Reserves and month-end close

At the end of each month the reserves are valued, currencies revalued, the bank reconciled, and the month closed so nothing more can be posted in it.

Reserves

Accounting > Reserves > Value the reserves works out, for a date and for each line of business:

• Written premium and earned premium over the last twelve months.
• Unearned premium: the part of each policy's premium for the days still to run, and the reinsurers' share of it.
• Deferred acquisition costs: the same part of the commission paid to get the business.
• Outstanding claims: what is still reserved on open claims, net of co-insurers, and the reinsurers' share.
• IBNR (claims incurred but not reported), by the method set for the line.
• Unexpired risk: extra reserve when the expected loss and expense ratios together go above 100%.

Assumptions sets, per line, the expected loss ratio, the expense ratio and the IBNR method (Expected loss ratio, Percent of outstanding claims or none). By line on a valuation shows the detail.

Post books the change in each reserve since what the ledger already holds, line by line: the balance sheet then shows the reserves at that date, and the income statement the change.

Revaluation

If you have open invoices or bank accounts in another currency, Revalue currencies on the month restates them at the month-end rate. The entry reverses itself the next day, so the following month starts from the original rates.

Closing a month

Accounting > Months lists each month with its number of entries. Close shows the checks first:

• Earlier months are closed (must be done).
• Debits equal credits (must be true).
• No draft journals (must be posted or deleted).
• Bank statements matched.
• Supplier bills approved.
• Reserves valued at month end.
• Foreign currency revalued.

The first three stop the close. The others are warnings: tick Close even with the warnings above to go ahead anyway. Once closed, nothing can be posted in the month; automatic entries dated in it go to the next open month. Users who see the accounts are told when a month is closed.

Reopen is for a mistake found later: only the main account holder can do it, it is recorded in the audit trail, and later closed months must be reopened first. Open the next month creates the next month ahead of time.

A suggested routine

1. Import the bank statements and match them (see the banking guide).
2. Approve the supplier bills of the month.
3. Post or delete draft journals, including accruals.
4. Value and post the reserves at the last day of the month.
5. Revalue currencies, if you have any.
6. Prepare the tax returns for the month.
7. Look at the trial balance and the income statement, then close.