As the year comes to an end, it’s important for small business owners and accountants to start preparing for tax season by wrapping up their QuickBooks Desktop company file. Completing important year-end tasks in QuickBooks ensures your books are in order and makes tax time less stressful. In this comprehensive guide, I’ll walk you through the entire year-end close process in QuickBooks Desktop step-by-step. With over 10 years of experience helping clients prepare for year-end, I’ve learned some valuable best practices to share.

Let’s get started! Below I’ve outlined the key steps you need to take to close out the year in QuickBooks Desktop. I recommend checking them off as you complete each one.

Steps for Year-End Close in QuickBooks Desktop

Reconcile bank and credit card accounts

The first thing you should do is make sure all your bank and credit card accounts are reconciled through the current period. This includes any cash accounts you may have as well. Go to the Banking menu and click Reconcile to compare your account registers to the latest bank and credit card statements. If there are any discrepancies or unreconciled transactions, get those resolved before moving on.

Reconciling ensures your account balances are accurate, which is critical when you go to close your books. You don’t want to start the new year with unreconciled accounts from the previous period. Get in the habit of reconciling at least once a month.

Record all income and expenses

Next, you need to record any remaining income or expenses from the current year. Common transactions to log include checks you’ve written but haven’t cleared yet, incoming customer payments, credit card bills, and invoices you still need to send. You can run reports like Unpaid Bills Detail and Open Invoices to see what’s still outstanding.

Be sure to enter everything into the correct period so your books are up to date. Don’t forget to receive payment on outstanding customer invoices too. You want a zero balance on your income and expense accounts when closing the year.

Enter year-end adjustments

Some additional adjustments may be necessary at year-end, like recording depreciation and amortization, accrued liabilities, prepaid expenses, and more. Work with your accountant to determine what journal entries are needed. You can enter them directly in the Make General Journal Entries window.

Pro tip: Create a dedicated Income and Expense tracking account for each adjustment, so they’re easy to find. For example, create an expense account called Depreciation Expense or Accrued Liabilities.

Change inventory valuation method (if needed)

Does your business track inventory? If so, year-end is a good time to consider changing your inventory valuation method to weighted average costing. This provides a more accurate picture of profitability when prices fluctuate during the year. Go to Edit > Preferences > Items and Inventory > Company Preferences tab to update the setting.

You may need to enter an adjustment in the journal to account for the change in inventory value. Check with your accountant on the correct way to record it.

Print financial reports for review

Before closing your books, print and review key financial statements from the past year. This includes the Profit and Loss report, Balance Sheet, Accounts Receivable and Accounts Payable Aging reports, and any other reports you use to manage your business.

Look for any discrepancies or questionable numbers, and make any necessary corrections before you complete the year-end close. Having clean books now prevents headaches at tax time.

Backup your QuickBooks file

Critical step before closing – always backup your QuickBooks file! Go to File > Back up Company > Create Local Backup. Save it to an external hard drive or cloud storage platform like Dropbox. This ensures your data is safe and secure.

Close your books

Once all the steps above are done, you can officially close your year in QuickBooks. Go to Company > Close Books. Select the proper accounting period from the drop-down menu and click OK.

Closing the books permanently locks your accounting from adjustments so you have clean books to start the new tax year. Don’t worry – you can still run reports on the previous year after closing.

Update QuickBooks to the new year

To get started in the new year, you’ll need to update QuickBooks to reflect the current calendar year. It’s easy! Just go to Company > Company Information and update the accounting period.

While you’re in there, double check that all other information is current, including the company address, phone number, and executives listed.

Enter beginning balances

With your books closed for the previous year, you now need to enter beginning balances for all accounts to carry forward those balances. Simply enter the ending balances from the Balance Sheet report into the respective accounts in QuickBooks. Start with the bank and credit card accounts first.

Use the Record Opening Balance window to enter the balances for other asset, liability and equity accounts. And don’t forget to set the new balances for customer invoices, unpaid bills, etc.

Change form settings and payroll items

As you start the new year, make sure you update any forms, tax rates, or payroll items in QuickBooks. For example, update payroll tax rates and limits for Social Security, Medicare, federal and state taxes. QuickBooks payroll automatically updates any federal tax changes, but you need to make state tax adjustments yourself.

Double check your sales tax rates as well, and make any needed changes to invoices, sales receipts or estimates templates. Now is the perfect time to confirm everything is accurate!

Bonus: Year-End Tips and Tricks

Here are some bonus tips to make your year-end close go smoothly:

• Run key financial reports often to catch issues early. Check the Unbilled/Time & Expenses or Payroll Liabilities report to see if you missed invoicing any outstanding expenses from contractors or employees.
• Have a dedicated paper file folder or digital folder to save year-end reports and adjustments for tax prep. Audit folders help keep you organized.
• Meet with your accountant early in the process to determine exactly what they need for tax preparation. Provide them with the adjusted trial balance and any journal entry reports.
• Make a copy of your QuickBooks file before closing in case you need to go back and correct something. Better to be safe than sorry!
• If managing inventory, do a physical count before the year-end to compare to what’s showing in QuickBooks. Make adjustments as needed to ensure quantity on hand totals are accurate.
• In the new year, review your Chart of Accounts and clean up/delete any unused accounts. Start the year with a fresh, clean file.

Conclusion

Completing your year-end close procedures in QuickBooks Desktop doesn’t have to be painful if you follow this comprehensive checklist. By reconciling accounts, entering adjustments, updating forms and reviewing reports, you can ensure your books are closed accurately and completely. Now relax…you just finished the busy season and are ready for the new year! Let me know if you have any other questions. I’m always happy to help QuickBooks users during year-end!