Quickbooks Online is a user-friendly program that will permit anyone with the proper accesses to make virtually any sort of accounting entry they’d like to. This flexibility is often advantageous, of course, as it allows users to maintain and update their files quickly and easily. However, the freedom that Quickbooks Online allows also has its downsides. One such downside is the ability for users to incorrectly add, delete, or change transactions dated in a prior period. These errors don’t impact only those prior Quickbooks reports – they can also lead to persistent errors in current and future Quickbooks reports like the balance sheet and can even lead to difficulties in proper tax return preparation.
Fortunately, there is a Quickbooks option that can help avoid these prior-period errors – closing the books. This option can warn a user away from or even lock behind a password the option to add, delete, or edit any entry dated as of or before a particular date.
Closing the books can be achieved as follows:
1) Click the gear in the top right.
2) Click Accounts and Settings > Advanced > Close the Books.
3) Check “Close the books”.
4) Select a closing date. The close will apply as of that date, and for every date before. So if you close the books as of December 31, 2015, a change to a transaction dated December 31, 2015 will lead to the warning about the close, while a change to a transaction dated January 1, 2016 will not. The closing date does not have to be a year-end date, though – it can be any given date.
5) Decide whether you’d like an attempted change to a pre-closing transaction to be met with simply a warning about the close or both a warning or a password.
6) Click Save.
Here are a few of the advantages of closing the books:
- The warning creates an extra line of defense against accidentally adding, deleting, or changing a transaction to or in the pre-closing period.
- The password, when kept secret, can keep Quickbooks users without administrator access from making any changes to prior periods, even when they fully intend to make those changes.
- These measures against intentionally or unintentionally incorrect changes to prior periods helps keep reports such as present and prior balance sheets and profit and loss statements correct, which in turn helps ease the eventual tax return preparation process.
- After the closing date is set, Quickbooks will automatically maintain an Exceptions to Closing Date report that will track all changes made to transaction as of or before the closing date after the closing was set.
Here are a few disadvantages of closing the books and things to be aware of about closing the books:
- The closing process makes the process of making correct, justified entries to prior periods more cumbersome. For example, tax accountants often must make several entries during preparation of the year’s return. As a result, they’ll need to know the password, if one is used, but even then the warning and/or password entry will appear during every single transaction.
- Only one closing date, with one password, can be active at any given time. As a result, if you update the closing date from 12/31/14 to 12/31/15, the 12/31/14 closing will no longer exist.
- Another effect of this “closing date update” is that the Exceptions to Closing Date report described above is reset when the closing date is changed. If you’d like to keep track of those prior exceptions after updating the closing date, you’ll need to save that report in your own files before updating the date.
- Any user with administrator access can change the closing date or password at any time. Such a user can even uncheck the option to have the books closed to begin with.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided in this website is not all inclusive and such information should not be relied upon as being all inclusive.