Year-End Closing

Year-end closing is the process of finalizing a fiscal year by transferring all revenue and expense account balances to an income summary account, and then moving the net income (or loss) to retained earnings. This resets revenue and expense accounts to zero for the next fiscal year while preserving the cumulative profit in equity.

Purpose

• Close all revenue accounts by debiting them and crediting an income summary account
• Close all expense accounts by crediting them and debiting the income summary account
• Transfer net income (or loss) from the income summary to the retained earnings account
• Verify readiness before executing -- all periods must be closed and all entries posted
• Allow reopening a closed year in exceptional circumstances

Entity Attributes

Year-End Closing

Field	Type	Description
id	integer	Primary key
company_id	integer	Owning company
fiscal_year_id	integer	Fiscal year being closed
status	enum	pending, in_progress, completed, reopened
income_summary_account_id	integer?	GL account for the income summary
retained_earnings_account_id	integer?	GL account for retained earnings
revenue_closing_entry_id	integer?	Journal entry that closes revenue accounts
expense_closing_entry_id	integer?	Journal entry that closes expense accounts
income_summary_closing_entry_id	integer?	Journal entry that transfers to retained earnings
opening_balance_entry_id	integer?	Journal entry for the next year's opening balances
total_revenue	decimal(12,3)?	Sum of all revenue accounts
total_expenses	decimal(12,3)?	Sum of all expense accounts
net_income	decimal(12,3)?	Revenue minus expenses
executed_by	integer?	User who executed the closing
executed_at	datetime?	Execution timestamp
reopened_by	integer?	User who reopened the year
reopened_at	datetime?	Reopen timestamp
notes	text?	Notes (English)
notes_ar	text?	Notes (Arabic)
created_at	datetime	Creation timestamp
updated_at	datetime	Last update timestamp

Relationships

API Endpoints

Method	Path	Description
GET	/api/accounting/year-end-closing	List all year-end closings (paginated)
GET	/api/accounting/year-end-closing/{fiscalYearId}/readiness	Check if a fiscal year is ready to close
GET	/api/accounting/year-end-closing/{fiscalYearId}	Get the closing record for a fiscal year
POST	/api/accounting/year-end-closing/{fiscalYearId}/execute	Execute the year-end closing
POST	/api/accounting/year-end-closing/{fiscalYearId}/reopen	Reopen a closed fiscal year

State Diagram

Step-by-Step Workflow

Follow these seven steps to close a fiscal year:

Step 1: Close All Fiscal Periods

Ensure every fiscal period in the year is closed. No journal entries should be posted to closed periods.

POST /api/accounting/fiscal-periods/{periodId}/close

Repeat for all 12 periods.

Step 2: Post All Draft Journal Entries

Review and post any remaining draft journal entries for the fiscal year.

POST /api/accounting/journal-entries/{id}/post

Step 3: Lock Opening Balances

If opening balances exist for the fiscal year, they must be locked.

POST /api/accounting/opening-balances/{id}/lock

Step 4: Run Readiness Check

Verify the fiscal year is ready to close.

GET /api/accounting/year-end-closing/{fiscalYearId}/readiness

Response 200 OK

{
  "data": {
    "fiscal_year_id": 1,
    "fiscal_year_name": "2026",
    "is_ready": true,
    "checks": {
      "all_periods_closed": true,
      "no_draft_entries": true,
      "no_pending_entries": true,
      "opening_balance_locked": true,
      "no_existing_closing": true
    },
    "summary": {
      "total_revenue": "850000.000",
      "total_expenses": "620000.000",
      "net_income": "230000.000"
    }
  }
}

If is_ready is false, the checks object will indicate which conditions are not met.

Step 5: Configure Closing Accounts

Choose the income summary and retained earnings accounts when executing.

Step 6: Execute Year-End Closing

POST /api/accounting/year-end-closing/{fiscalYearId}/execute

Request

{
  "income_summary_account_id": 35,
  "retained_earnings_account_id": 31,
  "notes": "Year-end closing for fiscal year 2026",
  "notes_ar": "إقفال نهاية السنة المالية 2026"
}

Response 201 Created

{
  "data": {
    "id": 1,
    "fiscal_year_id": 1,
    "fiscal_year": {
      "id": 1,
      "name": "2026"
    },
    "status": "completed",
    "status_label": "Completed",
    "income_summary_account_id": 35,
    "retained_earnings_account_id": 31,
    "revenue_closing_entry_id": 120,
    "expense_closing_entry_id": 121,
    "income_summary_closing_entry_id": 122,
    "opening_balance_entry_id": 123,
    "total_revenue": "850000.000",
    "total_expenses": "620000.000",
    "net_income": "230000.000",
    "executed_by": 1,
    "executed_at": "2026-12-31T23:59:00.000000Z",
    "notes": "Year-end closing for fiscal year 2026",
    "notes_ar": "إقفال نهاية السنة المالية 2026",
    "created_at": "2026-12-31T23:59:00.000000Z"
  }
}

Step 7: Verify Closing Journal Entries

The system creates up to four journal entries:

Entry	Purpose	Example
Revenue closing	Debits all revenue accounts, credits income summary	JE-2026-0120
Expense closing	Credits all expense accounts, debits income summary	JE-2026-0121
Income summary transfer	Transfers net income to retained earnings	JE-2026-0122
Opening balance	Carries forward balance sheet accounts to next year	JE-2026-0123

Closing Journal Entry Detail

For a year with 850,000 KWD revenue and 620,000 KWD expenses:

Revenue Closing Entry

Account	Debit	Credit
Sales Revenue	700,000.000	--
Service Revenue	150,000.000	--
Income Summary	--	850,000.000

Expense Closing Entry

Account	Debit	Credit
Income Summary	620,000.000	--
Salaries Expense	--	350,000.000
Rent Expense	--	180,000.000
Utilities Expense	--	90,000.000

Income Summary Transfer

Account	Debit	Credit
Income Summary	230,000.000	--
Retained Earnings	--	230,000.000

Business Rules

Rule	Description
All periods must be closed	Cannot execute if any fiscal period is still open
No unposted entries	All draft/pending journal entries must be posted or cancelled
Opening balance locked	If an opening balance exists, it must be in locked status
No duplicate closing	Cannot close a year that is already closed
Reopen reverses entries	Reopening reverses all closing journal entries
Income summary account	Must be an equity-type account designated for temporary use
Retained earnings account	Must be an equity-type account for accumulated profits
Atomic operation	The entire closing executes in a database transaction
Company scoped	Closings are filtered by the authenticated user's company