To enhance user’s knowledge regarding Quickbooks software and to keep them aware of its various aspects is our main motto. Along with this, our site also provides enough guidance to the user in case of error. Today through this post, we shall discuss another important topic i.e ‘Closing Entries in Quickbooks’.In simple terms, we can say ‘Closing entries’ are those entries that are made at the end of accounting year to transfer the balance from Income and Expense a/c to Retained Earnings.Its main aim is to zero out your income and expense a/c and add your year’s net income to Retained Earnings.
Following points will help you to know more about Closing Entries:
- Mainly, these entries are performed by accountants to return revenue, expense, and drawing temporary a/c balances to zero in preparation for new accounting year.
- Another purpose to record the entries is that if a company’s retained earnings a/c shows an actual increase in revenues from the previous year also shows any deduction from dividend payments and expense.
- It is important to know that the entries take place after making all the adjusting entries. If the books are “closed” then you will not be allowed to enter any entry for the fiscal year.
- In some cases, you observe that you will be prevented from making an entry, even if that entry is meant to make your books more accurate.
- You should know that Qb Desktop allows you to enter transactions that are likely to affect the balance of closed Fiscal Year. At that time, the program will either tell you that it is not suggested or you will be asked for closing date password (if any set up by you).
Automatic year-end adjustments from QB :
Well, it is based on your fiscal year start month.To adjust your income and expense a/c and to zero them out is its primary function.Thus in this way, you are allowed to start your new accounting year with zero net income.The balance sheet’s equity section will show a line for net income, on the last day of fiscal year.QB Desktop increases your retained earnings equity amount by last year’s net income on the very first day of new fiscal year. And on the other side, it also decreases net income by the same amount. It’s great that you can begin a new fiscal year with zero net income.
Following are some steps that will help you to complete Closing Entries:-
1. First of all, locate revenue a/cs in trial balance (that lists all of revenue and capital a/cs in the company’s ledger). You will find that they are having a credit balance. In order to return them to zero, you are supposed to make a debit entry for each revenue a/c to move the balance to the income summary account.
2. Next, look for expense accounts in trial balance. You will find that they are having a debit balance. Now,to return them to zero, you need to make a credit entry for each expense a/c to income summary account.
3. If after completing these entries, you notice that income summary a/c has a credit balance (or if an amount of credit entry exceeds the debits), it means the company has a net income. In the case of the opposite situation, i.e if the debit balance exceeds credits, it means the company has a net loss. Now, income summary should be closed to retained earning a/c. For this, record a journal entry to debit the income summary a/c and credit the retained earnings a/c.
4. In the end, you need to close dividend a/c to retained earnings. The dividend a/c has a normal debit balance. Now, credit the dividend account and debit the retained earnings account. Doing so, Retained earnings will now show the correct amount of net income that was allocated to it.
What should I do to Close My Year-End in Qb???
Friends, keep in mind that closing the year in QB is a “must do” or “essential” step once your year-end is complete or once your file has sent to your CPA. Please make sure that data does not change. Along with this, be attentive that you don’t enter data into the wrong period. It happens routinely and also creates more work for your CPA.Qb software is, however, different from other traditional software. As you are not required to do a “hard close” at month or year’s end. It’s up to you, you can close each period, in case, you wish to run the business this way. The application keeps your data forever unless you condense your file (that you might perform if it becomes too large).
* Not properly closing the period:
By this term,we can understand that there are chances that you or employees can change, add, or delete entries recorded in the previous year. NOTE: Remember that QB software is driven by date of your entry.In order to beat this, go for Set Closing Date and Password option within Company Preferences. Through this option, your information from a previous year is locked so that it can’t be altered without inserting the password.
! To find closing date option, please tap Edit –> Preferences. After then, under Accounting Preferences, on the left side click on the Company Preferences tab. There you will see an area named ‘Closing Date’. It is the place where you inserted the date and password you have elected.
! Keep in mind that the password you use should not be similar to your login password. Also, it must be kept safe so that only you (and sometimes your CPA) know this.
Power Reports: Under mentioned are several reports of QB that can help in addressing beginning balances when you are unable to locate the issue. Look for reports by tapping Reports menu, Accountant & Taxes.
1. Audit Trail Report: Well, it includes all transactions entered into the file along with the complete history of modification,deletions and voids to those transactions. The report will show the effects of change, in case modification has made to the prior period transaction by the user. With this help of this, it’s easy to find out who did what in the file. However, it is only possible when your client has set up a User ID for each individual entering transactions into QB. In case, each person is sharing same User ID then it (Audit Trail) will display you only the list of transactions and alterations made to file. But it willn’t show who made those entries.
2. Closing Date Exceptions Report: With this, you can see transactions changed or added on or before the Closing Date. Like Audit Trail Report, it also allows you to see the current status of a transaction, as well as the original transaction.Though Closing Date in QB, your data file can be locked so as to prevent users from making modifications on or before a specified date.
3. Voided/Deleted Transactions Report: In 2005 or later versions, it creates an activity log of all voided and deleted transactions. Along with this, it also enables you to track all voided/deleted activity whether or not a closing date has been set. Also, if a transaction is dated in a previous reporting period. For more information about a transaction on this report, you have to double-click on a transaction. You will find that QB will show you the impact of an original transaction on General Ledger.
4. Retained Earnings Quick Report: In QB 2005 and more up to date forms, you can view the detail of exchanges presented on Retained Earnings. Go for Lists menu > Chart of Accounts. Next, double tap on Retained Earnings a/c.Identify passages made in mistake to Retained Earnings a/c. Next, double-click on the section to modify and revise the record doled out.
At last,I hope that the content helped you in understanding closing entries in Quickbooks. If not, without any hesitation, dial our helpline number (1-888-200-7580) to have direct communication with experts. Within no time,they will resolve all your issues and help you to enjoy the benefits of the software.