Computerized Accounting

Year End & Month End Bookkeeping Tasks

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QuickBooks has a WONDERFUL year end checklist available in in the Help menu of many versions of the software.

QuickBooks performs certain year-end adjustments, based upon the month you chose as the start of your fiscal year. (To view or edit the starting month of your fiscal year, choose Company Information from the QuickBooks Company menu.)

* At the end of each fiscal year, QuickBooks automatically transfers your net income (the difference between your gross profits and your expenses for the current fiscal year) to an automatically created Retained Earnings account (the cumulative sum of net income from previous fiscal years).

* At the end of each fiscal year, QuickBooks zeros out all of your income and expense accounts (which comprise your net income) and posts the totals to the Retained Earnings account. Therefore, you start the new fiscal year with a zero net income.

For example, if your net income (gross profit minus expenses) for the fiscal year ending on December 31 was $20,000, the equity section of your Balance Sheet would show a line for net income of $20,000. On January 1 of the new fiscal year, QuickBooks would increase your Retained Earnings equity account by the previous year's net income ($20,000 in this example) and decrease your net income by the same amount.


Y/E Task 1: update Retained Earnings.

At the end of each fiscal year, QuickBooks automatically enters an adjusting entry to your income and expense accounts, posting the net income into a special account it creates called Retained Earnings. This entry is the closing entry for the year.

In fact, QuickBooks never really creates a transaction for the closing entry, but when you create a Balance Sheet, QuickBooks calculates the balance in Retained Earnings (or Unrestricted Net Assets, the nonprofit terminology) by adding together the total net income for all prior fiscal years. At the start of your organizations new fiscal year, the balance in Retained Earnings on your Balance Sheet increases overnight by the amount of net income on the previous days Balance Sheet.

Y/E Task 2: processing 1099s for vendors

At the end of each year you must prepare, print and send IRS Form 1099 to your vendors no later than January 31. Use 1099-MISC to report payments made to vendors who performed business-related services for your company. If the vendor is a corporation or if total annual payments to the vendor do not equal or exceed $600, you are not required to prepare a Form 1099-MISC for that vendor. QuickBooks does not print any of the 1099 Forms, youll need to purchase preprinted forms and then print the detail information onto them from QuickBooks. Note that your tax tables may need to be updated for the new year in order for your 1099s to print correctly. To verify that you have the most current tax tables, select the Employees menu and choose Get Payroll Updates.

Y/E Task 3: distribute income

If your business is a partnership, enter a General Journal Entry to distribute net income for the year to each of the partners capital accounts. If your business is a sole proprietorship, enter a General Journal Entry closing Owners Drawing and Owners Investments into Owners Equity.

Y/E Task 4: run reports

Run reports for the year and verify their accuracy. Enter adjusting entries as necessary and rerun the reports.

Y/E Task 5: print and file reports

Print and file the following reports as of your closing date: General Ledger, Balance Sheet Standard, Statement of Cash Flows, Inventory Valuation Summary (if applicable) and Profit & Loss Standard for the Year.

Y/E Task 6: back up your data file

Back up your data file on a special backup diskette, zip disk or CD ROM that will never be touched.

Y/E Task 7: close the QuickBooks file

Set the closing date to the last day of the period you are closing.

Y/E Task 8: condense the QuickBooks file?

Consider condensing the data file following the instructions in the QuickBooks manual.


M/E Close Task 1: editing, voiding and deleting transactions

Unlike other accounting programs, QuickBooks allows you to change any transaction at any time. However, you should almost never change transactions dated in closed accounting periods or transactions that have been reconciled with a bank statement. When you change or delete a transaction, QuickBooks immediately updates the General Ledger with your change, regardless of the date of the transaction. Therefore, if you make a change to transactions in closed period, your QuickBooks financial statements will change for that period. That could put your QuickBooks data out of sync with your tax returns.

Unlike many accounting programs, QuickBooks allows you to void and delete transactions almost without restriction. Voiding and deleting transactions have the same effect on the General Ledger---they zero out the debits and credits specified in the transaction. Proper accounting procedures do not allow you to simply delete transactions at will. However, in some cases, it is perfectly fine to use the Delete command. For example, it is acceptable to delete a check that you havent printed. On the other hand, if youve already printed the check, you should Void the check instead of deleting it. That way, youll have a record of the voided check.

There is one significant difference between voiding and deleting, however. When you void a transaction, QuickBooks keeps a record of the date, number and detail of the transaction. When you delete a transaction, QuickBooks removes it completely from your file.

If you have the Audit Trail activated in the Accounting Company Preferences, QuickBooks will show the deleted transaction on the Audit Trail report. In general, its a much better practice to void transactions that need to be cancelled rather than deleting them. In either case, make sure you keep a record of voids and deletions. The record should include the date of the void or deletion and the reason for it.

M/E Close Task 2: recording adjustments and general journal entries

Adjusting entries are transactions that adjust the balance of one or more accounts. Note: good accounting practice suggests that you keep a separate record of each General Journal Entry you make in QuickBooks. This record will be very helpful if youre ever audited or if you have to research the reasons for your adjustments.

Here are a few examples of adjusting entries in QuickBooks:

1. Recategorize a transaction from one class to another

2. Recategorize a transaction from one account to another

3. Allocate prepaid expenses to each month throughout the year

4. Record noncash expenses such as depreciation

5. Close the Owners Drawing account into the Owners Equity account

In most cases, youll use a General Journal Entry to record adjustments.

M/E Close Task 3: writing off a bad debt

If an invoice becomes uncollectible, youll need to write off the debt using a Credit Memo. Use the Bad Debt Item on a Credit Memo for each uncollectible Invoice. Credit Memos that use the Bad Debt Item reduce Accounts Receivable for the Customer and increase Bad Debt expense.

M/E Close Task 4: making adjustments for prepaid expenses

If you use the accrual basis of account, the goal is to properly match income and expenses to the period in which the income or expenses occur. However, sometimes you pay expenses in advance of when they are used. For example, if you pay your insurance yearly and you want to allocate the cost of the insurance to each month, set up an account called Prepaid Expenses as an Other Current Asset. When you write a check for prepaid expenses, code the check to the Prepaid Expenses Other Current Asset account. To allocate the expenses to each month of the year, enter a journal entry that records one-twelfth of the expenses. You might want to memorize the transaction ad schedule it to automatically enter each month.

M/E Close Task 5: tracking fixed assets

When you purchase office equipment, buildings, computers, vehicles or other assets that have useful lives of more than one year, youll want to add them to your Balance Sheet and record the depreciation of the assets periodically. Add to subaccounts to each fixed asset. One subaccount tracks the cost of the asset, the other tracks accumulated depreciation. In addition to the fixed asset accounts, youll need an expense account called Depreciation Expense. When you purchase an asset, categorize the purchase to the appropriate asset cost subaccount such as Furniture and Equipment:Cost. If you want to track your assets by name, create names of your assets in the Other Name list. This increases the (debits) the Fixed Asset Cost account and decreases (credits) the Checking account (assuming you used a check). Then when you record depreciation, you increase (debit) the Depreciation Expense account and decrease (credit) the Accumulated Depreciation account. The Accumulated Depreciation account is known as a Contra-Asset account because its balance is always a credit balance.

M/E Close Task 6: tracking loans

If your business takes out a loan, set up a long-term liability account to track it. When you make your loan payments, split the payment between the principal and interest manually. QuickBooks doesn't automatically calculate interest on loans, so you'll have to calculate the interest portion and manually enter it.

M/E Close Task 7: reconciliations

Reconcile all cash, loan, credit line and credit card accounts with the statements. File the reconciliation reports.

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