Why Should I "Close My Books" for the Year?
You've probably heard your Accountant/CPA talk about closing the books for the year. What does that really mean? And is it something that you should think about doing? Read on and find out . . .
What does it mean to close your books?
It takes a lot of time and effort to maintain your books each month. Once you’re all done for the year, and everything is in balance, the next step is to send reports and maybe even your QuickBooks file, over to your accountant. Once your accountant has filed your taxes, then your books should be sealed for that year, untouchable. The only changes that should be made are through adjusting journal entries that your accountant should provide to you. So, to make sure that your books for that year remain intact, you need to do what’s called “closing your books”.
How to Close Your Books
You’ll find this feature in the Preferences area of QuickBooks.
This feature is located in the Edit drop down on the menu bar at the top of your QB screen.
Then you select the Preferences option.
There you’ll select a closing date, which should be the last day of the year that you’re closing (12-31-13).
Next you have the option to create a password – I recommend. From now on, whenever you or someone tries to change a transaction that is on or before the closing date they will be prompted for this password. If they don’t know the password – they won’t be able to make the change.
Example: What if they know the password? Like the owner? When we close the books for the year for our clients, I always make the password 5 thousand dollars. My clients will ask me all the time, why 5 thousand dollars. I tell them, because if you change anything in a closed period that’s why it’s going to cost you to have me fix it. I usually don’t have a problem! Because if they try to make a change - If they do know the password, it will at least remind them that they shouldn’t be making any changes.
This will keep your financial records aligned with your tax returns for each year, which is exactly how it should be.