Complete Guide to QuickBooks Closing Entries
Worried about closing your entries at the end of every fiscal year and don’t know how to maintain the balanced financial status of your business? Stop panicking and stay tuned with this blog to know how to perform QuickBooks Closing Entries.
QuickBooks Closing Entries: A Descriptive Overview
For proper account management, it is important to close entries in QuickBooks at the end of your Fiscal year. In QuickBooks, there is no fixed closing done in the month or year-end. However, it is crucial to perform a seamless QuickBooks closing entry at the end of every financial year.
QuickBooks contains all your data for a long time and doesn’t delete until you condense it. Also, if your closing entries are not done accurately, or you missed out, then the software sends you notifications about updating or editing them.
QuickBooks Closing Entry is the entry made at the end of the fiscal year when it comes to transferring the balance from income and expense accounts to Retained Earnings. It’s a necessary part of the accounting cycle as they allow businesses to create financial statements and efficiently file tax returns every month and year. In this blog, we will clarify the entire procedure to zero out your income and close entries in QuickBooks.
What is the Objective of QuickBooks Closing Entries?
In general terms, QuickBooks Closing Entries stands for reconciling the account of your company. When the right time comes, closing entries in accounting allow businesses to start a new accounting period. At the start and end of every period, companies must open and close their temporary accounts in order to record and track their financial information for reporting purposes accurately. This process shifts the balance of funds and leads the closing balance to zero.
The main reason for recording the transaction is to know whether the company’s retained earnings account reflect any increment in revenues from the previous year and show lessened dividend payment and expenses. On the other hand, Retained earnings are those earnings that are not distributed among shareholders in the form of dividends and are retained for further investment.
Pointers to Write Down Regarding QuickBooks Closing Entries!
- Closing entries are the entries made at the end of every fiscal year to transfer the balance from the Income and Expense accounts for Retained Earnings. The purpose is to zero out your Income and Expense accounts and then add your fiscal year’s net income to Retained Earnings.
- Closing entries are made after you record all your adjusting entries.
- Once the books are Closed, then you cannot input any entry for the fiscal year.
- QuickBooks Desktop lets you enter transactions that affect the balance of the closed fiscal year. Hence, the program either tells you that it isn’t recommended or asks for the closing date password if you set up one.
- QuickBooks Desktop doesn’t have an exact transaction for closing entries created automatically. When you run a report like Quick Report of Retained Earnings, the program calculates the adjustments.
- But you can’t Quick Zoom on these transactions, unlike the manual adjustments that you recorded. For QuickBooks Desktop for Mac, you can choose the report and then select Company & Financial. The Balance Sheet Standard will show the retained earnings account in the Equity section.
Automatic Year-End Adjustments Made by QuickBooks
QuickBooks conducts certain year-end adjustments depending on your fiscal year.
- At the end of every year, QuickBooks adjusts your income and expense accounts to zero so that you can start your new fiscal year with zero net income.
- Your net income receives adjusting entries made by QuickBooks. Let’s understand this with an example: If your for the year was $12,000, the equity section of your balance sheet appears as a line for a net income of $12,000 on the last day of your fiscal year.
- At the beginning of the new fiscal year, QuickBooks maximizes your Retained Earnings equity account by the net income of the last year ($12,000 in this example) and deducts your net income by the same amount. At this point, you have a net income of zero at the beginning of every new fiscal year.
Before Closing your QuickBooks, have a Look at these Important Considerations
Benefits to Closing your Books
To Restrict access to the data from the accounting period, including the details of every transaction, you can create a closing date password. In case you want to edit or delete the transaction in a closed period, it is important to know the closing date password and have the appropriate permissions.
Reporting: If you made any changes to your transactions before or after the closing date, this could be seen in the Closing Date Exception Report.
- Navigate to the Reports Menu to run the report and choose Accountant & Taxes, then Closing Data Exception Report.
- The user who sets the closing date is displayed in the Closing Date History along with the current or previous closing dates.
Benefits of Not Closing your Books
Detail: You get easy access to the last year’s data which includes every transaction info.
Reporting: You can create comparative reports between the current year and the previous year.
What Type of Account Do You Need to Open and Close?
During the reporting cycles, many temporary accounts are created for accounting purposes. Temporary accounts are the type of accounts that must be opened and closed. These accounts can be found in the accounting ledger, specifically the general ledger of accounts. This ledger is basically used to record all transactions over the specific accounting period in question. The list of general ledger accounts with their balances is known as the Trial Balance.
Temporary accounts are totally different from permanent accounts, which do not.
- Sales discounts
- Miscellaneous expenses
- Earned interest
- Dividend account
- Accounts Payable
- Owner’s Equity
- Accounts Receivable
- Shareholder’s Equity
- Retained Earnings
Thus, all accounts associated with the revenue and expenses of the business must be part of the opening and closing process. If your company is incorporated, then any dividend accounts (how your business distributes the share of the profits to shareholders) must be closed and opened each period your company is integrated.
Troubleshooting the Closing Date Mistake in QuickBooks!
Accuracy in QuickBooks accounting books thoroughly relies on how correctly the dates of the multiple transactions have been put in. If there are any discrepancies entering the date, it can lead to inaccurate accounting books. To settle this issue, you need to follow the below-listed instructions for QuickBooks year-end closing.
Firstly, you have to set the closing date and password under the company preferences section. When you enter your password, you can look at the previous year’s info.
After logging-in then, do the following:
- Press Edit.
- Navigate to the Preferences to see the closing date option.
- In the Accounting Preferences tab, choose Company Preferences.
- At last, you must enter the Date & Password selected.
Simple Steps for Closing Entries in QuickBooks Online!
If you’re going to close out the year, you need to close your books to prevent unwanted changes before filing your taxes. This will seal your books so no one can edit your accounting data prior to the closing date.
When you review the financial data of the previous year, closing your entries ensures everything stays the way you want it to. It also restricts any accidental changes that could affect your financial reports.
Step 1: Verify your Accounts
- To begin with, log in to QuickBooks Online as a primary or company admin.
- Now, review your accounts and make sure everything looks good.
- You must enter any outstanding invoices, expenses, and payments.
- After this, reconcile your accounts up to your closing date.
- Finally, check your inventory quantities.
Step 2: Close your Books
- First, head to Settings and then choose Accounts and Settings.
- Next, hit the Advanced tab.
- Under the Accounting section, click Edit.
- Afterward, turn on the Close the Books switch.
- You have to write down a closing date. Give yourself a comfortable deadline. You are not supposed to edit any transactions before this Date. Your new bookkeeping work will start after this point.
- If you want to need a password before modifying your closed books, then click on Allow changes after seeing a warning and entering a password option from the drop-down menu.
- This will show the drop-down menu that allows you to create a password when you close your books.
- To finish, press Save and hit Done.
How to Remove QuickBooks Closing Entries?
This section holds the steps related to deleting closing entries in QuickBooks Online, which are as follows:
Step 1: Transfer Credit Balance to the Income Summary Account
- First of all, search for the Revenue Accounts under the Trial Balance, which will contain the revenue and capital accounts located in the ledger of your company.
- You will now be directed to the Credit Balance that is reflected here, and you have to make some Debit Entries for each of the revenue accounts to convert it to zero.
- Once done, the credit balance will automatically move to the Income Summary Account.
Step 2: Change Expense Account Total to Zero
- Under the Trial Balance, you have to detect the Expense Accounts, where you will find a debit balance.
- Under the specific Income Summary Account, perform a Credit Entry for every Expense Account.
- This makes the Expense Account total to be zero.
Step 3: Credit Entry Amount Surpassing the Debit Amount
Now if you are in a situation wherein Income Summary Account will show a credit balance even after completing the entries, or you view a Credit Entries Amount excelling the debit amount, this term is known as Net Income. However, if you find the debit balance exceeding the credits, then it is called a Net loss.
Step 4: Close the Dividend Account
Removing closing entries in QuickBooks is to close the Dividend Account with respect to retained earnings. You will observe that the Dividend Account has the usual debit balance, and the retained earnings will pop up the Net Income amount which was initially given to it.
Let’s Wrap it Up!
Hopefully, the above-given information is useful for you. But if you still facing any kind of issues with your software and need professional assistance, regarding accounting, bookkeeping & accounting software-related issues then feel free to get in touch with us at +1-802-778-9005, or you can mail to us at: [email protected]
Frequently Asked Questions
How Many Closing Entries are Available in Accounting?
There are basically four closing entries such as; Closing Revenue to Income Summary, Closing Expenses to Income Summary, Closing Income Summary to Retained Earnings, and Closing dividends to retained earnings.
What Do You Understand by Trial Balance?
A trial balance is a bookkeeping worksheet wherein all the ledger balances are compiled into equal debit and credit account column totals. Every company prepares a trial balance usually at the end of the reporting period. The general purpose of generating a trial balance is to ensure that the company’s bookkeeping system entries are mathematically accurate. Also, it contains all the major accounting items, such as assets, liabilities, equity, revenues, expenses, gains, and losses.
Can A Net Income Be Calculated?
Yes, of course, Net income is what the business has left over after expenses, including salary and wages, cost of goods or raw materials, and taxes. While for an individual, this is the take-home money after deductions of taxes, health insurance, and retirement contributions. To calculate net in