Audit Readiness

How Do I Close a Month-End in QuickBooks

Jan 14, 2021 | By Michael Whitmire

Complete and timely financial statements are the most powerful strategic tool for any organization. They help business owners measure progress towards goals, and they’re essential for performing an accurate cash flow projection for the future. 

Surprisingly, however, very few small businesses perform a formal month-end close in their accounting software. It’s understandable: Most small business owners are focused on running their businesses. To use your financials as an effective planning and strategic tool, you need to get into a regular cadence of closing your books. Let’s learn how.

What Does Closing the Books Mean in QuickBooks? 

Your income statement accounts track what happens during a specific period.. This means the balances in your income statement accounts need to be zeroed out so the next period can start out fresh. This is done by closing the books: the balances in your income and expense accounts are transferred to retained earnings over on the balance sheet. 

When you set the year-end in Intuit QuickBooks, the program automatically zeroes out all the income and expense accounts and transfers the balance of net income to Retained Earnings when your fiscal year ends. So it looks like your books are closed, but this isn’t a formal close process. This is just a bookkeeping reset for the next year. Anyone with access to your QuickBooks file can go in and change something in the previous month or year, and you might not find out until it’s time for your CPA to prepare your tax return. 

If this happens, this can change your income from the previous period, which throws off the balance in retained earnings. When equity doesn’t roll forward correctly, your accountant will need to track down the discrepancies before they can issue financials or prepare your tax return. This means extra work for your CPA, which usually means extra fees. And, in case of an audit, you and your bookkeeper will be scrambling to figure out why your books don’t match your tax return or the financials you sent to the bank. 

Formally closing the books sets your numbers in stone. Anyone who tries to make a change to accounts payable or any other account will get a nasty warning at the very least. If you follow best practices, and put a closing date password in place, no changes can be made without that password.  

How Do You Do Closing Entries in QuickBooks?

In QuickBooks, closing entries are made automatically when you either formally close the books or when the calendar rolls to your next financial year. There aren’t actual transactions for closing entries. If you look at the account detail for Retained Earnings, you’ll see each Closing Entry with the date and the balance of net income transferred to Retained Earnings. This is why bookkeepers frequently skip a formal end of the year or month end closing in QuickBooks. But if you want to perform a solid closing of your books, you’ll have to develop a close process. 

What Are the Steps in QuickBooks for Closing a Fiscal Year?

Whether you’re closing the books at the end of the month or the end of the year, the process is the same. A best practice is to perform this before you share your financial statements with anyone or give your accountant access to your QuickBooks file. 

Step 1: Review Your Accounts

  1. Sign in to QuickBooks as a master or company admin. 
  2. Gather any outstanding invoices, expenses, and payments, and enter all of those.
  3. Reconcile all of your accounts to your closing date. Bank reconciliations include credit cards, bank accounts, and any loans. 
  4. Record any journal entries to record depreciation or to get all of your accounts on the accrual basis. 
  5. Compare your actual inventory balance to the balance in your general ledger. You may need to make a journal entry to adjust your inventory to actual. 
  6. Review your accounts and make sure everything looks reasonable. Compare your current balance sheet and income statement to your financial statements from the previous period and see if there are any big swings you need to investigate. 

Once you have all your numbers nailed down, you’re ready to close the books. Be sure to set the closing date for the last day of your fiscal year, not the first day of the next year. The process is a bit different depending on whether you’re using QuickBooks Desktop or QuickBooks Online, so we’ll go through those close processes separately. 

Step 2: Close Your Books in QuickBooks Online

  1. Go to Settings (the gear in the corner) and select Accounts and Settings.
  2. Select the Advanced tab.
  3. In the Accounting section, select Edit.
  4. Select the Close the Books checkbox.
  5. Enter a closing date.
  6. Select the option to Allow changes after viewing a warning and entering a password if you want to require a password before any changes to the closed period can be made. This is highly recommended.

Step 2: Close Your Books in QuickBooks Desktop:

  1. From the Edit menu, choose Preferences.
  2. On the Company Preferences tab, click on Set Date/Password.
  3. Enter the closing date.
  4. Select the option to Allow changes after viewing a warning and entering a password if you want to require a password before any changes to the closed period can be made. This is highly recommended.

What Happens When You Set a Closing Date in QuickBooks?

Setting a closing date prevents others from making changes to previous periods. This can happen by accident, when someone makes an adjustment to an invoice from the last year, or enters the wrong date on an expense. 

Many small business owners ask their QuickBooks Proadvisor or their CPA to perform the formal closing process (and all related closing procedures) and to be the only one who knows that closing password. This is the safest and prevents anyone from making unauthorized changes. 

How to Track Changes Made After Closing Books in QuickBooks Online? 

Even with password protection, it’s still possible to make changes to QuickBooks after you’ve formally closed the books. This is a good thing -- sometimes you discover overlooked items that should have been reported in the previous year or mistakes in entries. Or maybe your CPA notices that a journal entry to accrue accounts payable wasn’t made. But those changes shouldn’t be made lightly. 

That’s why QuickBooks tracks those changes in an exception report. You’ll find the Exceptions to Closing Date report under Reports. This report will show all the transactions dated on or before the closing date that were first recorded or were modified after the closing date. This report shows the date and time that each change was made and the name of the user who made that change. 

Closing the books draws a line in the sand, and gives you solid numbers to work with for the future. With better numbers, business owners can make better decisions. And isn’t that the key to success for your business? 

Learn what industry experts from Ventana Research have to say about the month-end close moving forward

Michael Whitmire
As CEO and Co-Founder, Mike leads FloQast’s corporate vision, strategy and execution. Prior to founding FloQast, he managed the accounting team at Cornerstone OnDemand, a SaaS company in Los Angeles. He began his career at Ernst & Young in Los Angeles where he performed public company audits, opening balance sheet audits, cash to GAAP restatements, compilation reviews, international reporting, merger and acquisition audits and SOX compliance testing. He holds a Bachelor’s degree in Accounting from Syracuse University.

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