Year end closing is a concept which prepares the accounting books for the next accounting year. Note that this is unrelated to the calendar year but to the accounting year of the company instead. To muddy the waters even more: there’s no inherent requirement for this process to be run at least once a year. If the first book year of the company spans more than a year, then this procedure will be run more than a year after starting up the company.
This procedure freezes the accounting data in the year to be closed as described in the previous section. Additionally it clears out the profit and loss accounts: setting all the account balances to zero by posting their balance to the retained earnings account. Some businesses prefer to create a retained earnings account for each book year they close. LedgerSMB supports that use-case by allowing the user to select which retained earnings account the balance should be posted to.
Some companies want may to include additional transactions related to dividend payment regarding the current year: reduce the equity by the amount paid as dividends in transactions marked as “year-end transaction”. Support for this use case isn’t available in LedgerSMB 1.3.