Adjustments and Year-End Procedures

1. Adjustments and Year-End Procedures 2013

2. Objectives • Edit, void, and delete transactions • Enter general journal entries • Memorize and schedule transactions to be automatically entered • Close the year and enter special transactions for sole proprietorships and partnerships • Set the closing date to lock the company file

3. Editing, Voiding, and Deleting Transactions • Unlike many other accounting programs, QuickBooks allows you to change any transaction at any time • To edit a transaction, change the data directly on the form • Voiding and deleting transactions both zero out the debits and the credits specified by the transaction • Voiding keeps a record of the date, number, and detail of the transaction • Deleting a transaction removes it completely from your file

4. Recording Adjustments and General Journal Entries • Adjusting entries are transactions that adjust the balance of one or more accounts • A few examples of adjusting entries in QuickBooks: • Recategorize a transaction from one class to another • Recategorize a transaction from one account to another • Allocate prepaid expenses to each month throughout the year • Record non-cash expenses, such as depreciation • Close the Owner’s Drawing account into the Owner’s Equity account

5. Creating A General Journal Entry • You may need permission from the file Administrator to create General Journal Entries • Select the Banking menu and then select Make Journal Entry

6. Creating A General Journal Entry • Expert Tip: • Set up a bank account called Journal Entries • Use this account (Journal Entries) on the top line of each General Journal Entry • QuickBooks tracks all the General Journal Entries in a separate register on the Chart of Accounts which allows you to quickly look up and view all your General Journal Entries • Though you use this account in every General Journal Entry, you will never debit or credit the account and therefore it will never have a balance

7. Adjusting Expense Accounts Associated with Items • You can’t adjust items in the Journal Entry window • If you need to adjust items, use a “Zero-Dollar Check” • Zero-Dollar Checks have an equal amount of debits and credits in the splits area of the transaction.

8. Zero Dollar Check

9. Memorizing Journal Entries • Before saving the General Journal Entry: • Select the Editmenu • Select Memorize General Journal (or press CTRL+M) • Set the fields in Memorize Transaction window to indicate when and how often you want the transaction entered and then click OK

10. Deleting, Rescheduling and Editing Memorized Transactions • Select the Lists menu and then select Memorized Transaction List, or press CTRL+T • Select the transaction in the Memorized Transactionlist Then select the Editmenu and select Edit Memorized Transaction, or press CTRL+E: • This allows you to reschedule or rename the transaction, but it does not allow you to edit the actual transaction

11. Editing Memorized Transactions • To edit the Truck Depreciation memorized transaction, double-click it in the Memorized Transaction List: • This displays a new transaction with the contents of the memorized transaction. You can change anything on the transaction and then rememorize it

12. Deleting Memorized Transactions • Select the Lists menu and then select Memorized Transaction List, or press CTRL+T • Select the Memorized Transaction in the list that you want to delete • Select the Edit menu and then select Delete Memorized Transaction, or press CTRL+D

13. Closing the Year • At the end of your company’s fiscal year, QuickBooks automatically transfers the net income into Retained Earnings • QuickBooks calculates the balance in Retained Earnings by adding together the total net income for all prior years

14. Closing the Accounting Period • Run reports for the year and verify their accuracy • Enter adjusting entries as necessary and rerun the reports • Print and file the following reports as of your closing date: General Ledger, Balance Sheet Standard, Statement of Cash Flows, Trial Balance, Inventory Valuation Summary, and Profit & Loss Standard for the year • Back up your data file • Set the closing date to the last day of the period you are closing

15. Closing Sole Proprietorship Drawing Accounts • For Sole Proprietorships, the Retained Earnings account should be renamed to Owners Equity so that the net income (or loss) will automatically transfer into this account • At the end of each year, create a General Journal Entry to zero out the Owners Drawing account and close it into Owners Equity • It is best to let the balance in the Owner Investments account continue to accumulate over time, so that, the Balance Sheet will always show the total investments made by the owner

16. Closing Partnership Drawing Accounts • Use a General Journal Entry to close the Partner’s Drawing accounts into each Partner’s Profits account • To find the amounts for the General Journal Entry, use the year-end Trial Balance

17. Distributing Net Income to Partners • With partnerships, use a General Journal Entry to distribute the profits to each of the partner’s profit accounts • After making all adjusting entries, create a Profit & Loss report for the year and use the Net Income figure at the bottom of the Profit & Loss report to create the General Journal Entry

18. Setting the Closing Date to “Lock” Transactions • QuickBooks allows the Administrator to set a closing date that effectively locks the file so that no one can make changes to the file on or after a specified date • For further protection, all users, including the Administrator, can be required to enter a password before they can add, change or delete transactions dated on or before the closing date

19. Chapter Review • Edit, void, and delete transactions • Enter general journal entries • Memorize and schedule transactions to be automatically entered • Close the year and enter special transactions for sole proprietorships and partnerships • Set the closing date to lock the company file