QuickBooks Closing Entry is used to reconcile temporary accounts at the end of the year to transfer income and expense accounts to the Retained Earnings. This is a very critical part and has to be performed carefully. We are looking to ‘zero out’ income and expense accounts and then add fiscal year’s net income to the retained earnings.
QuickBooks is different from other traditional software programs, as there is no proper closing done at the end of the month/year. Your data is saved forever in QuickBooks until you decide to Condense it. Thus, improperly closed books mean that the existing information is vulnerable to all users who see it,i.e., you or the employees can make changes to the previous year’s data.
Therefore, properly closing entries in QuickBooks is a necessary task.
Note: It is not possible/feasible to view the automatic transactions very carefully, as opposed to manual adjustments that we record. Consequently, these adjustments are considered as ‘Closing Entry,’ though they are not real QuickBooks transactions.
The automatic year-end adjustments rely on the Fiscal year’s beginning month. The function of this program is to adjust income & expense accounts to zero them out so that you can start with a ‘New Fiscal Year’ with Zero Net income.
On the last day of your fiscal year, you can see Net income in the equity section of the QuickBooks balance sheet. QuickBooks desktop increases your retained earning equity amount from the previous year’s Net Income on the very first day of the fiscal year. Subsequently, it also decreases your net income by this same amount. The entire process allows you to start the new Fiscal Year with the ‘Zero net income.’
Closing the year is a mandatory step that has to be performed once at the year-end. After closing, you send the file to your CPA. Ensure that the data does not change and the data is entered for the correct period. If any mistake is done at this stage, it will lead to more work for the CPA in the following year.
We know that QuickBooks is a date-driven software and any mistake in the dates filled in will lead to huge discrepancies. If, however you face this problem due to some reason there is a way to correct it. Let’s see how can you amend this problem.
To rectify this problem, ‘Set Closing Date & Password’ in the Company Preferences. You can see that the information from your previous year /period is locked and this can only be changed if you enter the password.
One thing you need to ensure is that the password you use should not be the same as Login Password. Safeguard the password so that only you and or your CPA know about it. Additionally, the password can be changed whenever you want as per your business requirement.
Along with the recommended solutions and steps for troubleshooting, several reports can assist and speed up troubleshooting. To access these reports, Select Reports Menu>> Accountant & Taxes.
What are these useful reports? Let’s have a quick look.
The QuickBooks Audit Trail Report has all transactions that are there in the file, interchanges in history, what is deleted or voided, etc. If your client has set up a User ID for every person entering the transactions in QuickBooks, then the Audit Trail report will reflect all and any effects of the change. This makes it easier to find who performed the modifications to that file. However, if every person is sharing the same User ID, then you will not be able to see who made the changes, and only transactions and changes to the file will be shown.
This report reflects modified transactions or transactions added/ changed on or before ‘Closing Date.’ Closing date exception report will show the current transaction status at the same time will show the original transaction as well. This is quite helpful, as Closing Date is used to fix or lock data file to restrict users from making changes on or before a particular date.
For 2005 and newer versions QuickBooks makes an activity log for the voided/ deleted transactions where all info related to voided/deleted entries is set up (whether or not a closing date is set or if the transaction is from a previous reporting period). To know more info on it – double-click on the transaction and see more info on the report. You will see QuickBooks will show the result or impact of the Original transaction on ‘General Ledger.’
You can see the info of the exchanges given on the retained earnings. This feature is available in 2005 and the newer versions. To access this –Choose Lists Menu>>go to Chart of Accounts>> double-tap Retained Earnings Account.
You can see the paragraphs or passages that are made in mistake to the ‘Retained Earnings Account.’ Now double tap on the section to alter & revise the record required.
Along with the performing required solution to rectify any QuickBooks closing entry problem, one needs to ensure that specific tasks are completed confirming an organized and correct closing. There is a checklist that has to be completed before year-end closing. The below given are some required tasks that should be completed to ensure productive and precise closing of the accounting books.
QuickBooks with its various tools encourages you and your customers to plan next year efficiently. You can use the below ways to streamline your planning process.
The Cash Flow Projector will allow you to set-up a six-week review of your active and approaching money. With an organized plan of your money will ensure correct spending and utilization of the approaching & active money. The tool looks at your money, sales records & Records Payable.
QuickBooks Business plan tool is an efficient wizard that allows you to plan and perform business activities as per the business requirements.
Planning and budgeting for the fiscal year will allow you to lay a plan for a systematic approach to reach your goals. Moreover, you can compare a year’s performance with a budget set and the expenses incurred.
Now you know the importance of QuickBooks Closing entry and more importantly rightly entering QuickBooks Closing entries. The article enumerates everything that is needed for proper Year-end closing and entering the ‘QuickBooks closing entry’ in the right way. This is a vast topic, and each aspect has multi-fold details to it. Hence, if you require any additional information on any of the above issues, speak directly to a QuickBooks Expert at QuickBooks Online Support number 1.877.221.952O.