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How to Close the Books in QuickBooks Online

· 6 min read
Debits

Introduction​

Closing the books in QuickBooks Online is an essential step in finalizing your financial data for a specific period, whether it's monthly, quarterly, or annually. This process ensures that your accounting data is locked and prevents accidental changes or updates to past transactions, providing you with accurate financial records. By closing your books, you maintain the integrity of your reports and make sure that no unauthorized changes can affect your financial data for completed periods.

This guide will take you through the steps to close your books in QuickBooks Online, ensuring that your financial records are accurate and protected.

Why Closing the Books is Important​

Closing the books serves several crucial purposes for your business:

  1. Prevents Unintended Changes: Once your books are closed, transactions for the closed period are locked, preventing unauthorized or accidental edits to past transactions.
  2. Ensures Accurate Reporting: Closing the books guarantees that your financial reports are based on finalized data, without the risk of historical transactions being modified.
  3. Prepares for Tax Filing: When the books are closed, your records are ready for tax filings or audits, with confidence that the figures won’t change unexpectedly.

Step 1: Review Financial Data​

Before closing your books, it’s important to ensure that all financial data for the period is accurate and up-to-date. Follow these steps to review your financials:

1.1: Run Key Financial Reports​

  1. Profit and Loss Report: Go to Reports > Profit and Loss. This report shows your income, expenses, and net profit for the period. Review it to ensure that all income and expense entries are accurate and categorized properly.
  2. Balance Sheet Report: Navigate to Reports > Balance Sheet. Verify that your assets, liabilities, and equity accounts are correct and balanced.
  3. Trial Balance Report: Go to Reports > Trial Balance. This report shows all debits and credits for your accounts, ensuring everything is balanced.

1.2: Reconcile Your Accounts​

Before closing the books, make sure that all bank and credit card accounts are reconciled. This ensures that your QuickBooks records match your actual bank statements.

  1. Reconcile Accounts: Go to Accounting > Reconcile, and select the bank account to reconcile. Make sure all transactions for the period are cleared and match your bank statements.
  2. Clear Unreconciled Transactions: Review any unreconciled transactions and ensure they are either corrected or confirmed as legitimate.

1.3: Verify Accounts Receivable and Payable​

  1. Check Open Invoices: Run the A/R Aging Summary report (Reports > A/R Aging Summary) to verify any outstanding customer invoices. Ensure that all payments received are applied correctly.
  2. Check Open Bills: Run the A/P Aging Summary report (Reports > A/P Aging Summary) to confirm that all vendor bills have been entered and recorded.

Step 2: Close the Books in QuickBooks Online​

2.1: Access the Closing the Books Feature​

  1. Go to Account and Settings: Click the Gear icon in the top-right corner of QuickBooks Online, then select Account and Settings.
  2. Navigate to Advanced Settings: In the left-hand menu, click on the Advanced tab.
  3. Find the Accounting Section: Scroll down to the Accounting section, where you'll see the option to Close the books.

2.2: Set the Closing Date​

  1. Turn on Close the Books: Toggle the Close the books option to “On.”
  2. Enter the Closing Date: Set the closing date to the end of the period you want to close. For example, if you’re closing the year, the closing date should be December 31 of the respective year.
  3. Enable a Password: To prevent unauthorized changes, check the box that requires a password for changes made after the closing date. Set a strong password that only authorized users will have access to.

2.3: Save the Settings​

  1. Save and Close: After setting the closing date and password, click Save, then click Done. Your books for the selected period are now officially closed.

Step 3: Review After Closing the Books​

3.1: Generate Final Financial Reports​

After closing the books, it’s a good practice to run the key financial reports again to verify that everything is finalized correctly:

  1. Run the Profit and Loss Report: Verify that no changes have occurred in your income or expenses.
  2. Check the Balance Sheet: Ensure that your assets, liabilities, and equity remain balanced after closing the books.
  3. Review the Trial Balance: Ensure that all debits and credits are properly balanced for the closed period.

3.2: Monitor Changes to Closed Books​

QuickBooks Online allows changes to be made to closed books if the password is entered. If any changes are made to a closed period:

  1. Review the Audit Log: Go to Gear > Audit Log. This will show you all changes made to your account, including who made changes to transactions after the books were closed.
  2. Investigate Adjustments: If changes were made, investigate whether they were authorized and necessary. You can also re-close the books after any adjustments have been made.

Step 4: Reopen the Books (if Necessary)​

4.1: Adjust the Closing Date​

If you need to reopen the books for any reason:

  1. Go to Account and Settings: Click the Gear icon, then go to Account and Settings.
  2. Change the Closing Date: Under the Advanced tab, adjust the closing date to a future date, or disable the closing feature temporarily.

4.2: Make Necessary Changes​

  1. Enter Adjusting Entries: After reopening the books, enter any required adjusting journal entries or correct transactions as needed.
  2. Reclose the Books: Once the adjustments are complete, reset the closing date and password to close the books again.

Best Practices for Closing the Books in QuickBooks Online​

  1. Close Books Monthly or Quarterly: While year-end closings are standard, it’s a good practice to close the books monthly or quarterly to stay on top of your financials.
  2. Regularly Review the Audit Log: Monitor the audit log regularly to ensure no unauthorized changes are made to your books after the closing date.
  3. Backup Data: Before closing the books, it’s always wise to back up your QuickBooks data to ensure you have a copy of your financial information as of the closing date.
  4. Consult a Professional: If you’re unsure about adjustments or closing procedures, consider consulting an accountant to ensure your financials are accurate.

Conclusion​

Closing the books in QuickBooks Online is a crucial process that helps you maintain the accuracy of your financial records. By locking past transactions, you ensure that your reports reflect the finalized data and avoid the risk of unauthorized or accidental changes. Following the steps in this guide will help you close your books correctly and keep your financial records in order for audits, tax filings, and other financial reviews.