Unlike many accounting systems, QuickBooks does not require you to close your books at the end of an accounting period. But is that a good thing? Most accountants would argue that it is not!
At a minimum, you should update the QuickBooks closing date annually to ensure that the data will continue to match the tax return prepared by your accountant. But even when using this feature, it’s often deployed way too late in the game.
Generally, when you are ready to turn over your QuickBooks file to the accountant for periodic or year-end review, you will want to update your closing date immediately to prevent accidental changes (such as voiding a check or deleting a bill). Many users often wait until they get final adjustments back from the accountant. That is way too late!
When you set a closing date, transactions entered before the closing date are protected by a special permission. The permission lets you control who has the ability to change these transactions. With passwords, and a closing date, users will be able to view transactions but not necessarily have the ability to change the information.
The Closing Date and Closing Date Password can be set from the Company menu. Simply choose the option to Set Closing Date and click the Set Date/Password button.
When setting the closing date and password, you can also choose to exclude non-posting transactions such as estimates, sales orders and vendor purchase orders.
Note: Only the QuickBooks Administrator can enter or change the closing date and password. Because the Administrator has unlimited access to the data file, it is impossible to restrict the Administrator from changing prior-year transactions. QuickBooks will merely display a warning message, asking the user to confirm the change. To further protect against prior period changes to the data file, do not allow additional users to enter, change or delete transactions dated prior to the closing date.
When a closing date is used, changes that have been made to transactions dated prior to the closing date can be easily tracked by running a Closing Date Exception Report. This can be found under Accountant & Taxes in the Reports Menu.
Prior to “closing” the books for the year, you may wish to perform some of these basic year-end procedures:
Once your accountant reviews your data, it may be necessary to enter adjusting journal entries that will finalize the books. Simply sign on to QuickBooks as the Administrator and post the changes to the appropriate accounting period. A popup window will appear asking for the password as shown below.
The following are some examples of adjusting entries:
*In QuickBooks, prior year earnings automatically roll into a special Retained Earnings account. For partnerships, LLCs, and sole proprietorships, you must create an adjusting entry to move earnings out of Retained Earnings and into another capital or equity account.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.