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How do you Close/Zero out Accounts at year end?

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This article describes what Journal Entries are needed to close your books at year-end.
 
Please note that once you close your books for that fiscal year, no other entries are to be made for that period. Thus, before closing your books, we suggest that you review and complete all customer invoicing, ensure that all expenses have been entered, complete the bank reconciliation, add taxes, verify that all other (asset and liability) accounts are correct, and, if you do your accounting on an accrual basis, make sure that all the necessary accruals have been made. If needed, make any year-end adjusting entries to Retained Earnings. We highly suggest that you review all accounting procedures with your CPA. 

All Revenue and Expense accounts will need to be closed into Retained Earnings. 


Closing Revenues and Expenses 

  1. Go to the Chart of Accounts
  2. If this account is not already there, add an Owner's Equity account called "Retained Earnings"
  3. Go to your Profit and Loss Report/Income Statement
  4. Filter the Profit and Loss Report to the Fiscal Period you are closing out
  5. Take note of all the Revenue and Expense Accounts
  6. In a new browser tab, go to the New Journal Entry Window and create a new journal entry. Date it for the last day of the closing period
  7. Make sure the Closing Entry setting is turned on. This setting is needed so that the next financial year has a new P&L to begin with, and so that you are able to review the Prior Year’s P&L prior to the closing entry being entered.
  8. Select all the revenue accounts noted in the Profit and Loss Report and debit the amounts. Consequently, note all expense accounts and credit the amounts. If you need to add more lines to an entry, select the + at the top right of the header
  9. In the last line of the entry, select the Retained Earnings account you created, and credit or debit the amount necessary to balance the journal entry
  10. Select Save and Close. Please make sure all the calculations and numbers are entered correctly. This Journal Entry will close/zero out the balances in all the revenue accounts.

 

Closing Opening Balance Equity account(s) [This is only required if opening balances were entered in on migration to CARET Legal]

  1. Go to your Profit and Loss Report/Income Statement
  2. Filter the Profit and Loss Report to the Fiscal Period you are closing out
  3. Take note of the Opening Balance Equity account(s)
  4. In a new browser tab, go to the New Journal Entry Window and create a new journal entry. Date it for the last day of the closing period
  5. Select the opening balance equity account(s) noted in the Profit and Loss Report and debit the amounts. If you need to add more lines to an entry, select the + at the top right of the header.
  6. In the last line of the entry, select the Income Summary account and credit the total of all the opening balance equity account(s)
  7. Select Save and Close. Please make sure all the calculations and numbers are entered correctly. This Journal Entry will close/zero out the balances in all the opening balance equity account(s).

 

After creating the closing entries, you want to update the Book Close Date to prevent entries from being made in the year.  

 

To set up your books so that new transactions cannot be backdated or impact closed periods:

  1. Select Firm Settings from the drop-down menu beside your avatar, then click Billing & Accounting in the left menu bar and select Billing Options from the expanded menu.


     
  2. Scroll down to the Close Date fields. Each field will impact closing in different ways.
    • Book Close Date - Prevents any transactions from being created, edited, or deleted before and including this date.
    • Billing Close Date - Prevents any Time Entries/Flat Fees/Soft Costs from being created, edited, or deleted before and including this date.
    • Book Cut-off Date - Prevents any transactions from being created after this date.
  
If a user tries to create an entry that is not allowed, a message prompts them to reach out to a Firm Administrator. Only the Administrator has the authority to remove or change the dates so that the entry can be added.
 
To learn more about how to manage your accounting at month or year-end tasks, check out our CARET Legal Year-End Checklist

 

 

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