Soft Closing Vs. Hard Closing Oh…and Mock Closing (say Wha?)

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Every once in a while I see a question in the Community topic feed asking about this topic, so I thought I would write a blog consolidating everything about this topic.  You may be new to Financial Edge and this is going to be the first fiscal end of year for you, or you may have been using FE for years now and just didn’t know about the different closing processes.  Hopefully this will clear all of that up for you.

First and foremost, unlike some other accounting systems, there is absolutely nothing you ever have to do in order to close a fiscal period or fiscal year.  There is no process required for closing out your revenue and expense accounts and rolling your net income/loss to a fund balance account.  In fact, at the end of the day, you could ignore everything suggested in this article, and function just fine.  But I don’t recommend it.

Mock Closing

Whenever you run a balance sheet report or statement of financial position report, the system does a mock closing for you.  During this process the system looks at all of your revenue and expense activity (and I mean all of it, potentially going back to the earliest fiscal period in your system).  This could be why your report may take longer and longer to run each time because there are more financial transactions to consider.  (I will touch on this later).  There is nothing for you to do for this to occur as the report is set up automatically to do this.  This process will calculate the change in net assets that must be reflected on your report.

Soft Closing

To me, soft closing is simply a control issue.  It is not permanent, as a soft closed fiscal period can always be reopened.  This is a function that should reside with your system administrator; access is controlled through user security.  The purpose of soft closing is to prevent any financial activity from being recorded that could alter your financial reports without your knowledge. 

Think of this:  the new month has arrived and you are running financial reports in order to review them and present them to management, finance committee and board.  The last thing you want to happen is someone creates an entry in your system that changes this information.  To do this simply go to Configuration, Fiscal Years, Open the appropriate fiscal year and mark the box for the fiscal period.
 
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This prevents anything and everything: Journal Entries, Postings from cash receipts, invoices, etc.  It even will prevent a pledge/gift posting from Raisers Edge.  Should you desire to have something post to that period simply go back in and uncheck the box.

I highly recommend that you make this part of your monthly process, even if you haven’t reconciled your bank register yet.  You can always reopen the period if need be.

Oh, one more thing, you can also soft close all those future fiscal periods so that no one accidentally posts something in the future.  It is a lot easier to do this and open it at the start of each new month, then to spend the time finding a missing transaction because it is posted in the future.
 
Hard Closing

While a hard closing is never required, I highly recommend doing it.  In fact, I have seen Financial Edge databases with 20 fiscal years of activity that were never closed.  On the opposite side of the spectrum, some organizations hard close their fiscal year the minute the board approves the audit.
So, what does hard closing do?
  • It permanently closes a fiscal year.  Once hard closed you do not have the ability to reopen it on your own.  If necessary you can engage Blackbaud to reopen a hard-closed fiscal year, but that has certain ramifications.  Don’t let this scare you.  Once the audit is approved by the board, why would you ever need to post another journal entry.  Of course, this is only recommended if you have posted any audit adjusting journal entries.
  • It will record the change in net assets to your fund balance accounts.  If you never hard close a fiscal year, you will never see the balance on your fund balance account record change.  That is assuming you don’t make any manual journal entries to that account.  In fact, when you don’t see that account balance change, because you haven’t hard-closed any fiscal years, DO NOT record journal entries to reflect your yearly net income/loss.  If you do this, you will get inaccurate balance sheet reports and the account balance will get messed up should you ever hard close.
  • The system will optimize that fiscal year.  Optimizing makes your system run more efficiently by calculating, behind the scenes, summary total debit and credit amounts for each fiscal period of each account.  This allows reports to run quicker as a result.  Rest assured, all of your detail remains.  FYI…you can optimize your fiscal year even if you don’t hard-close it.  This will not prevent you from posting any additional journal entries to that fiscal year.

You access the hard-closing function through Administration.  Of course, you want to make sure that this functionality only resides with certain users.  You must have two open fiscal years remaining for this to occur.  So, if you are closing last year, you need to have next fiscal year set up in addition to the current fiscal year.

Here is a great KB solution describing this process:  https://kb.blackbaud.com/articles/Article/75639

If you have any questions, feel free to message me.

 
News ARCHIVED | Financial Edge® Tips and Tricks 10/30/2017 11:35am EDT

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