It keeps track of any changes made to closed period transactions after the closing date was set

The Closing Date in QuickBooks is a setting that indicates the date through which your books have been closed. Normally, books are considered closed after they’ve been reviewed, all adjusting entries have been made, and reporting has been completed to investors, lenders, or tax authorities.

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Why close the books?
Tracking Changes to Closed Periods

It’s used to protect data from inadvertent modification by making it more difficult – but not impossible – for you to change or delete transactions on or before the closing date. Unlike other accounting systems that require you to close your books and make it impossible to add, change, or delete transactions in closed periods, QuickBooks offers the flexibility for you to restrict access to periods you or your accountant have determined are closed and to later remove that access restriction, a process commonly called “re-opening your books.”

It’s important to understand that setting a Closing Date doesn’t result in recording any transactions; QuickBooks automatically makes certain adjustments, such as increasing your Retained Earnings account by the amount of your prior year’s net income on the first day of your fiscal year. The Closing Date is only an access restriction. You can control how strict that restriction is by whether you set a Closing Date Password.

To set the Closing Date, click on the Accounting sub-menu of Edit->Preferences… menu selection and choose the Company Preferences tab. You’ll see the current Closing Date, if any.

Click on the Set Date/Password button to view the Set Closing Date and Password window.

Like many functions in QuickBooks, there are multiple ways to get to this same point. The Company->Set Closing Date… menu choice will take you to the window to make this setting. You can also click on the Company->Set Up Users and Passwords->Set Up Users… menu selection, followed by clicking on the Closing Date… button.

With either method, you’ll end up at the the Set Closing Date and Password window.

You can set or change your Closing Date and the Closing Date Password on this window. If you attempt to enter any transaction with a date on or before the Closing Date, QuickBooks will display either a warning or a confirmation window, depending on whether you set a Closing Date Password. If you set a Closing Date Password, you’ll have to first correctly enter it to record the transaction.

Here’s the warning you’ll see when attempting to record a transaction dated on or before the Closing Date if you do not enter a Closing Date Password:

You’ll still be able to record the transaction by clicking Yes. The access restriction is simply forcing an extra step.

Here’s the more strict limitation you’ll see when attempting to record a transaction dated on or before the Closing Date if you do enter a password:

You’ll have to correctly enter the password to record the transaction, so the access restriction is greater.

Since only the QuickBooks Administrator or a user with External Accountant privileges can set QuickBooks preferences, it’s not possible for users without those higher privileges to first remove the Closing Date or change the Closing Date Password to bypass the access restriction. That insures that, when combined with user restrictions, the Closing Date restrictions are effective.

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Closing the Books is like closing the door – You’re saying I’m finished in that room and have moved on.

As trusted advisors to our clients, with at least some level of responsibility for 'the financials' we all have a duty to 'Close their Books, yet at the same time stay totally aware of any changes our client(s) make after the closing date.

Why close the books?

An obvious reason to close the books is, "It’s TAX time Don’t Change the Books!"

But what about the rest of the time; after financial statements, after reconciliation or after the internal review has taken place and there are no predicted changes? What if the client never sees the books and the data is only viewed inside the accounting/bookkeeping firm? Are you closing the books? How would you know if the client has made changes? Well, you really need to track these changes and know their implications.

If we treat closing the books as a check-point in the work process it makes us mindful to finish the review. As accountants we are often in a state of “work in progress” but if we stop and place a check-mark to the completed work, then we should also place the check-mark in QuickBooks Online, and this means closing the books.

Step 1 - From the Accountant Tool Box select Close Books

QuickBooks Online will display the following window which also appears in the Company Settings Advanced window.

Step 2 - Check the "Close the books" check-box, and set the "Closing Date".

Step 3 - From the drop-down field below the closing date, select the actions you want QuickBooks to follow when someone attempts to modify a transaction impacting the 'closed period'.

"Allow changes after viewing a warning", or
"Allow changes after viewing a warning and entering password".

Step 4 - Set and Confirm a 'closing period' Password (it's your option):

It is not necessary to set a password, but doing so forces your client(s) to stop and think about the fact that they are indeed attempting to change or add an entry after the books have been closed. While the warning message option alone is like you saying “are you sure you want to do this,” out client(s) may simply ignore the the warning as they do with so many other QBO notifications.

Forcing the client to enter a password is yet another 'safety precaution.' As a firm you may decide which clients to share this password with and which clients you ask to call you when they get this message so a conversation can be had about what is being changed and the consequences.

Tracking Changes to Closed Periods

So what does it look like when your client makes a change to their closed books?

Well, from the QBO-Accountant client screen you can see if the books are closed and what changes have been made in the client's QBO file after the closing date.

As I am writing this article I am also thinking (note to self) “do this in my own practice”, since this is an area where I need improvement.

Being mindful to finish the books, even if your client doesn't see them, represents an end point; closing the books is a mind set, and represents the end of the chapter.