfer

Known behaviours to plan around

11.4 Production

11.5 Inventory valuation

1. Where the setup in the item model group is changed for some items, the stock sheet shows inventory valuation per the updated item model group, but inventory that has already flowed into the financial ledger does not change retrospectively — creating a mismatch to that extent.
2. If Include physical value is unticked in the item model group, the value received on the GRN does not flow into the expected cost for valuation purposes, creating differences in inventory valuation.
3. If Post financial entry is unticked, financial entries are not posted even though physical stock is negated, creating a difference between the physical stock sheet and the financial stock.
4. Production orders for which a picking list or report as finished has been posted must be ended, and reviewed periodically at a frequency management decides. If they are not ended on time, the financial cost of inventory does not flow to the trial balance.
5. Purchase orders for which a GRN has been posted must be invoiced, and reviewed periodically. If they are not invoiced, financial cost does not flow and inventory valuation is wrong.
6. Inventory closing is to be processed monthly, with the closing date in the following month decided by management. After the inventory period is closed, no entry related to inventory can be posted in that period.
7. Costing of positive inventory adjustments depends on the method: under FIFO or weighted average the user must define the unit price manually; under moving average the system picks the running average automatically; under standard cost the system picks the predefined standard cost.

11.6 Retail

Matching rules for retail reconciliation

• Sales as per store = Bill wise POS sale all report, where store data has moved to the D365 database.
• Net amount of Bill wise POS sale all = total amount of the sales register, where statement posting is complete for the period.
• Net sale of the sales register = revenue booked in the trial balance.
• Total of the sales register plus round-off booked in the trial balance (posting type Ledger journal, number series as defined for store collection) = total per the store-wise collection sales report.
• Total per the store-wise collection sales report = collection posted in the trial balance for all tender types, ledger account by ledger account, per the number sequence defined for store collection.
• All retail customer balances must be zero.

Where retail differences come from

Functionality not available in POS

• E-invoicing B2B is not available in AX/D365 POS. Post the invoice at POS, then the statement in D365, and generate the e-invoice from D365.
• TDS and TCS functionality is not available in POS.
• The system does not check inventory at POS invoice posting; it checks at statement posting in D365.
• Export to Excel is not available on POS — reports can be viewed on screen only.
• The receipt ID generated on POS does not flow to the invoice ID in D365; D365 generates its own invoice number and the receipt ID is not held on customer transactions. Custom reports can bridge this.

This is the control framework for the close. Each row states a difference that arises in practice, why it arises, the test that detects it, the report that evidences the test, and how it is put right. Run the tests every month rather than discovering the differences at year end, when the balances are twelve months old and nobody remembers the underlying transaction.

12.1 Sub-ledger to ledger differences

12.2 Goods received but not invoiced

12.3 Inventory management differences

12.4 Inventory valuation — the seven cases

These are the combinations that produce a wrong inventory valuation, distinguished by whether Include physical value is ticked in the item model group and what remains unposted.

13.1 Opening balances and cut-over

Note – A detailed Cut over discussion will be scheduled with respective stakeholders before go-live.

We are going live mid-year. Inventory valuation is not finalised on the cut-off date. Can we upload quantities now and values later?

You can, but it costs you. If opening quantities are uploaded without value, or at a tentative value, all issues from those quantities flow into costing at that value. When the actual values are loaded later, every issue has to be corrected by manually selecting the price — a tedious exercise given the volumes, and one that continues until the opening stock is exhausted. If the issues are not corrected manually, inventory costing will differ from actual cost and the valuation will be wrong.

The better approach is to finalise the inventory valuation for the cut-off date as quickly as possible and upload quantity and value together. An organisation moving to D365 on 1 April can typically finalise closing inventory valuation within five days and then load both. Continuing to operate in the legacy software during those five days is not advisable; once error-free opening stock with value is loaded, the five days of transactions can be recorded in D365 as well.

The alternative is to pass a financial entry directly in the books, but such an entry will invite an audit observation and will need explaining.

We need to change the inventory valuation method — say FIFO to weighted average. What happens?

There are mismatches in inventory costing when the method changes. The remedy is the same as at cut-over: close the inventories with value on the cut-off date so that costing is error-free from the date of change onwards. Use Inventory management > Periodic > Closing and adjustment > Close procedure > Close, fill in the closing date, set the specification to Total or Item number, and select OK.

In practice these changes are rare in running operations, and are generally neither recommended nor accepted by auditors unless there is a valid reason for the change.

13.2 Costing and returns

Physical inventory was issued at expected cost and billed, and now a sales return has arrived. Why is the cost wrong?

Where physical inventory is issued at expected cost — which happens when the actual invoice has not been booked by then — and the finished inventory is invoiced before the purchase invoice and the loading of other expenses, the costing mismatches actual cost. It is further misstated when a sales return makes the physical quantity positive again without picking up a value. The same problem occurs when production orders are closed but the physical finished goods were invoiced at expected cost, and it intensifies when a sales return then lands on those invoices.

Book all purchase invoices and all expense loading onto inventory so that costing is accurate. When physical quantity is received back through a sales return, pick the right COGS by selecting the batch, or by entering the value manually. Where the sales invoice with the particular batch is not selected on the return, fill in the return cost price manually at Sales order > Line details > Setup tab > Return cost price.

What happens when sales and purchase returns are not mapped to the original invoice?

In D365, receipt values are set by the user while issue costs are calculated by the system. A sales return is a receipt of goods, so the right cost has to be picked for correct valuation. On a purchase return, if the original purchase invoice is not mapped, the system derives a value from LIFO, FIFO or whatever valuation method applies. Both sales returns and purchase returns should be mapped to the original invoices against which the return takes place.

Why does inventory in transit come back at a different cost?

When material is in transit between branches, the receiving branch books the goods at an average price of all the in-transit batches. If location A sends batch 1 at 10 and batch 2 at 11, location B receives both at 10.50. That creates a mismatch between the actual in-transit inventory value and the received value at B. This is the base product behaviour; a customisation exists that books inventory at the receiving location based on the order of the in-transit order from the originating location.

COGS is booked in the trial balance. How do we prepare a balance sheet from it?

Use the identity: COGS = consumption of RM/PM + purchases of finished and traded goods + opening of FG, WIP and traded − closing of FG, WIP and traded. The balance sheet can be prepared from that equation.

13.3 Year-end close

Why can I not see previous year closings in the History section of the Year-end close page?

The system maintains subsequent year-end close process information. Vouchers from all year-end close processes can be viewed on the Voucher transactions page.

The year-end close fails because the reporting currency does not balance. What does that mean?

This can occur after enabling the Awareness between ledger settlement and year-end close feature. With it enabled, settled ledger transactions are excluded from the opening balance of the next year. Ledger settlement is performed only for the accounting currency, and validation only ensures that accounting-currency debits equal credits — the reporting currency amounts for those transactions are not validated and may not balance. Ledger settlement also does not automatically calculate and post a gain or loss in the reporting currency. A gain or loss transaction must therefore exist in the reporting currency when performing ledger settlement; if it is not included, the year-end close reports an out-of-balance.

Why is ledger settlement automation not processing December’s transactions?

The Automate ledger settlements feature runs for transactions dated from the first day of the fiscal year to the current date when the occurrence runs. For fiscal years ending 31 December, an automation scheduled for the first of every month runs on 1 December and next on 1 January — so transactions dated 2 to 31 December are never considered. Change the January occurrence to run on 31 December instead.

Where do the year-end close templates live now?

With the General ledger year-end enhancements feature enabled, template setup moved to its own page, Year-end close template setup, and is separated from running the close. The Year-end close page then behaves like the General ledger foreign currency revaluation page, listing each time the close was run or reversed, with an accounting manager initiating the run from there.

Print this, or rebuild it as a template in the Financial period close workspace. Sign-off columns are deliberately left blank.

Accounts payable

Accounts receivable

Cash, bank and fixed assets

Production and inventory

General ledger and tax