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Closing books as part of year end procedures

QuickBooks Desktop is an accounting program that does not require you to close your books. It creates automatic adjustments at the end of fiscal year in preparation for next year.

This article covers advantages of closing and not closing your books, year end adjustments that QuickBooks automatically create and closing entries. See year end procedures for additional resources to help you organize your year end tasks.

Detailed information

Advantage of closing and not closing your books

Closing Books Not Closing Books
  • Restricted Access: You can create a closing date password to protect the transactions from closed accounting period. This will prevent any unintentional changes on transactions that alters account balances of closed accounting period.
  • Reporting: You can review all changes made to transactions dated on or before the closing date in closing date exception report. To pull up the report:
    1. From the Reports menu, select Accountant & Taxes and click Closing Data Exception Report.
    2. Closing date history shows current and past closing dates as well as the user who set the closing date.
 
  • Detail: Easy access to last year's data, including details of every transaction.
  • Reporting: You can create comparative reports between this and last year.

 

Automatic year-end adjustments from QuickBooks

  • The year-end adjustments that QuickBooks creates are based on your fiscal year start month. The program adjusts your income and expense accounts to zero them out. This allows you to start your new fiscal year with zero net income.
  • On the last day of your fiscal year, the equity section of your balance sheet will show a line for net income. That is your profit for this fiscal year. On the first day of your new fiscal year, QuickBooks Desktop increases your retained earnings equity amount by the previous year's net income and decreases your net income by the same amount. This allows you to start your new fiscal year with zero net income.

 

Closing Entries

  • Closing entries are entries made at the end of fiscal year to transfer balance from income and expense accounts to Retained Earnings. The goal is to zero out your income and expense accounts and add your fiscal year's net income to Retained Earnings.
  • Closing entries are made after you record all adjusting entries. Once the books are "closed", you are not supposed to enter any entry for that fiscal year. Some programs prohibit you from making any entry even if that entry will correct or make your books more accurate. QuickBooks Desktop allows you to enter transactions that affects the balance of closed Fiscal Year but the program will either tell you that it is not recommended or it will ask for the closing date password if you set up one.
     
  • QuickBooks Desktop does not have an actual transaction for closing entries that it automatically created. The program computes the adjustments when you run a report (Example: QuickReport of Retained Earnings) but you cannot "QuickZoom" on these transaction unlike the manual adjustments that you recorded. These adjustments are tagged as "Closing Entry" (Type) which is not a real transaction in QuickBooks.
     
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