It is essential to close entries in QuickBooks at the end of the Fiscal year for proper management of the accounts and prepare for the new year. You need to transfer Income & expense accounts to retained earnings account. In QuickBooks, there is no fixed closing done at the end of the month and the year. However, to maintain the accounting books properly, it is essential to do a proper QuickBooks closing entry at the end of the financial year. Moreover, in QuickBooks, the data stays forever and will not be deleted until you Condense it.
If the books are not closed properly, then it gives an option to various users to go and amend it. Thus, it is essential to close entries in QuickBooks. In this blog, we will shed light on the different important aspects of QuickBooks year-end closing.
What is the Purpose of QuickBooks Closing Entry?
QuickBooks Closing Entries means reconciling the company’s accounts. The transactions are recorded to know whether the company’s retained earning account reflect any real increase in revenues from the previous year and show lessened dividend payment and expenses.
While Retained earnings are those earnings that are not distributed amongst shareholders in the form of dividends, and are retained for further investment in sales, ad purpose, equipment, and production.
What do you mean by Income Summary Account?
Income Summary Account is a temporary account used during Closing. The Account has a company’s revenues & expenses for the present accounting period. In short, you can say that it is through this account we get to know the ‘ Net Income ’ attained after subtracting depreciation, business expenses, taxes, debt service expense, etc.
Steps to Complete the QuickBooks year-end closing entries
You can use the below steps to completely close entries at the Year-end.
- Firstly, look for revenue accounts in the Trial Balance that has the revenue and capital accounts in the company ledger. There is a ‘credit balance’ reflected here and to zero it out you need to do a ‘debit entry’ for every revenue account. This action will move the credit balance to the Income summary account.
- Next, Locate the ‘Expense Accounts’ in the Trial balance, and you will see a debit balance. Make a Credit entry in the income summary account for every ‘Expense account.’ The Expense account total should be ‘zero’ now.
- In case the Income Summary Account has a credit balance after finishing the entries, or Credit Entry amount is more than the debit amount, then there is Net Income. However, if you see that debit balance exceeds the credits, then it means there is a Net Loss. To completely close the Income summary to the retained earnings account, make a journal entry where you debit Income Summary account & Credit the Retained earnings account.
- Finally, we need to close the ‘Dividend account’ to retained earnings. You can see that the Dividend account has a usual debit balance. Therefore, credit ‘Dividend account’ and debit ‘Retained earnings account.’ The retained earnings will show the amount of Net income that was given to it.
Solutions to Correct ‘Closing Date mistake in QuickBooks’
Accuracy in QuickBooks accounting books heavily depends on how correctly the ‘dates’ of the various transactions have been put in. If there are any discrepancies inputting the date, it can lead to inaccurate accounting books. To correct this problem, you need to carry out certain steps for QuickBooks year-end closing.
Firstly, set closing date and password in the company preferences section. Here you can see your previous year info by entering the password. Once you are logged-in then:
- Click edit
- Navigate to preferences to view the closing date option
- Now select ‘Company preferences’ in the ‘Accounting preferences’ tab
- Fill in the Date & password selected.
Note: Ensure that the password entered here is not the same as the Login password.
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\Reports that can help in QuickBooks Closing Entry mistake Troubleshooting
The Audit Trail report – This report has all the file transactions, history changes, deletions, etc. If the User ID is set up for every person that enters transactions in QuickBooks, then all these effects appear in the QuickBooks Audit Trail report. You can easily find who has made what changes.
The Closing Date exception report – The report helps in fixing or locking data file to hinder users from doing any changes on or before a specific date. Hence, you easily see modifications done on or before the Closing date by referring to this report.
The Deleted Transactions Report – QuickBooks 2005 and the newer versions create an activity log for the deleted or voided transactions. In case you are looking for any such transactions, then directly refer to this report. To access this:
Double-click the Transaction, and you can see all the relevant info related to it.
The Retained Earning Quick Report – The feature is available in QuickBooks 2005 and the newer versions. The report shows the information on the various exchanges that are there on the retained earnings. To access this report:
- Press Lists Menu
- Navigate to COA
- Now double tab ‘Retained Earnings’
- View the passages mistakenly made to the retained earnings account and double tap on this section to edit and revise it.
Necessary year-end Tasks
To ensure an error-free QuickBooks year-end closing, it is important to perform specific tasks during the year. We are listing some necessary steps that you should complete before QuickBooks closing entry. Meanwhile, Ensure to perform the below tasks.
- Review ‘working trial balance’ to view the modifications done in the previous year’s affecting retained earnings.
- Analyze and review COA for recent changes or unnecessary records
- Now, review Accounts Payable
- Review Vendors & customers to see missing data, mistakes, etc.
- See payroll transactions and the Payroll Item set-up
- Check Audit Trail report and look for any suspicious/modified exchanges.
- Review Amounts, set-up for inventory items, etc.
- Check retained earnings Quick report and confirm that no adjustments are there from any previous year-close or there are any paragraphs specially made to that record.
- Use Clean-Up data utility tool
- On the last day, Perform Physical count of the stock & perform inventory adjustment if required.
- View critical reports of the year such as cash flow statement, P& L statement, balance sheet, etc.
- Send across IRS 1099 to all eligible merchants and send the duplicate to IRS.
- Make a backup on a separate drive. You can use the server or QuickBooks Online Backup for this.
Preparing the next year
While it is important to close books efficiently, it is equally important to plan the next year. You can use some useful QuickBooks tools such as the Cash flow projector, business plan tool, budget making, etc. to efficiently plan the next year. These tools play an important role in managing accounts during the coming year and keeping everything streamlined.
That’s all for this article. Now we know the importance of adequately closing QuickBooks year-end closing entries. Hopefully, the article provided you with enough information to understand all the aspects related to QuickBooks closing entry and it’s management. To get more info or resolve any doubt on the above data, directly speak to a technical expert at QuickBooks ProAdvisor Support Number.
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