In traditional accounting (and traditional accounting software) you ‘close the books’ at the end of a year. How do you do that in QuickBooks? Short answer: You don’t.
Right or wrong, QuickBooks keeps your accounting data around more or less permanently. You can run the QuickBooks archive/condense/clean up command (the naming of it differs across versions) but that has limited results. You can have your file supercondensed. But otherwise, your transaction history sticks around pretty much forever.
That’s a good thing for running historical reports whenever you want.
The potential for problems, however, comes through the ability to add, change, or delete entries made in a prior year — after you have already filed your company’s taxes. Definitely a no-no.
So how can you avoid that? It’s easy. Use the Set Closing Date and Password command in QuickBooks. That will more or less lock down your prior years’ information so that it cannot be altered without your controlled permission.
With your company file open in QuickBooks, click Edit / Preferences. Select the Accounting preference in the left pane. Then click the Company Preferences tab. You’ll see this:
Click the button at the bottom called Set Date/Password. Here’s what you’ll see:
This screen represents powerful accounting control for you.
At the Closing Date prompt, enter the date at which you want to restrict any changes (e.g. December 31 of the previous year).
Enter a password that is unique for this purpose (don’t recycle a user’s password here). Reason? If anyone tries to make a change to a transaction in a “closed” year, they won’t be able to do so without knowing this special password.
If you don’t create a password here, anyone who tries to enter or change a transaction prior to the closing date will get a warning, but will still be able to make the entry. You are leaving the door open to all kinds of problems if you don’t create a password here.
There is a checkbox to exclude sales orders, estimates, and purchase orders from the closing date limitation. Why? Well, those kinds of entries aren’t actually accounting transactions — they don’t post to your general ledger or subledger account balances, so changing them doesn’t change your financial reports. You may or may not want to check the box, depending on your accounting control policies and how you handle those kinds of pre-transactions in your business.
Close the books in QuickBooks? Not really. But that doesn’t mean you can’t control the the books.