QuickBooks Year-End Close Out: Should Expense Accounts Roll Over or Zero Out?
Learn whether to zero out expense accounts in QuickBooks Online at year-end or let them roll over, and how retained earnings are affected by your choice.
Not necessarily. QuickBooks Online does not automatically close expense accounts at year-end. The balances remain unless you manually close them or run a year-end closing process. Whether you should zero them out depends on your accounting method and preferences.
What happens if expense balances roll over?
If you let expense account balances carry forward, they will appear on your next year’s reports. This can make it harder to track the current year’s expenses accurately. However, some businesses prefer this method to avoid the extra step of closing accounts each year.
How does retained earnings fit into year-end closing?
Retained earnings is where closed income and expense accounts get transferred. If you close your expense accounts, their balances move to retained earnings. This keeps your income statement clean for the new year and ensures your balance sheet reflects the correct equity.
Should I close expense accounts manually?
Yes, if you want a clean start each year. You can create journal entries to transfer expense balances to retained earnings. This is common for businesses using accrual accounting. Cash-basis users may not need to do this since their reports are based on transactions, not account balances.
What are the risks of not closing accounts?
Leaving expense balances open can lead to confusion in financial reporting. It may also affect tax preparation if your accountant expects zeroed-out accounts. Always check with your accountant before making year-end adjustments.
Can I automate the closing process?
QuickBooks Online does not have a built-in automatic closing feature. You will need to handle it manually through journal entries. Some third-party apps may help, but always verify their accuracy before use.
What is the best practice?
Close your expense accounts at year-end if you want accurate, easy-to-read reports. Transfer the balances to retained earnings using a journal entry. This keeps your books organized and makes tax season smoother.
Need help with year-end tasks?
We offer QuickBooks cleanup and year-end closing services to ensure your books are accurate and ready for the new year. Contact us for assistance with your QuickBooks file.