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October 2005 A Summary of Year End Activities Because of the design of QuickBooks, there really are no actions you must take at the end of the year—you don’t close anything like you do in a manual bookkeeping system. You can, however, consider performing some typical year-end activities and also performing some housekeeping activities to eliminate data that you may no longer need. We’ll review those activities in this article. In a manual bookkeeping system, closing means preparing and posting closing entries to the general ledger. As a result of these closing entries, on January 1, before you start to work, the balances in all your income and expense accounts are zeros. The net value of the closing entries, which is actually the net income that appears on the bottom of your Profit and Loss Statement, is included in the Equity section of your Balance Sheet. In QuickBooks, this process happens by simply viewing or printing a report dated on or after January 1. Payroll You’ll probably find more year-end related tasks in payroll than in any other area. You should check employee background information, wage information, and tax information so that you can be sure that the information on the forms such as W-2’s will be accurate. You can use the Employee Contact List to review background information and the Employee Earnings Summary (with dates set for the entire year) to review employee wage information (see Figure 1). The Employee Withholding report, shown in Figure 2, can help you review employee tax information.
Figure 1. Use this report to review employee wage information.
Figure 2. You can use this report to verify employee tax information.
If you have adjustments or fringe benefits that should be reflected on W-2’s, you can include them in the last payroll of the year, or you can run a separate payroll. We recommend that you try to include them in a regular payroll so that you will have regular earnings from which to deduct taxes on non-cash income. For example, you may pay your employees an annual bonus in December. Or, you may need to deduct the taxes that need to be withheld for non-cash fringe benefits. In the steps below, we’ll walk you through the process so that the bonus checks you issue and taxable fringe benefits your company offers will be included on W-2’s. 1. Set up payroll items for the bonus and for each fringe benefit. Check with your accountant to determine the correct tax settings for your fringe benefits; bonuses are considered compensation and are taxable just like regular wages. 2. Assign appropriate payroll items to eligible employees. 3. Using the Preview Paycheck window, include taxable fringe benefits in the Other Payroll Items section of a regular paycheck—usually the last one of the year (see Figure 3) so that you will have some regular earnings from which to deduct the applicable taxes.
Figure 3. A paycheck that includes a bonus.
When you account for bonuses and taxable fringe benefits using the preceding steps, the information will automatically appear on W2’s. You can order W2’s and W3’s from www.intuitmarket.com. Subscribers to the QuickBooks Tax Table Update Service automatically receive any printing format updates for these forms. Inventory For Inventory, many businesses perform a physical inventory count at the end of the year. The Physical Inventory Worksheet in QuickBooks (see Figure 4) contains space for you to enter actual counts, which makes taking physical inventory easier. We suggest that you print an Inventory Valuation Summary before and after you adjust your quantities to the physical count so that you can compare the reports.
Figure 4. Use the Physical Inventory Worksheet to help you record inventory count information.
Accounts Receivable In Accounts Receivable, review customers to mark inactive those with whom you no longer do business. To mark a customer inactive, open the Lists menu and click Customer:Job List. Highlight the customer that you want to make inactive and click the Customer:Job button (see Figure 5). Click Make Inactive on the menu that appears.
Figure 5. Making a customer inactive.
You should also review your Accounts Receivable aging report for possible bad debts and write off any amounts that you know you won’t collect. And, if you’re using QuickBooks Pro or Premier, review open estimates and close any that you know you won’t fill. Job Costing Job Cost, by its very nature, doesn’t run on a calendar- or fiscal-year basis, because Job Cost helps you track costs and revenues over the life of a project. Therefore, Job Cost has no end-of-year procedures other than standard housekeeping. You should review existing jobs and mark appropriate ones as inactive. Use the same basic process that you used for customers, except highlight a job instead of a customer. Accounts Payable Accounts Payable has one major year end activity: printing 1099-MISC—and typically, you don’t print 1099-MISC until January. You can order the forms from www.intuitmarket.com. Also consider identifying vendors who are no longer active and reviewing open purchase orders to close any that you know you won’t fill. You can make a vendor inactive the same way you make a customer inactive. To close a purchase order, display it in the Create Purchase Orders window and place a check in the Closed check box at the bottom of the window (see Figure 6).
Figure 6. Mark a purchase order closed.
General Ledger Finally, you might want to review your chart of accounts for accounts you’re no longer using—and mark those accounts inactive. You make accounts inactive the same way that you made customers, jobs, and vendors inactive. You also should reconcile your December bank statements and compare the balance in your cash account to your bank reconciliation. We suggest that you audit your Balance Sheet by verifying balances in the accounts on the Balance Sheet. Balance Sheet accounts contain the value of assets or liabilities at a specific point in time and can be verified relatively easily. In contrast, the Profit & Loss Statement accounts contain transaction totals for a period of time, and there is no easy way to check them. On a positive note, however, if your Balance Sheet is correct, then the bottom line (net income) on the Profit & Loss Statement is correct. Compare the balances in the Accounts Receivable and Accounts Payable accounts to the appropriate aging report. And, compare the balance in your inventory account to the Inventory Valuation report. You or your accountant may determine that you also need to enter some adjusting journal entries. If appropriate, for example, you may need to prepare journal entries to redistribute retained earnings among partners. Or, you may need to prepare a journal entry to close a drawing account into retained earnings. Finally, you should consider condensing your data files to make your files smaller. Watch for an upcoming article on condensing. Summary Even though there are no closing procedures that you must perform in QuickBooks at the end of the year, we think that you’ll make a smooth transition from the old year to the new is you perform the housekeeping tasks described in this article because you will have eliminated some of the excess data that you no longer need. Tyler Martin is a Certified Public Accountant and QuickBooks Pro Advisor. His practice is in the Willow Glen area of San Jose. |
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