Closing Date or Lock Date in QuickBooks After You File

What does a closing date (lock date) do in QuickBooks, and does it stop edits?

No. A closing date slows edits; it does not make a year read-only. On or before that date, QuickBooks Online warns, or asks for a password, before anyone changes or deletes a transaction (QuickBooks Online help). With the warning option the user can go ahead; with the password option anyone who knows the password can. A primary or company admin can also move the date or change the password (QuickBooks help, edit closed books).

A lock does not make a filed return right either. It limits later changes to the books; it cannot undo changes already made. If the year has already moved, a closing date freezes it as it stands that day, edits included, so the order matters:

1. Compare the year-end reports now with the copies saved when you filed, and list each difference.
2. Lock the year, so no new difference appears while you sort the list.
3. For each difference, restore the original entry or decide whether the return needs amending.

These steps are for QuickBooks Online. For Xero or QuickBooks Desktop, use that product's own help to lock past periods; the rest of this page applies to any software.

A filed year is not a simple case when:

• the books already differ from the filed return and you cannot see why;
• the return was a partnership or S corporation return that sent figures to owners on Schedules K-1 (each owner's share of income and deductions);
• the change touches income, a deduction or a balance sheet figure the return carries;
• more than one filed year changed.

If any of these fits, the job is comparing the books with the filed return and deciding what, if anything, to amend; see bookkeeping help.

Gather before you start:

• the filed return, with every schedule;
• the year-end balance sheet and profit and loss as they were when you filed;
• the software's audit log or change history for the year, if it keeps one;
• the opening balance and equity figures now showing for the next year.

Is there a way to lock a period once it is reconciled, and when do I set the date?

If the return is already filed, the usual date is the last day of the filed year, set after you compare the books with the return. Before filing, an earlier month is usually locked once its books are complete and reconciled; the year itself usually waits for the filing, because the preparer's year-end entries must be posted first. QuickBooks help starts with a review: confirm the data is complete and accurate, enter outstanding invoices, expenses and payments, and reconcile accounts up to the lock date (QuickBooks Online help). It does not tie the lock to the filing date, so the timing is your choice.

One closing date covers every date before it, so move it forward as each month or year becomes final. Finishing the year before filing: year-end close checklist.

How do I set a closing date in QuickBooks Online: warning, or warning plus password?

Only the password option stops an edit by someone who does not know the password; the warning option lets any user go ahead. The steps, from QuickBooks Online help:

1. Sign in as a primary admin or company admin.
2. Reconcile accounts up to the date you will lock.
3. Select the gear icon, then Account and settings, then the Advanced tab.
4. In the Accounting section, select Edit.
5. Turn on Close the books and enter the Closing date.
6. Pick the security option from the dropdown, then Save.

QuickBooks help says any attempt to change or delete a transaction dated on or before the lock date triggers the warning or password prompt (QuickBooks Online help). It does not say how automated entries, such as bank-feed matches, are treated, so check the exceptions report after the first month-end rather than assume.

QuickBooks changes its menu names from time to time; follow its current help page.

Who can set or change the closing date, and who should hold the password?

Only a primary admin or company admin can set or change the closing date or the password (QuickBooks help, edit closed books). The password is the whole control: whoever knows it can edit a filed year.

• The fewer people who know the password, the stronger the control.
• A password shared among several people works like the warning-only option.
• A password a former bookkeeper knew still works until it is changed: Account and settings, Advanced, Edit in the Accounting section, then enter and confirm a new one.

Giving a bookkeeper access without giving them control: giving a bookkeeper access to your accounts.

How do I list the transactions changed after the closing date?

Run the Exceptions to Closing Date report: Reports, then Standard reports, then search for the name (QuickBooks help, edit closed books). QuickBooks help describes it as showing changes made after you close your books, so it cannot show edits made before the lock was set.

For a filed year that has already moved, compare instead. Open the year-end balance sheet and profit and loss as they stand now, set them beside the copies saved when you filed, and trace each difference through the audit log. Keep the comparison: Treasury regulations name a reconciliation of any differences between the books and the return as an example of the records to keep (26 CFR 1.446-1). Tracing who changed a transaction, and restoring an edited, deleted or voided one: reconciliation beginning balance wrong.

For each difference: if the edit was a mistake, put the transaction back as it was, with its original amount, date and accounts; that brings the books back in line with the filed return. Re-enter a deleted one only after checking it was not already restored or replaced, or it will count twice. If it was a real correction, such as an expense that proved personal or a payment that never happened, it changes an item the return carries, so the question becomes whether to amend. Write down each difference and what was decided, amended or not.

How do I void a check dated in a closed period?

A void changes a transaction dated in that period, so on a locked date expect the warning or password prompt. QuickBooks help does not name voids, so check the Exceptions to Closing Date report to confirm. First settle whether the payment really failed: a check that cleared the bank and was then voided leaves the books saying the payment did not happen. Then check the accounting method and what the check paid. A cash-method business deducts a cost in the year it pays it; an accrual-method business deducts it in the year it is incurred (Publication 538). If a cash-method return deducted a cost that was never paid, as in the second example below, the books and the filed return differ, so compare and decide whether to amend.

A filed year's numbers changed: does that change the return I already filed?

No. The return stays as filed until an amended return replaces it. The books are the record behind it. What matters is whether the changed figure is an item on the return: the IRS lists changes in income, deductions, credits and tax liability as reasons to amend (IRS). A change that leaves every item on the return alone may not need an amended return, but the books still no longer match the return, and that difference should be written down.

Owners of a partnership or S corporation may need to amend their own returns when amended K-1 figures reach them, and a federal change can affect a state return (IRS). An administrative adjustment request works differently: the partnership generally pays any imputed underpayment, with interest and penalties, when it files, unless it elects to push all adjustments out to its partners. Adjustments passed to partners go on Form 8986, not amended Schedules K-1, and individual partners report their share on Form 8978 (IRS).

When must I amend a filed return, and how long do I have?

If the filed return is wrong, the regulations expect an amended return inside the window that applies. Whether a given book change makes the return wrong depends on the facts; the regulations say a taxpayer who finds that income was left out of a prior year should, within the limitation period, file an amended return and pay the tax due, and file a refund claim if income was included in error (26 CFR 1.451-1).

A return filed before its due date counts as filed on the due date, ignoring any extension, for the assessment period (26 USC 6501) and for a refund claim (26 USC 6513). The refund window applies to a claim for money back; for a correction that raises tax, the assessment periods set how long the IRS can assess it. An assessment period is not time to pay: extra tax generally carries interest from the original due date, even with an extension, and penalties may apply (26 USC 6601). Income left off past returns: amending for income left off past returns. Business expense mistakes, with interest and penalties: amending a return for business expense mistakes.

Can I fix an old error in this year's books instead of reopening the filed year?

A correcting entry can carry today's date, but the filed return does not change with it. The earlier return still carries the error, and income and deductions are generally reported for the year they belong to.

The IRS and the regulations say correcting a math or posting error is not a change in accounting method (Publication 538; 26 CFR 1.446-1). A plain mistake is generally corrected for the year it affected. A way of treating when income or a deduction counts can be a method, most often when it is applied consistently, and changing a method needs IRS approval on Form 3115 (Publication 538; 26 CFR 1.446-1). Whether an error is a one-off or a method depends on the facts. Missing inventory is a common case: fixing inventory missing from past returns.

Why do my opening balances and equity no longer match the filed return?

An edit inside the filed year changes that year's profit and year-end balances, and the next year starts from the changed figures while the return still shows the figures as filed. If the books tied to the return when you filed, the gap should equal the changes made after filing. A gap can also predate the edits, for example when the preparer's year-end entries were never posted to the books.

Equity that will not tie: retained earnings that don't match last year's return. A bank reconciliation that starts wrong: reconciliation beginning balance wrong. Which reports feed the return: books to the business tax return.

Example

These examples are illustrative; the amounts are in US dollars.

An S corporation deletes a December expense

An S corporation files its return for a December year-end in March. In June a bookkeeper deletes a US$8,000 December expense. With a closing date at December 31, the delete would have raised the warning or password prompt. Without one, the books now show US$8,000 more profit than the return. If the expense was real, restoring it with its original date brings the books back in line with the return. If it was personal or wrong, the filed deduction was too high, and the return may need amending, with amended Schedules K-1.

A sole proprietor voids last year's check

A sole proprietor on the cash method recorded a US$2,500 check for business supplies as an expense last year, and the filed Schedule C deducted it. This year the check is voided, so last year's profit rises by US$2,500 in the books. If the void was a mistake, reversing it puts the books back as they were when the return was filed. If the check was never delivered and the supplies were not paid another way, the filed Schedule C may have deducted a cost not paid, so the question is whether Form 1040-X is needed. A check that paid a loan or an owner draw, or a business on the accrual method, needs a different analysis.

An online shop clicks past a warning

An online shop sets a closing date at December 31 with the warning option. A part-time helper clicks past the warning and edits a US$1,200 November sale. The Exceptions to Closing Date report lists the edit, and the owner compares it with the filed return. With the password option and the password held by the owner, the helper could not have gone ahead without it.

Different for you?

• Equity or balances no longer match the return, and you cannot tell what changed or whether an amended return is needed: comparing each change with the filed return is bookkeeper or preparer work; see bookkeeping help.
• Retained earnings or owner's equity will not tie to last year's return: follow retained earnings that don't match.
• A bank reconciliation's beginning balance changed in a closed period: see reconciliation beginning balance wrong.
• Several filed years changed, or the books are months behind: see catching up on overdue books and bookkeeping help.
• The change affects a business expense, or inventory was missing from past returns: see amending for business expense mistakes or fixing inventory missing from past returns.
• The IRS has already written about the year: read an IRS notice to your business before changing the books.