Unveiling the Myth: What Should a Financial Closing Look Like?

Since implementing Odoo, I've always been haunted by a recurring question: Why isn't there a closing and opening entry in Odoo? This question has arisen in every implementation I've been involved in, and even in other discussions. Many people wonder why Odoo doesn't perform this type of operation. I believe this is a good time to try to understand the various reasons and why Odoo proposes it in this way.

The main confusion arises from a new approach to accounting, with currently two methods, although one of them is much more accepted and implemented.

Periodic Accounting

In periodic accounting, a manual task known as the closing and opening entry is performed annually. It involves creating a closing entry at the end of the year with all accounts to zero and a new entry on the first day of the year with all the accounts we intend to keep, i.e., eliminating income and expense accounts.

This process was originally done to close the year, but it fundamentally addressed a technical issue. By opening and closing the year, we only need to use the data from the queried year, simplifying queries. The major drawback of this type of analysis is that we may lose relevant data from year to year, as we only see aggregated data from the previous year.

Periodic accounting is the type of accounting that has been historically used the most and is the most accepted in Spain.

Continuous Accounting

For some time now, a new way of calculating a company's accounting data using the entire history has emerged. This approach avoids creating such movements and, depending on the account, considers whether we should add the entire history to calculate the opening balance. Thus, when closing the fiscal year, we only need to make an entry where we move the result of the exercise. The main advantage of this working method is that we don't need to regenerate all the data (with the consequent cost in resources), and we don't lose the history of the movement when changing the year.

However, this type of accounting is little known and not even taught, so most people believe that the only correct way to manage accounting is by using periodic accounting.

Is the use of continuous accounting legal in Spain?

In the general accounting plan, it is not specified at any point that periodic accounting or any other method must be used. In fact, it also does not mention any word about the opening entry, so we can be sure that using this system is not mandatory.

The problem we face is that the tradition has been to use the closing and opening entry. Additionally, ignorance of this method creates the feeling that the only accepted method is periodic accounting. Fortunately, this was never the case.

What type of accounting does Odoo use?

Since version 9, Odoo has opted for continuous accounting, simplifying the year-end closing, as the system can efficiently manage the calculation of old values.

Therefore, whenever someone asks why it is not necessary to make the opening and closing entry in Odoo, you can say that at no point in the General Accounting Plan is such an obligation specified, and Odoo uses the continuous accounting system.

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