Skailit - QuickBooks Online Refresher Course

8.1 Understanding the Month-End Close Process

The month-end close is the routine process of reviewing, reconciling, adjusting, and finalizing all financial transactions for the period. It ensures compliance with accrual accounting principles and produces reliable Profit & Loss, Balance Sheet, and cash flow reports.

In QuickBooks Online, there is no automatic "close" like in desktop versions, but you can set a closing date to protect prior periods.

• Accurate net income for tax purposes and management decisions
• Correct asset and liability valuations on the Balance Sheet
• Proper matching of revenues and expenses in the same period
• Compliance with CRA requirements for Canadian businesses
• Preparation for accountant review or audit

8.2 Comprehensive Month-End Closing Checklist

Use this detailed checklist every month for a consistent and thorough close:

1. Reconcile all bank, credit card, PayPal, and loan accounts
2. Review and clear all uncategorized or "For Review" bank feed transactions
3. Enter any missing vendor bills and customer invoices
4. Apply all received customer payments
5. Review Accounts Receivable Aging report and follow up on overdue invoices
6. Review Accounts Payable Aging report and verify all bills are entered
7. Reconcile undeposited funds and petty cash (if used)
8. Perform inventory count and adjustment (if applicable)
9. Post all payroll journal entries and review liabilities
10. Make all necessary adjusting journal entries (see section 8.4)
11. Review and adjust HST/GST payable and Input Tax Credits
12. Run preliminary financial reports on Accrual basis
13. Investigate and correct any unusual variances
14. Document all adjustments with memos and attachments
15. Run final reports and export for records
16. Set or confirm the closing date to lock the period

8.3 Key Accounting Concepts Behind Adjustments

Adjusting entries are needed because many transactions do not align perfectly with the end of the month. They fall into three main categories:

• Accruals: Revenues earned or expenses incurred but not yet recorded (e.g., unpaid utilities or unbilled services)
• Deferrals: Revenues or expenses recorded too early (prepaid rent, unearned revenue)
• Estimates: Non-cash items like depreciation or allowance for doubtful accounts

These adjustments ensure the financial statements follow the Matching Principle and the Revenue Recognition Principle.

8.4 Detailed Adjusting Journal Entries with Examples

1. Prepaid Expenses (Deferral)

When you pay for something in advance, part of it belongs to future periods.

2. Depreciation & Amortization

3. Accrued Expenses

4. Accrued Revenue

5. Allowance for Doubtful Accounts

6. HST/GST Adjustments (Canada-specific)

Review HST collected vs. Input Tax Credits. Make adjustments if needed before filing.

8.5 How to Record Journal Entries in QuickBooks Online

Step-by-Step Instructions:

1. Click the + New button at the top
2. Select Journal Entry
3. Enter the date as the last day of the month (e.g., March 31, 2026)
4. Add lines: one or more debits and credits that must balance to zero
5. Select the correct accounts
6. Enter amounts and add a clear memo
7. Optionally check "Adjusting Journal Entry" if using Accountant view
8. Attach supporting documents (calculations, invoices)
9. Save

Tip: Use consistent naming like "JE-MAR-2026-Prepaid" for easy tracking.

8.6 Reviewing Reports After Adjustments

After posting adjustments, always review these reports on **Accrual basis**:

• Profit and Loss (Income Statement)
• Balance Sheet
• Statement of Cash Flows
• Trial Balance
• A/R and A/P Aging reports

Look for unusual variances from prior months or budget and investigate them.

8.7 Setting a Closing Date in QuickBooks Online

To prevent accidental changes to closed periods:

1. Go to Gear Icon → Account and settings
2. Click the Advanced tab
3. Under Accounting, click Edit
4. Check "Close the books"
5. Enter the closing date (last day of the month)
6. Choose whether to allow changes with a password warning
7. Save

8.8 Best Practices for Efficient Month-End

• Perform the close as soon as possible after month-end
• Use bank rules and recurring transactions to reduce manual work
• Document everything — memos, attachments, and a month-end file
• Standardize your process with this checklist
• Communicate with the business owner about significant adjustments
• Review with your accountant periodically

8.9 Common Pitfalls and How to Avoid Them

• Skipping adjustments because amounts seem small — small errors add up
• Using Expense or Bill transactions instead of Journal Entries for accruals
• Forgetting to reverse prior accruals in the following month
• Not attaching supporting calculations to journal entries
• Reopening closed periods frequently without proper controls
• Running reports on Cash basis instead of Accrual for month-end review

8.10 Extended Self-Check Questions

Q1: What is the purpose of crediting Accumulated Depreciation instead of the fixed asset account?

Answer: To preserve the historical cost of the asset on the Balance Sheet while showing its net book value.

Q2: When is an accrued expense recorded?

Answer: When the expense has been incurred but not yet paid or billed.

Q3: A business pays $12,000 rent in advance for 12 months. What is the monthly adjusting entry?

Answer: Debit Rent Expense $1,000; Credit Prepaid Rent $1,000.

Q4: Why should you set a closing date in QBO?

Answer: To prevent accidental or unauthorized changes to finalized periods.