Advantages to not closing your books include:

• Detail: You always have easy access to last year's data, including the details of every transaction.
• Reporting: You can create comparative reports between this year and last year.

QuickBooks does not require you to close your books at the end of an accounting period. If no closing date is set, you can enter transactions for any time period.

One major reason for closing your books in QuickBooks is to restrict access to the transactions of prior accounting periods so that no one changes the transactions without your knowledge.

Any changes made after the closing date to transactions dated on or before the closing date will appear in the Closing Date Exceptions report.

To modify or delete a transaction in a closed period, a user must know the closing date password (if it has been set) and have the appropriate permissions.

You close your books by setting a closing date. You can also limit access to the closed accounting period by setting a closing date password.

To close your books:

Note: You must be in single-user mode to set the closing date.

1. From the Edit menu, choose Preferences.
2. In the Preferences window, select Accounting.
3. On the Company Preferences tab, enter the date through which you want your books to be closed.
4. (Optional, but recommended) Create a password to limit access to the closed accounting period.
   • Click Set Password.
   • Enter the new password in both the Password and Confirm Password fields.
   • Click OK.
5. Click OK.

QuickBooks requires the password for changes that would alter balances for the accounting period you have closed. This includes adding, modifying, or deleting transactions dated on or before the closing date.

Year-end Adjustments QuickBooks Makes Automatically
QuickBooks performs certain year-end adjustments, based on the fiscal year start month you entered in the Company Info window under the File menu.

• QuickBooks for Windows automatically adjusts your income and expense accounts at Year-End to zero them out. Therefore, you start your new fiscal year with a zero net income.
• QuickBooks for Windows makes an adjusting entry with your net income. It posts it to the Retained Earnings account, which QuickBooks creates automatically. For example, if your profit for the year was $12,000, on the last day of your fiscal year the equity section of your Balance Sheet would show a line for net income of $12,000.
• On the first day of the new fiscal year, QuickBooks increases your Retained Earnings equity account by the previous year's net income ($12,000 in this example) and decreases your net income by the same amount. This way, you start each new fiscal year with a net income of zero.

In QuickBooks 2002 and later, there is a password/permission system that is also used to protect previous year's transactions within a selected date range.

Condense and Back Up Your Data
You should archive or back up your data as part of the process of preparing for year-end. Condensing your data is an optional step when closing your books at the end of the year. If you have a lot of data, you may want to back up and condense your company data file to reduce the company data file size and improve QuickBooks performance.
You may find that condensing your books every three years or so is adequate.

The Archive & Condense Wizard provides you with several options for condensing your company data file.

You can choose to:

• Condense transactions as of a specific date
• Remove all transactions

To condense and back up your data:

1. From the File menu, choose Archive and Condense Data.
2. Follow the on-screen instructions in the Archive & Condense Wizard.

Reconcile All Bank Or Credit Card Accounts
Make sure your QuickBooks records agree with the checking, savings, money market, and credit card financial statements you regularly receive.

Note: If you clear a transaction directly in the account register, you will exclude the transaction from the beginning balance shown in the Begin Reconciliation window. To make sure such transactions are included in the beginning balance, you must clear them from the Reconcile window.

1. From the Banking menu, choose Reconcile to display the Begin Reconciliation window.
2. In the Account field, enter or select the account you want to reconcile.
3. In the Statement Date field, enter the date of the bank statement you are trying to reconcile.
4. Compare the opening balance amount shown on your statement with the amount shown in the Beginning Balance field in the Begin Reconciliation window.
   If the opening balances are different
5. Find the ending balance on your statement and enter it in the Ending Balance field.
6. Enter any service charges or interest earned in the fields provided. · If the financial statement shows a service charge or interest that you have not yet entered into your QuickBooks records, enter those amounts into the Service Charge and Interest Earned fields.
• In the Account field for service charges, enter the expense account you use to track service charges. In the Account field for interest, enter the income account you use to track interest income.
7. Click Continue to open the Reconcile window for the account you've chosen.
   The reconcile window displays a list of checks and payments, plus a list of deposits and other credits. Using your latest bank statement, check each of the entries to make sure they match.
8. When you find a transaction in the Reconcile window that matches a transaction on the statement, click the transaction to mark it as cleared.
   • For each transaction you select, verify that its amount matches the amount listed on the statement.
   • If some amounts don't match, or if you find transactions that contain other errors, correct the transactions.
   • If you find a transaction on your statement that is not shown in the QuickBooks list of uncleared transactions, enter the transaction now.
9. When you've finished selecting the transactions, look at the difference amount in the bottom right corner of the Reconcile window:
   • If the amount is 0.00 - Click Reconcile Now. You've reconciled the account with the statement. At this point, you can have QuickBooks print a reconciliation report.
   • If the amount is not zero - Your account does not balance for the period of time covered by the statement, and you need to correct the difference.

Record Depreciation
If your accountant uses QuickBooks Fixed Asset Manager, your accountant can determine the depreciation of your assets and update your company file with that information. For more information, see Fixed asset tracking and the Fixed Asset Manager.

There are several ways to figure depreciation. Choosing the right method is often a complex decision that depends on several factors. Here's how you can make an informed decision:

1. From the Company menu, choose Planning & Budgeting. From the Decision Tools submenu, choose Depreciate Your Assets.
2. Read the background information, and compare different methods of depreciation.
3. Talk to your accountant, and decide how you want to track depreciation in your business.
4. Based on the information you gather, enter depreciation expenses on a monthly, quarterly, or annual basis.

Take A Physical Inventory And Reconcile With Book Inventory
If your business maintains inventory, reconcile your actual inventory against the inventory recorded in QuickBooks. Use QuickBooks to create a physical inventory sheet, take an inventory, then compare those totals against the information recorded in QuickBooks.

For additional information about reconciling physical inventory with QuickBooks inventory, go to the QuickBooks Help menu, choose Help Index, and then search on inventory.

You can use QuickBooks to create a worksheet for taking a physical count of your inventory:

1. From the Reports menu, choose Inventory, and then choose Physical Inventory Worksheet.
2. Click Print.
3. As you check your stock, enter the quantities for each item in the Physical Count column of the worksheet.

For more information on income tax forms and inventory, please check with your accountant.

Make Year-End Accrual Adjustments and Corrections
If your business accrues payroll and liabilities, or prepays any expenses (such as insurance, subscriptions, etc.) and then carries the prepayment as an asset, you may need to make journal entries to ensure that these accruals and prepayments are handled at year-end. Please consult your accountant to determine whether these types of entries apply to your business and for assistance with clearing your prepaid and accrued expenses.

Adjust Retained Earnings
Retained earnings are profits from earlier accounting periods that have not been distributed to the company's owners. At the end of your fiscal year, QuickBooks computes your profit (or loss) into an equity account named Retained Earnings.

You can make transfers to the Retained Earnings account from the registers of other balance sheet accounts; or you can use Retained Earnings in a general journal entry. Your accountant can advise you if adjustments to this account are appropriate and how to make the adjustment.

While you might adjust the Retained Earnings account to track funds withdrawn by, or distributed to, company owners, we recommend you create a separate equity account (commonly called Owner's Draw or Distributions) for these transactions. Using this method, you can easily see the total funds withdrawn by the owner as well as the individual transactions that make up the total amount.

To withdraw funds from the company using an Owner's Draw account or Distribution account:

1. Choose an existing equity account or set up a new equity account to track owner's draw transactions.
2. Write out a check to the owner and use the above account in the Account field.
3. To view entered transactions, open the register of the account you chose in 1.

Review Details of All New Equipment Purchased During the Year
New equipment details should include:

• date of purchase
• purchase price
• type of asset
• make
• model
• year
• new or used

Keeping track of these details will make the task of recording depreciation much easier. Typically, you expense the purchase price of a fixed asset over its useful life, not just the year in which you made the purchase. This business expense is known as depreciation.

Consult your accountant to determine how to calculate depreciation for fixed assets such as furniture, computers, vehicles, and buildings. Because of their long-term value, fixed assets are treated differently than other business expenses.

Make All Asset Depreciation Entries And Adjustments
Fixed assets such as furniture, computers, vehicles, and buildings contribute to the operating capacity of a business over many years. Because of their long-term value, fixed assets are treated differently than other expenses. Typically, you expense the purchase price of the fixed asset over its useful life, not just the year in which you made the purchase.

Each fixed asset should have its own "parent" asset account in the chart of accounts, and two subaccounts: one for the original purchase price of the item, and the other for its accumulated depreciation. For example, you could have a "Company Vehicle" parent account with two subaccounts, "Purchase" and "Depreciation."

You will also need a separate expense account to track all depreciation expenses.

To learn more about depreciation accounts:

• From the QuickBooks Company menu, choose Planning & Budgeting and then Decision Tools and then Depreciate Your Assets.
• From the QuickBooks Help menu, choose Help Index, and then search on depreciation.

Review Fringe Benefits That Need To Be Reported On Form W-2
Fringe benefits are compensation other than wages that are provided to an employee. They can be either taxable or non-taxable. Examples of fringe benefits include:

• health term life insurance
• emploand life insurance
• public transportation subsidies
• moving expense reimbursement
• employer-provided vehicles
• educational reimbursement plans
• group-yee loans that are forgiven

If you're not sure whether you offer taxable fringe benefits to your employees, consult with your accountant or tax advisor.

Print Financial Reports

Trial Balance Report
Print the Trial Balance report for the day after the year that you just closed. This allows you to make sure that all income and expense accounts have a zero balance and are closed out to Retained Earnings. Check that the balance of your bank account in the Year to Date column agrees with your Trial Balance Report.

To create the Trial balance report:
From the Reports menu, choose Accountant & Taxes and then Trial Balance.

Profit & Loss Standard Report
Verify that the Profit & Loss report includes the correct dates and is set to the appropriate accounting method (cash or accrual).

To create the Profit & Loss report:
From the Reports menu, choose Company & Financial and then Profit & loss Standard

Balance Sheet Standard Report
Reconcile and verify all your Balance Sheet items. Be sure that this year’s beginning Retained Earnings matches last year’s ending Retained Earnings.

To create the Balance Sheet Standard report:
From the Reports menu, choose Company & Financial and then Balance Sheet Standard

Print Income Tax Reports To Verify Tax Tracking
If you import your QuickBooks data into Intuit's TurboTax Business tax preparation product, or your accountant imports your data to Intuit's ProSeries tax preparation product, the Income Tax reports will help with the preliminary tasks of verifying your tax line assignments and the amounts QuickBooks tracked for each tax line.

Tax Line Assignments
To track income tax-related transactions in QuickBooks, each tax-related account must have a tax line assignment. The accuracy of the tax reports depends on whether each tax-related account has the right tax line assignment. If you went through the EasyStep Interview to set up your company file, most of your accounts will automatically have tax line assignments. The default tax line assignments have been expanded to include Balance Sheet accounts for business tax products. When you create a new Balance Sheet account, the tax line assignment will be prefilled for you based on the type of Balance Sheet account you're creating. The Income Tax Preparation Report shows the tax line associated with each account in your chart of accounts. Be sure to review these tax line assignments, and edit if necessary, before generating the income tax summary or income tax detail report.

Income Tax Preparation Report
This report shows the tax line assigned to each account in your chart of accounts. Be sure to review these tax line assignments, and edit if necessary, before generating the income tax summary or income tax detail report.

To associate any tax-related accounts with a tax line:

1. From the Company menu, select Chart of Accounts.
2. Right-click the account and choose Edit.
3. Select the appropriate Tax Line from the drop-down list and then click OK.

To create the Income Tax Preparation report:
From the Reports menu, choose Accountant & Taxes and then Income Tax Preparation.

Income Tax Summary Report
This report helps you gather data for your federal income tax forms. The report shows the amount QuickBooks tracked for each tax line on the tax forms that your company files with the federal government. The tax lines are assigned to individual accounts in your chart of accounts. Initially, the report covers the current tax year. You can change the period covered by choosing a different date range from the Dates list. To see how QuickBooks calculated an amount, double-click the amount.

To change the associated tax line for a tax-related accounts:

1. From the Company menu, select Chart of Accounts.
2. Right-click the account and choose Edit.
3. Select the new Tax Line from the drop-down list and then click OK.

To create the Income Tax Summary report:
From the Reports menu, choose Accountant & Taxes and then Income Tax Summary.

1. From the Edit menu, choose Preferences, and then select Tax: 1099 from the list on the left.
2. For "Do you file 1099-MISC forms?", select Yes.
3. Link the 1099 categories you report to the IRS to the QuickBooks accounts you track them in, and then click OK.
4. Set up the appropriate vendors to be eligible for receiving 1099-MISC forms.

Each time you make a payment to a 1099 vendor, QuickBooks automatically adds the amount to the total you must report on the vendor's 1099-MISC form. You can view your 1099-related payments by creating 1099 reports. After verifying that the reports include the right vendors and cover the right accounts, you can print 1099-MISC forms for your vendors on preprinted forms designed for your printer.

Ensure that 1099 Information is Correct
Confirm that you have identified all vendors or contractors that should receive 1099 forms by running the QuickBooks 1099 detail report. In the report, check the following:

• Verify that all of your 1099 vendors or contractors are listed. You may need to change the status of some vendors or contractors that are current marked as "No" in the Eligible for 1099 column.
• Check that all transactions have been correctly assigned to 1099 accounts. Note you may assign multiple accounts to each 1099 tracking box.

For each 1099 vendor or contractor, confirm that you have the correct tax identification number and that the address information is current.

1099 Detail Report
This report helps you verify the information that QuickBooks prints on the 1099-MISC tax form. It provides more detail than the 1099 report.

For each vendor, the report lists the individual transactions that contribute to the vendor's 1099 total. The totals themselves appear in the Balance column.

The report initially shows only the vendors specified as 1099 vendors. To list all vendors in the report, regardless of their 1099 status, choose All Vendors from the 1099 Options drop-down list in the report buttonbar.

Likewise, the report initially shows only transactions assigned to 1099 accounts. To list transactions that may have been assigned erroneously to non-1099 accounts, choose All Allowed Accounts from the 1099 Options drop-down list in the report buttonbar.

To go directly to one of the transactions listed, double-click the transaction.

Print and Mail 1099s

Printing Form 1099-MISC or 1096
Create 1099 reports to verify all 1099 information (vendors, accounts, and amounts) before printing the forms.

Note: You must be in single-user mode to do this.

Print 1099s:

1. Make sure your printer is turned on and is online.
2. Make sure you have pre-printed 1099-MISC or 1096 forms in your printer.
   • If you have a continuous printer, you may need to adjust for additional thickness due to the copies.
   • If you have a page-oriented printer, it's simpler to print copies separately than all at once. Do not collate your pre-printed forms before putting them into the printer. Instead, start by loading all the Copy 1 forms. After you have printed all the Copy 1 forms for each vendor, load and print the Copy 2 forms.
3. From the Vendors menu, choose Print 1099s/1096.
4. Select the time period covering the 1099-related payments you want in the forms, then click OK.
   You can print up to 249 forms.
5. Click Preview, and verify that each vendor's address will print correctly.
   To see details of each address, click Zoom In.
6. When you're satisfied with the accuracy and appearance of the addresses, click Print 1099.

Print 1096:

1. Follow Steps 1 through 4 above.
2. Click Print 1096.
3. Enter Contact Name (name of person to contact at your company) on 1096 Information window.
   If you will not be required to file Form 1099 in the future, check "This is my Final Return".
4. Click OK.
5. On the Print 1096 dialog, click Preview to review the document then click Print.

Confirm that you have the current tax table before creating payroll in the New Year.

Pay Payroll Liabilities
QuickBooks lets you create payments for all your payroll liabilities. You can also add penalties, expenses, and discounts to the checks. Pay payroll taxes and liabilities by check.

Most companies pay their payroll tax liabilities during the year. If you have done this, you may not have any payments due. However, you may want to check your liability balances for the entire year. To do this, run a Payroll Liabilty report and set the date range for the entire year. Check any remaining balances. These balances may need to be paid, or may be rounding errors you can eliminate by entering an adjustment.

Review W-2 Forms
Before you can print W-2 forms, you must review the form for each employee who worked for you at any time during the year. If you notice anything missing, or if you want to adjust for something you don't track on paychecks, you can edit the fields on the form.

Important: If you are uncertain about how to report a specific benefit or amount on the W-2 form, consult your accountant or federal tax guidelines.

To review W-2 Forms:

1. Display the Process W-2s window.
2. If the year shown in the Year field is not the tax year for which you want to process W-2 forms, choose the correct tax year from the drop-down list.
   From January 1 to the last day of February (28 or 29), QuickBooks assumes you want to review W-2 forms for the previous year, and displays the previous year. From March 1 on, QuickBooks displays the current year.
   If you have E-File & Pay and you selected "E-file" on the W-2/W-3 Filing window, QuickBooks automatically sets the year to the previous year. E-File & Pay only allows you to e-file W-2 forms for the previous year.
3. Select the employees whose W-2 forms you plan to review now.
4. Click Review W-2.
5. Examine the information displayed on the first employee's form.
6. If necessary, enter corrections for Boxes 1 through 20.
   If employee or employer information is incorrect in Boxes b through f, click Cancel, then make the change in the appropriate window.
7. Click Next to record your approval of the employee's W-2 form (with any changes).
8. Repeat Steps 5 through 7 to review the W-2 forms for other employees you marked. At the last W-2 form, click OK.

Print and Distribute W-2s
QuickBooks prints W-2 information for each employee in either of the following ways:

• Print W-2s on blank or perforated paper (QuickBooks Payroll only)
  You may print these W-2s using black ink. The government accepts W-2 forms printed in QuickBooks using black ink.
• Print W-2s on standard (preprinted) W-2 forms
  QuickBooks prints two W-2s per page. (It does not work with preprinted forms that have three W-2s per page.)

For both options, first review your W-2 forms in QuickBooks. If you're using preprinted forms, you should also test how your printer prints on W-2 forms.

Note: To ensure your Forms W-2 are accepted by the U.S. government, make sure the following are both true:

• Your printer is loaded with 8.5" x 11", or 8" x 11", white- or cream-colored paper, of at least 18-lb. weight.
• The printer ink is black.

Note: QuickBooks has received government approval to print W-2s using black ink. The government will accept W-2 forms printed in QuickBooks using black ink.

Printing W-2 forms on blank paper:

1. Display the Process W-2s window.
2. Click Mark All, or select the employees whose W-2 forms you want to print.
3. (Recommended) Click Review W-2, review each W-2 form, then click OK.
4. Click Print W-2s.
5. Select Blank paper, choose the items you want to print, and click OK.

Remember: Print a W-3 form to summarize the W-2 forms.

Important: If you are filing Forms W-2 and W-3 electronically with the Social Security Administration, do not mail Copy A.

Note: If Box 14 contains more than 3 lines, a second form prints the overflow information. (The additional form displays only the name, address, and overflow information.)

Printing on Perforated Paper
If you subscribe to QuickBooks Payroll, you have the option of printing employee and employer W-2 copies on blank perforated paper. Blank perforated paper provides a professional look and guarantees that forms are easily separable by your employees. Perforated paper works with matching envelopes, making it easy to mail employee copies.

Printing Form W-3

How QuickBooks Generates a Form W-3
QuickBooks calculates the amounts for the W-3 form by adding the amounts on the W-2s belonging to the employees who are selected when you click Print W-3.

Printing a Form W-3
QuickBooks prints W-3 information in either of the following ways:

• Print W-3 information and form on blank paper (available to QuickBooks Payroll subscribers)
• Print W-3 information on a standard (preprinted) W-3 form

To obtain an accurate W-3 form, first review your W-2 forms online. If you're printing on preprinted forms, you should also test how your printer prints on a W-3 form.

Entering information for a Form W-3 (QuickBooks Payroll printing on blank paper)
QuickBooks Payroll subscribers who use the blank paper option can enter information on the Print W-3 window for the following W-3 fields:

• Kind of Payer
• Other EIN used this year
• Contact person, E-mail address, Telephone number, Fax number
• Income tax withheld by payer of third-party sick pay

Printing a Form W-3 on Blank Paper (QuickBooks Payroll)
If you subscribe to QuickBooks Payroll, you can print W-3 instructions and a Form W-3 on blank paper. To obtain accurate W-3 information, you must first review your W-2 forms.

To ensure your Form W-3 is accepted by the U.S. government, confirm the following:

• Your printer is loaded with 8.5" x 11", or 8" x 11", white- or cream-colored paper, of at least 18-lb. weight.
• The printer ink is black.

To print a W-3 form:

1. Display the Process W-2s window.
2. Click Mark All, or select the individual employees whose W-2 forms you are filing.
3. Click Review W-2, review each W-2 form, then click OK.
4. Click Print W-3.
5. Click Blank Paper Form W-3, click OK, then click Print.

Printing a Form W-3 on a Preprinted Form
You can print W-3 information on standard (preprinted) W-3 forms. To obtain accurate W-3 information, do the following before you print:

• Review your W-2 forms.
• Test how your printer prints on a W-3 form.

To print on a W-3 form:

1. Load a preprinted W-3 form correctly in your printer.
2. Display the Process W-2s window.
3. Click Mark All, or select the individual employees whose W-2 forms you are filing.
4. Click Review W-2, review each W-2 form, then click OK.
5. Click Print W-3.
6. Click Preprinted Form W-3, click OK, then click Print.

Process Form 940
Form 940 is an annual tax form on which you report your federal unemployment (FUTA) tax liability.

Process Annual Form 940
You can edit and print federal 940 forms:

1. From the Employees menu, choose Process Payroll Forms.
2. Choose Federal Forms.
3. Select Form 940, enter the appropriate year, then click OK.

Important: Before you prepare a Form 940 or Form 940-EZ, make sure you have paid your state unemployment tax.

1. Go to the Select Payroll Form window.
2. Select your form and your filing period.
3. Click OK.
4. QuickBooks exports data into your form and displays the form in the payroll tax form window.
   
   Note: In a small number of forms, QuickBooks does not display any data until you first make a selection on the form, such as for a filing period.
   
   Payment coupons: Forms that are payment coupons only display the amount of tax you accrued for the specified period. They do not take into account any payments you might have made.
   
5. Follow the onscreen instructions.
   
   Note: If you edit any of the information QuickBooks exports into the form, the changes do not get saved back to the source data in QuickBooks.
   
6. Click Print to print your form.

The amounts that appear on your tax form(s) are based on the total wages you pay out, which are tracked in QuickBooks by payroll items.

Process Form 941
Form 941 is a tax form on which you report employee wages and withholding and deposits of federal income tax, social security tax, and Medicare tax. You file these returns quarterly, on a calendar-year basis, even if your fiscal year is different from the calendar year.

These tax returns are due the last day of the month following the end of the quarter. For example, Form 941 for the first quarter ending March 31 is due April 30.

Process Quarterly Form 941
You can edit and print 941 forms and Schedule B forms:

1. From the Employees menu, choose Process Payroll Forms.
2. Choose Federal Forms.
3. Select Form 941, select the appropriate Quarter, then click OK.

Verify W-4 Information
As a part of your year-end process, have each employee review their personal information on their W4 forms at the end of each year.