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How to Close the Books in QuickBooks Online

· 5 min read
Debits

Introduction​

Closing your books in QuickBooks Online is an essential step at the end of an accounting period, whether monthly, quarterly, or annually. This process ensures that your financial data is locked and prevents accidental changes to transactions after the period has ended. It also helps maintain the accuracy of your financial reports. In this guide, we'll walk you through the steps to close your books in QuickBooks Online.

Why Closing the Books is Important​

Closing the books in QuickBooks Online is crucial for several reasons:

  1. Prevents Changes: Once you close the books, it locks your transactions and prevents any edits or deletions unless authorized with a password.
  2. Accurate Financial Reporting: By locking past transactions, you ensure that the reports you generate after closing the books are accurate and not affected by backdated changes.
  3. Audit Preparation: Closing the books is a critical step in preparing for an audit or tax filing, as it ensures your financial statements are final and correct.

Step 1: Prepare to Close the Books​

1.1: Review Financial Statements​

Before closing the books, ensure all transactions for the period have been entered and reviewed.

  1. Run Key Reports:

    • Profit and Loss: Review your income and expenses for the period.
    • Balance Sheet: Check your assets, liabilities, and equity.
    • Trial Balance: Ensure all debits and credits are balanced.

  2. Verify Transactions:

    • Ensure that all invoices, bills, and expenses for the period are correctly entered.
    • Check for any unrecorded bank deposits or unpaid bills that need to be addressed.

  3. Reconcile Bank Accounts:

    • Reconcile all bank and credit card accounts for the period. This ensures that your QuickBooks records match your bank statements.
    • Go to Accounting > Reconcile to complete the reconciliation process.

1.2: Review Accounts Receivable and Payable​

  1. Check Accounts Receivable:
    • Run the A/R Aging Summary report to ensure all customer payments have been recorded.
  2. Check Accounts Payable:
    • Run the A/P Aging Summary report to verify that all bills have been entered and paid correctly.

Step 2: Close the Books in QuickBooks Online​

2.1: Access the Settings​

  1. Go to Account and Settings:
    • Click the Gear icon in the upper-right corner of QuickBooks Online.
    • Under Your Company, select Account and Settings.

2.2: Set the Closing Date​

  1. Navigate to the Advanced Tab:
    • In the Account and Settings menu, click on the Advanced tab.
  2. Set the Closing Date:
    • Scroll down to the Accounting section.
    • Set the Close the books toggle to On.
    • Enter the closing date, which should be the last day of the period you’re closing (e.g., December 31 for year-end).

2.3: Require a Password for Changes​

  1. Enable Password Protection:
    • Check the box labeled Allow changes after viewing a warning and entering a password.
    • Enter a secure password that will be required if someone tries to make changes to the closed period.
  2. Save Changes:
    • Click Save, then click Done to finalize the closing of the books.

Step 3: Review the Closed Period​

3.1: Generate Final Reports​

Once the books are closed, generate the following reports to ensure everything is accurate:

  1. Profit and Loss Statement:
    • Verify that your income and expenses are properly categorized and balanced.
  2. Balance Sheet:
    • Confirm that assets, liabilities, and equity reflect the accurate financial position of your business.
  3. Statement of Cash Flows:
    • Check the movement of cash within your business for the closed period.

3.2: Monitor for Adjustments​

  1. Review Adjusting Journal Entries:
    • If you need to make any final adjustments, such as depreciation or tax adjustments, ensure they are recorded before closing the books.
    • Adjustments made after closing the books will require the password you set.

Step 4: Reopen the Books (if Necessary)​

4.1: Reopen the Books​

If you need to reopen the books to make a change:

  1. Go to Account and Settings:
    • Click the Gear icon and navigate to Account and Settings.
  2. Access the Advanced Tab:
    • Under the Advanced tab, return to the Close the books section.
  3. Disable Closing Date:
    • Temporarily turn off the closing date by removing the checkmark or adjusting the date as needed.

4.2: Make Adjustments​

  1. Enter Adjusting Entries:
    • If you’ve identified an error, make the necessary adjusting journal entries.
  2. Reclose the Books:
    • After adjustments are made, reset the closing date and password protection as outlined in Step 2.

Best Practices for Closing the Books​

  1. Close the Books Monthly or Quarterly:
    • Even though annual closings are required for tax purposes, closing the books monthly or quarterly allows for regular financial review and prevents errors from accumulating over time.
  2. Set a Strict Password:
    • Ensure only authorized personnel have access to the password required to reopen the books. This maintains the integrity of your financial records.
  3. Consult with an Accountant:
    • If you're unsure about adjustments or closing procedures, consult with an accountant to ensure everything is in order before closing the books.

Conclusion​

Closing the books in QuickBooks Online is a vital process that helps maintain the accuracy of your financial data and ensures no changes are made to past periods without authorization. By following the steps in this guide, you can confidently close your books at the end of each accounting period and prepare your business for tax filing, audits, or financial review. Regularly closing the books will improve your financial management and ensure that your records remain accurate.