A year-end close in QuickBooks Online is less about a button and more about a review. QuickBooks Online doesn’t need closing entries: at the start of the new year it moves the year’s net income into Retained Earnings on its own. What it can’t do is make sure the numbers are right before that happens.
The short answer: to do a year-end close in QuickBooks Online, reconcile every account through December 31, clear uncategorized transactions, check the balance sheet against outside statements, record your CPA’s adjustments, and then set a closing date (Settings, Account and settings, Advanced, Close the books) so the year is locked.
Here is each step in more detail.
Step 1: Reconcile every account through December 31
Every bank account, credit card, and loan should be reconciled to its December statement. If an account is off, the year is off. Our bank reconciliation guide walks through it.
Step 2: Clear the review pile
Look for anything still waiting for a decision:
- Transactions in Uncategorized Income or Uncategorized Expense.
- Anything coded to “Ask My Accountant”.
- Payments sitting in Undeposited Funds (called Payments to deposit in newer versions) that were never matched to a bank deposit.
Step 3: Check the balance sheet
The balance sheet shows what the business owns and owes on December 31, so each line should match something outside QuickBooks:
- Loan balances match the lenders’ statements.
- Unpaid invoices are real, and old ones have been followed up.
- Unpaid bills are bills you actually still owe.
- Payroll liabilities match what your payroll provider shows.
Step 4: Record your CPA’s adjustments
Your CPA may send year-end adjustments, such as depreciation or corrections. Record them, or have your bookkeeper record them, dated in the year they belong to, before you lock the books.
Step 5: Set a closing date to lock the year
Once the year is final, lock it so nobody changes it by accident. To set the closing date in QuickBooks Online:
- Open Settings (the gear icon), then Account and settings.
- Choose the Advanced tab, and in the Accounting section, turn on Close the books.
- Enter December 31 as the closing date.
- Choose whether changes are allowed after a warning, or only after a warning and a password.
- Save.
A password is the safer choice when more than one person works in the file.
Your year-end close
Tick each step as it’s done. The last one locks the year.
0 of 5 steps done
The year is locked. Nothing in it can change by accident.
What accounts are closed at year-end?
Income and expense accounts are the ones that “close”: each new year starts them at zero, and the year’s net income moves into Retained Earnings. QuickBooks Online does this for you at the start of the new year. Balance sheet accounts, such as bank accounts, loans, and equity, carry their balances forward.
That is why the review in steps 1 to 4 matters. Whatever is in the income and expense accounts on December 31 becomes part of Retained Earnings for good.
After the year is closed
If someone changes a transaction in the closed year anyway, the totals your CPA used no longer match. QuickBooks Online can show changes made to a closed period on its Exceptions to Closing Date report, which is worth checking before you send anything else to your CPA.
Frequently asked questions
No. QuickBooks Online moves the year’s net income into Retained Earnings automatically. The work is in making sure that net income is right.
Set a closing date: Settings, Account and settings, Advanced, then turn on Close the books and enter the date. Add a password if more than one person uses the file.
After your CPA has finished with the year and any adjustments are recorded.
Talk to your CPA before changing anything. A change to a closed year can mean the books no longer match what was filed.
Yes. A bookkeeper who works in your QuickBooks Online file every month can do the review, coordinate with your CPA, and set the closing date once the year is final.
Start with a conversation
Liliane Larsen is an Advanced QuickBooks ProAdvisor, and our team works in QuickBooks Online every day. If you’d like help closing the year, or keeping the books current all year, request a free consultation. Prefer to call? 781-924-1489.