You just signed the e-file authorization form, and your CPA has electronically filed your business tax return. Wait – you’re not done yet!
After your tax return has been filed you have one more job to do: record year-end adjusting entries in your QuickBooks file and “close your books.”
This is important for two reasons:
Ask your CPA about the adjusting entries:
After the year-end adjusting entries have been recorded in your accounting software, compare the year-end net income in QuickBooks to the year-end “book” net income in your tax return. This means that book net income in the tax return should agree with QuickBooks book net income.
QuickBooks allows you to toggle between cash and accrual reports. Be sure that you match the correct QuickBooks report (cash or accrual) to the tax return (which can be based on either a cash or accrual basis.)
For corporations, partnerships and S-corporations, your tax return book net income is line one of schedule M-1 in the return. (Sole proprietors or schedule C and schedule E filers will have to discuss this with their CPA.)
Once you have recorded the adjusting entries in your QuickBooks file, it is time to “close the books” or “lock previous years” in QuickBooks. The purpose of locking previous years is to prevent accidental changes from being made to your accounting records. There is a special “closing date” tool in QuickBooks that allows you to prevent changes to your QuickBooks file as of a certain date and all dates before that. Here are the steps to take to set a closing date password:
Log in as the company administrator in QuickBooks.
Log in as the company administrator in QuickBooks Online.
Recording your year-end adjusting entries in QuickBooks and using the “Close Your Books” tool will save money and help you make informed decisions when using your QuickBooks accounting software. Make this task a priority!
At Mahoney, we are happy to answer any questions you may have about QuickBooks and closing your books, in general. Reach out to Associate Director and QuickBooks ProAdvisor Peggy Prall, and she can assist you in this matter. Don’t miss our other QuickBooks blogs for more tips.