Table of Contents
- Introduction
- Why Closing the Books is Important
- Step 1: Prepare to Close the Books
- 1.1: Review Financial Statements
- 1.2: Review Accounts Receivable and Payable
- Step 2: Close the Books in QuickBooks Online
- 2.1: Access the Settings
- 2.2: Set the Closing Date
- 2.3: Require a Password for Changes
- Step 3: Review the Closed Period
- 3.1: Generate Final Reports
- 3.2: Monitor for Adjustments
- Step 4: Reopen the Books (if Necessary)
- 4.1: Reopen the Books
- 4.2: Make Adjustments
- Best Practices for Closing the Books
- Conclusion
Introduction
Closing your books in QuickBooks Online is an essential step at the end of an accounting period, whether monthly, quarterly, or annually. This process ensures that your financial data is locked and prevents accidental changes to transactions after the period has ended. It also helps maintain the accuracy of your financial reports. In this guide, we’ll walk you through the steps to close your books in QuickBooks Online.
Why Closing the Books is Important
Closing the books in QuickBooks Online is crucial for several reasons:
- Prevents Changes: Once you close the books, it locks your transactions and prevents any edits or deletions unless authorized with a password.
- Accurate Financial Reporting: By locking past transactions, you ensure that the reports you generate after closing the books are accurate and not affected by backdated changes.
- Audit Preparation: Closing the books is a critical step in preparing for an audit or tax filing, as it ensures your financial statements are final and correct.
Step 1: Prepare to Close the Books
1.1: Review Financial Statements
Before closing the books, ensure all transactions for the period have been entered and reviewed.
Profit and Loss: Review your income and expenses for the period.Balance Sheet: Check your assets, liabilities, and equity.Trial Balance: Ensure all debits and credits are balanced.
- Ensure that all invoices, bills, and expenses for the period are correctly entered.
- Check for any unrecorded bank deposits or unpaid bills that need to be addressed.
- Reconcile all bank and credit card accounts for the period. This ensures that your QuickBooks records match your bank statements.
- Go to
Accounting > Reconcileto complete the reconciliation process.
1.2: Review Accounts Receivable and Payable
- Run the
A/R Aging Summaryreport to ensure all customer payments have been recorded.
- Run the
A/P Aging Summaryreport to verify that all bills have been entered and paid correctly.
Step 2: Close the Books in QuickBooks Online
2.1: Access the Settings
- Click the
Gearicon in the upper-right corner of QuickBooks Online. - Under
Your Company, selectAccount and Settings.
2.2: Set the Closing Date
- In the Account and Settings menu, click on the
Advancedtab.
- Scroll down to the
Accountingsection. - Set the
Close the bookstoggle toOn. - Enter the closing date, which should be the last day of the period you’re closing (e.g., December 31 for year-end).
2.3: Require a Password for Changes
- Check the box labeled
Allow changes after viewing a warning and entering a password. - Enter a secure password that will be required if someone tries to make changes to the closed period.
- Click
Save, then clickDoneto finalize the closing of the books.
Step 3: Review the Closed Period
3.1: Generate Final Reports
Once the books are closed, generate the following reports to ensure everything is accurate:
- Verify that your income and expenses are properly categorized and balanced.
- Confirm that assets, liabilities, and equity reflect the accurate financial position of your business.
- Check the movement of cash within your business for the closed period.
3.2: Monitor for Adjustments
- If you need to make any final adjustments, such as depreciation or tax adjustments, ensure they are recorded before closing the books.
- Adjustments made after closing the books will require the password you set.
Step 4: Reopen the Books (if Necessary)
4.1: Reopen the Books
If you need to reopen the books to make a change:
- Click the
Gearicon and navigate toAccount and Settings.
- Under the
Advancedtab, return to theClose the bookssection.
- Temporarily turn off the closing date by removing the checkmark or adjusting the date as needed.
4.2: Make Adjustments
- If you’ve identified an error, make the necessary adjusting journal entries.
- After adjustments are made, reset the closing date and password protection as outlined in Step 2.
Best Practices for Closing the Books
- Even though annual closings are required for tax purposes, closing the books monthly or quarterly allows for regular financial review and prevents errors from accumulating over time.
- Ensure only authorized personnel have access to the password required to reopen the books. This maintains the integrity of your financial records.
- If you’re unsure about adjustments or closing procedures, consult with an accountant to ensure everything is in order before closing the books.
Conclusion
Closing the books in QuickBooks Online is a vital process that helps maintain the accuracy of your financial data and ensures no changes are made to past periods without authorization. By following the steps in this guide, you can confidently close your books at the end of each accounting period and prepare your business for tax filing, audits, or financial review. Regularly closing the books will improve your financial management and ensure that your records remain accurate.