The Desktop Accountant, January 1998

Year-End with QuickBooks
January, 1998

Closing the Books - Auto-Magically

At the end of each year, QuickBooks automatically enters adjusting entries to your income and expense accounts, posting your company's net income into retained earnings, (or owner's equity if you are a sole proprietor). In accounting circles, this entry is known as "closing the books" and most other software programs require you to make this complicated entry yourself.

In my seminars, I say QuickBooks makes this entry "auto-magically" because QuickBooks never really makes this closing entry. Instead, when you create a Balance Sheet, QuickBooks looks at the report date and does the math to determine what the Retained Earnings balance should be on that date. There are two advantages to QuickBooks closing the year for you. First, you don't have to create the entry, which can take a fair bit of time, and second, you can always go back and see income and expense detail for prior years, since you never actually "closed" them out.

Prove this to yourself by running a balance sheet for your company file for 12/31/97. Notice the Net Income line at the bottom of the report . Now run a balance sheet for the very next day 1/1/98 and notice that Net Income disappears and Retained Earnings (or owner's equity) has changed by the amount of your Net Income. Substitute your Year-End date if your year-end is not December 31.

Year-End To Do List

There are several things you might want to do at the end of the year. Here is a list of things to consider: Check with your accountant if you are not sure how to calculate or enter these numbers.

Enter general journal entries for depreciation. (In Version 4.0, use "Enter Special Transactions")

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 Owner's Drawing and Owner's Investments into Owner's Equity.

Run reports for the year and verify their accuracy. Make changes as necessary to your data and rerun the reports. Print and keep the following three reports:
General Ledger, Balance Sheet for Year End, and Profit and Loss for year. Choose any other management reports that make sense for you to archive along with the first three.

Backup your data file on a special backup diskette(s) that will never be touched!

Should you Condense your Data File?

Condensing your file is appropriate every two to three years or when your company data file grows too large (usually more than 5 diskettes to back it up or your reports start taking too long). When you condense your data, you shrink the size of the file and remove detail.

When you condense your file, you'll specify an ending date for the period you want to condense. QuickBooks does nothing to any transactions dated after the date you enter. Be sure not to condense your file until well after your tax return is correctly filed.

To condense your data, first close all open windows (reports, lists, registers, etc.). Then choose File·Utilities·Condense Data. QuickBooks will require that you make a backup copy before condensing your file. QuickBooks will remove all reconciled transactions dated on or before the date you specify, replacing them with new transactions that summarize each month's deleted transactions.

Condensing is a tricky business. Here's why. QuickBooks only deletes reconciled bank account transactions, closed invoices, paid bills, and closed purchase orders. For example, if a deposit transaction in the checking account includes five checks, but one of those checks was for partial payment on an invoice that is still open, the whole chain of linked transactions, (invoice, payment receipt and deposit) will not be condensed. Also, since the deposit includes other checks, the rest of the five deposited checks and their chains will not be deleted.

In this case, the condense function will not work until the invoice with an open balance is closed. Close the invoice by either receiving payments against it, or by writing-off the unpaid amount by issuing a credit memo for the open balance. Then use the receive payments activity to "apply existing credits" to the open invoice.

Tip: If you find a condensing problem, restore your pre-condense backup file, then fix it as discussed above, then condense again. Don't keep condensing the same file. Condensing your data may tie up your computer for a while, so plan for some

Starting Over - New File, Old Lists

Sometimes it may be necessary to start all over with your data file. This might be due to changes to your business such as a new form of legal organization for the new year, material differences in the way you do business or the data in the file requires so much fixing that you'd have to spend longer fixing it than just starting over.

The good news is that starting a new file doesn't have to include setting up your lists all over again. You can export all your lists to a special file (called an ".iif" file) and then import the lists into a new, blank company file.

Start by exporting your lists from your current file. With your current file open, choose File·Export. Choose any lists you want to take into the new file. Then give your export file a name (lists.iif) and click OK to save the file.

Now, create a new file by choosing File·New Company. Then follow the steps through creating a new company file. When prompted for a chart of accounts type, choose No Type (assuming you exported your chart of accounts). Give the new file a different name than your current file. For example, if your current file is called COMPANY.QBW, the new file could be called COMPANY2.QBW.

Important: DO NOT give your new company file the same name as your old file. If you do, QuickBooks will delete the old company file and replace it with a new blank file.

Now, in your new company file, choose File·Import. Select the "IIF" file containing the lists and click OK.

When QuickBooks finishes importing your lists, display the Chart of Accounts, Customer list and Vendor list to see that all your lists have been imported into the new file. This is an ideal time to delete any unwanted accounts, customers, vendors or employees since there are no transactions in the file to prevent you from deleting them!

"Expert" Level Seminars for Power Users, Accountants, Bookkeepers and Consultants

How can I quickly diagnose and correct errors in a file? What is the best way to tackle a file showing incorrect payroll or sales tax liabilities? How can I manage multiple data files created with different versions of QuickBooks on a single hard drive? How can I recover corrupted files?

Attend our Expert seminar and become the resident QuickBooks expert in your office. You'll discover the inner workings of QuickBooks, significantly boosting your ability to help others with QuickBooks. If you are a consultant or accountant you'll learn how to increase your income by working faster and smarter with clients that use QuickBooks or QuickBooks Pro. During the seminar we'll share with you what we've learned in years of consulting with hundreds of QuickBooks clients.

Contact us toll free at 1 (888) 484-5484 for dates and locations in your area. A limited number of Expert seminars will be scheduled nationally during 1998. CPE credits are available for CPAs and EAs.

The Mastering QuickBooks Video
Learning System
Two separate videos to meet your needs...

Reduces the Time You Spend Learning

Eliminates Common Errors

Learn at Your Own Pace

Covers both QuickBooks and QuickBooks Pro

Easy, Non-Technical Format

For Beginners and Experienced Users

Details on our Web Site at http://www.sleeter.com or call
Toll Free 1 (888) 484-5484

©1998 The Sleeter Group, Inc. May be photocopied and shared with your associates and clients.

Year-End with QuickBooks January, 1998

Closing the Books - Auto-Magically		At the end of each year, QuickBooks automatically enters adjusting entries to your income and expense accounts, posting your company's net income into retained earnings, (or owner's equity if you are a sole proprietor). In accounting circles, this entry is known as "closing the books" and most other software programs require you to make this complicated entry yourself. In my seminars, I say QuickBooks makes this entry "auto-magically" because QuickBooks never really makes this closing entry. Instead, when you create a Balance Sheet, QuickBooks looks at the report date and does the math to determine what the Retained Earnings balance should be on that date. There are two advantages to QuickBooks closing the year for you. First, you don't have to create the entry, which can take a fair bit of time, and second, you can always go back and see income and expense detail for prior years, since you never actually "closed" them out. Prove this to yourself by running a balance sheet for your company file for 12/31/97. Notice the Net Income line at the bottom of the report . Now run a balance sheet for the very next day 1/1/98 and notice that Net Income disappears and Retained Earnings (or owner's equity) has changed by the amount of your Net Income. Substitute your Year-End date if your year-end is not December 31.

Year-End To Do List		There are several things you might want to do at the end of the year. Here is a list of things to consider: Check with your accountant if you are not sure how to calculate or enter these numbers. Enter general journal entries for depreciation. (In Version 4.0, use "Enter Special Transactions") 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 Owner's Drawing and Owner's Investments into Owner's Equity. Run reports for the year and verify their accuracy. Make changes as necessary to your data and rerun the reports. Print and keep the following three reports: General Ledger, Balance Sheet for Year End, and Profit and Loss for year. Choose any other management reports that make sense for you to archive along with the first three. Backup your data file on a special backup diskette(s) that will never be touched!

Should you Condense your Data File?		Condensing your file is appropriate every two to three years or when your company data file grows too large (usually more than 5 diskettes to back it up or your reports start taking too long). When you condense your data, you shrink the size of the file and remove detail. When you condense your file, you'll specify an ending date for the period you want to condense. QuickBooks does nothing to any transactions dated after the date you enter. Be sure not to condense your file until well after your tax return is correctly filed. To condense your data, first close all open windows (reports, lists, registers, etc.). Then choose File·Utilities·Condense Data. QuickBooks will require that you make a backup copy before condensing your file. QuickBooks will remove all reconciled transactions dated on or before the date you specify, replacing them with new transactions that summarize each month's deleted transactions. Condensing is a tricky business. Here's why. QuickBooks only deletes reconciled bank account transactions, closed invoices, paid bills, and closed purchase orders. For example, if a deposit transaction in the checking account includes five checks, but one of those checks was for partial payment on an invoice that is still open, the whole chain of linked transactions, (invoice, payment receipt and deposit) will not be condensed. Also, since the deposit includes other checks, the rest of the five deposited checks and their chains will not be deleted. In this case, the condense function will not work until the invoice with an open balance is closed. Close the invoice by either receiving payments against it, or by writing-off the unpaid amount by issuing a credit memo for the open balance. Then use the receive payments activity to "apply existing credits" to the open invoice. Tip: If you find a condensing problem, restore your pre-condense backup file, then fix it as discussed above, then condense again. Don't keep condensing the same file. Condensing your data may tie up your computer for a while, so plan for some

Starting Over - New File, Old Lists		Sometimes it may be necessary to start all over with your data file. This might be due to changes to your business such as a new form of legal organization for the new year, material differences in the way you do business or the data in the file requires so much fixing that you'd have to spend longer fixing it than just starting over. The good news is that starting a new file doesn't have to include setting up your lists all over again. You can export all your lists to a special file (called an ".iif" file) and then import the lists into a new, blank company file. Start by exporting your lists from your current file. With your current file open, choose File·Export. Choose any lists you want to take into the new file. Then give your export file a name (lists.iif) and click OK to save the file. Now, create a new file by choosing File·New Company. Then follow the steps through creating a new company file. When prompted for a chart of accounts type, choose No Type (assuming you exported your chart of accounts). Give the new file a different name than your current file. For example, if your current file is called COMPANY.QBW, the new file could be called COMPANY2.QBW. Important: DO NOT give your new company file the same name as your old file. If you do, QuickBooks will delete the old company file and replace it with a new blank file. Now, in your new company file, choose File·Import. Select the "IIF" file containing the lists and click OK. When QuickBooks finishes importing your lists, display the Chart of Accounts, Customer list and Vendor list to see that all your lists have been imported into the new file. This is an ideal time to delete any unwanted accounts, customers, vendors or employees since there are no transactions in the file to prevent you from deleting them!

"Expert" Level Seminars for Power Users, Accountants, Bookkeepers and Consultants		How can I quickly diagnose and correct errors in a file? What is the best way to tackle a file showing incorrect payroll or sales tax liabilities? How can I manage multiple data files created with different versions of QuickBooks on a single hard drive? How can I recover corrupted files? Attend our Expert seminar and become the resident QuickBooks expert in your office. You'll discover the inner workings of QuickBooks, significantly boosting your ability to help others with QuickBooks. If you are a consultant or accountant you'll learn how to increase your income by working faster and smarter with clients that use QuickBooks or QuickBooks Pro. During the seminar we'll share with you what we've learned in years of consulting with hundreds of QuickBooks clients. Contact us toll free at 1 (888) 484-5484 for dates and locations in your area. A limited number of Expert seminars will be scheduled nationally during 1998. CPE credits are available for CPAs and EAs.

		The Mastering QuickBooks Video Learning System Two separate videos to meet your needs... Reduces the Time You Spend Learning Eliminates Common Errors Learn at Your Own Pace Covers both QuickBooks and QuickBooks Pro Easy, Non-Technical Format For Beginners and Experienced Users Details on our Web Site at http://www.sleeter.com or call Toll Free 1 (888) 484-5484

©1998 The Sleeter Group, Inc. May be photocopied and shared with your associates and clients.