SAP Financial Accounting (SAP FI) Practice Exam

What are the two main functions of the balance carry forward program?

1. Sets the opening balance and prepares budgets

2. Aggregates profit and loss accounts into retained earnings and sets opening balance for new year

3. Reconciles accounts and closes fiscal year

4. Translates currency and logs transactions

The correct answer is: Aggregates profit and loss accounts into retained earnings and sets opening balance for new year

The balance carry forward program primarily serves two key functions which are critical for the seamless transition between fiscal years in financial accounting. First, it aggregates profit and loss accounts into retained earnings. This process ensures that the net profit or loss for the fiscal year is effectively transferred to the equity section of the balance sheet, specifically into retained earnings, which allows for an accurate representation of a company's accumulated profits over time. Second, the program sets the opening balance for the new fiscal year. This sets the stage for all financial activities in the upcoming year by establishing a baseline of financial data from which all subsequent transactions will be recorded. This is crucial for maintaining continuity in financial reporting and ensuring that all financial statements reflect an accurate portrayal of the company's financial position at the start of the new fiscal year. In summary, the balance carry forward program helps to maintain continuity and accuracy in financial reporting by summarizing profit or loss into retained earnings and establishing starting balances that will inform financial decision-making and reporting for the upcoming period.