What are Closing Journal Entries?
Closing Journal Entries are made at the end of each financial reporting period as part of the financial close process. They are used to zero out income and expense accounts for the period, also referred to as temporary accounts, in order to move balances to permanent accounts on the balance sheet such as retained earnings or stockholder’s equity. This resets income and expense accounts for the next reporting period. This is usually done using a temporary income summary account that contains all of the company’s revenues and expenses, or its net income, for the current accounting time period.
What is the process for preparing Closing Journal Entries?
At the end of the reporting period, the closing journal entries start by closing out the sales and other revenue accounts to a temporary account called income summary. In other words, the sales or revenue accounts are debited, and the income summary is credited.
The next step is to close out the expense accounts. They are credited and the income summary is debited. Once all income and expense accounts have been zeroed out to the income summary account, the net balance represents the company’s net income. The income summary account is the zeroed out and its balance is transferred to retained earnings or stockholder’s equity. Upon booking all closing journal entries, a final trial balance is prepared and a new reporting period begins.
What solutions does BlackLine offer for closing journal entries?
The BlackLine Journal Entry product automates the process for creating closing journal entries. This product is available by itself or as part of the BlackLine Financial Close Management solution, an integrated system of six products to handle all aspects of the financial close.
The BlackLine Journal Entry product is a complete Journal Entry Management system. It provides an automated solution for the creation, review, approval, and posting of journal entries. Journal entry templates ensure standardization across the organization, and validation rules check entries for errors before posting. The product allows for the automatic creation of closing journal entries as part of the financial close process. It also contains features for cloning of recurring journal entries and import of journal and journal lines from report writers or spreadsheets. Advanced features include integrated storage for journal entry supporting documentation, linkage to appropriate policies and procedures, and automatic posting and status tracking of journal entries for real-time updates.
The BlackLine Account Reconciliations product integrates with the Journal Entry product to automate and streamlines the account reconciliation process, a necessary step before closing journal entries can be booked. This product will also decertify an account balance if changes are made to the balance after closing journal entries are prepared. This identifies closing entries that require adjustment, in order to ensure the accuracy of financial statements.
In addition, The BlackLine Variance Analysis product monitors fluctuations in account balances, so that analysis of balance changes can easily be performed. This is a useful and necessary step in understanding financial results after closing journal entries are made.