How to close the fiscal year in Microsoft Office Small Business Accounting (906095)

MORE INFORMATION

To close out the fiscal year in Microsoft Office Small Business Accounting, follow this step-by-step procedure:

Step 1: Manually perform some year-end tasks

Before you close the fiscal year, manually perform the following tasks:

• Clear pre-paid expenses
• Reconcile bank accounts
• Reconcile credit card accounts
• Record depreciations
• Adjust inventory

Step 2: Adjust journal entries

Make the following adjustments to journal entries:

• Correct any errors that occurred when you recorded a transaction.
• Assign revenue to the period in which the revenue was earned.
• Assign expenses to the period in which the expenses occurred.

To make adjustments to journal entries, click New Journal Entry on the Company menu.

Step 3: Examine the database for errors

NOTES

• Make sure that no one has the company database open.
• Perform this step on the computer on which the database is located.

To examine the database for errors, follow these steps:

1. Start Small Business Accounting, and then open any company database except the one that you want to examine.
2. On the File menu, point to Utilities, and then click Data Utilities.
3. Click the Advanced Tools tab, and then click Repair.
4. Select the database that you want to examine for errors, and then click Repair.
5. If you receive a message that states that all connections to the database will be closed, click Yes.
6. If no errors are found, click OK. If errors are found, review them, and then make any required adjustments.
7. Click Close two times.

Step 4: Back up the company database before you close the fiscal year

Notes

• Make sure that no one has the company database open except on the computer on which the database is located.
• Perform this step on the computer on which the database is located.

To back up the company database, follow these steps:

1. Start Microsoft Office Small Business Accounting, and then open the company database that you want to back up.
2. On the File menu, point to Utilities, and then click Data Utilities.
3. On the Basic Tools tab, click Backup.
4. Click Browse.
5. Type a name for the file, and then click Save.
   
   Note The default file type is Compressed Backup File (*.zip). The default file location is on the following path:

   My Documents\Small Business Accounting\Backups

6. If you want to restrict access to the backup, type a password in the Password box, and then type the password again in the Verify password box.
7. Click OK.
8. When you receive the message that the backup was successfully completed, click OK.
9. Click Close.

Step 5: Print a Trial Balance report before you close the fiscal year

Enter all transactions for the year before you print the Trial Balance report. If you enter additional transactions later, you must print a new Trial Balance. This report lists all accounts and balances as of a specific date.

1. On the Reports menu, point to Company and Financial, and then click Trial Balance.
2. In the As of list on the toolbar, click Custom.
3. In the Date box, type the date that you want, or select the date from the calendar.
4. On the View menu, click Refresh report.
5. On the File menu, click Print.

Step 6: Print required year-end financial statements

The most common financial statements are the following:

• Balance Sheet
• Profit and Loss
• Cash Flow Statement

To locate these reports, point to Company and Financial on the Reports menu, and then click the report that you want.

• Print the Balance Sheet report for the last day of the fiscal year. To set the date, select the correct values from the As Of list and the Date list on the toolbar. In the Report Basis list, select either Cash or Accrual, depending on the accounting method that the company uses.
• For the Profit and Loss report, select a date range that corresponds with the first and last day of the fiscal year. To do this, select the correct values from the Date Range list, the From list, and the To list on the toolbar. On the Report Basis list, select Cash or Accrual, depending on the accounting method that the company uses.
• For the Cash Flow Statement report, select a date range that corresponds with the first and last day of the fiscal year. To do this, select the correct values from the Date Range list, the From list, and the To list on the toolbar.

Step 7: Set up a new fiscal year

You must set up a new fiscal year so that you are prepared to enter transactions for the next year.

1. On the Company menu, click Manage Fiscal Year.
2. Click New Fiscal Year. A default date populates the Start of fiscal year box. This date is based on the last date of the previous fiscal year. You cannot change this date.
3. In the Close of fiscal year box, type the last day of the next fiscal year, or select the date from the calendar.
4. Click OK.

Step 8: Close the fiscal year

You can have an unlimited number of open fiscal years. When you close fiscal years, you must close them in chronological order. When you close a fiscal year, the following activities occur:

• Balance Sheet Accounts are totaled and the balance is carried forward as the beginning balance for the next year.
• Journal entries are created to zero out all income and expense accounts. The difference is posted to the Retained Earnings account.
• The fiscal year status is set to closed.

To close the fiscal year, follow these steps:

1. On the Company menu, click Manage Fiscal Year.
2. From the List of Periods list, select the year that you want to close, and then click Close Fiscal Year.
3. If you are prompted to move net income to the Retained Earnings account, click Yes.

Step 9: Print a Trial Balance report after you close the fiscal year

To print the Trial Balance report, follow these steps:

1. On the Reports menu, point to Company and Financial, and then click Trial Balance.
2. In the As of box, click Custom.
3. In the Date box, type the first day of the next fiscal year, or select the date from the calendar.
4. On the View menu, click Refresh report.
5. On the File menu, click Print.
6. Compare this report to the Trial Balance report that you created in the "Print a Trial Balance report before you close the fiscal year" section. Verify the following:
   • The balance is carried forward to the next year.
   • The balances on the income and expense accounts are zero, and the difference is posted to the Retained Earnings account.
   • The total debits and the total credits on the Trial Balance report that you printed after you close the fiscal year matches the total debits and the total credits on the Trial Balance report that you printed before you closed the fiscal year.
7. If you must adjust entries, click New Journal Entry on the Company menu.

Step 10: Back up the company database after you close the fiscal year

NOTES

• Make sure that no one has the company database open.
• Perform this step on the computer on which the database is located.

To back up the company database, follow these steps:

1. Start Microsoft Office Small Business Accounting, and then open the company database that you want to back up.
2. On the File menu, point to Utilities, and then click Data Utilities.
3. On the Basic Tools tab, click Backup.
4. Click Browse.
5. Type a name for the file, and then click Save.
   
   Note Use a different file name from the one that you used when you created the backup file before you closed the fiscal year. The default file type is Compressed Backup File (*.zip). The default file location is on the following path:

   My Documents\Small Business Accounting\Backups

6. If you want to restrict access to the backup, type a password in the Password box, and then type the password again in the Verify password box.
7. Click OK.
8. When you receive the message that the backup was successfully completed , click OK.
9. Click Close.

Frequently Asked Questions (FAQ)

Q1: Can I save a transaction if I closed the fiscal year? Can transactions be saved to a closed year?

A1: You cannot save a transaction after you close the year. However, you can reopen the year and then save a transaction. If you repoen a year that is not the current year, you must reopen that year and all the intervening closed years in reverse chronological order by starting with the most recent year and working backward. After you make any changes, you must close all the open years in chronological order by starting with the oldest year and working forward.

To reopen a closed year, you must be assigned to or logged on as one of the following roles:

• Owner in Small Business Accounting
• Accountant in Small Business Accounting
• Administrator on the computer that is running Small Business Accounting

Q2: How many fiscal years can I keep open?

A2: There is no limit to the number of fiscal years that you can keep open.

Q3: Do I have to close a fiscal year before the first day of the next fiscal year?

A3: You can close a fiscal year at any time after the last day of the year. However, until you close a fiscal year, the opening balance for the Balance Sheet accounts will not carry forward to the new year. Additionally, expense accounts will not be zeroed out, and the difference will not be applied to the Retained Earnings account.

Q4: What happens to an inactive account when I close a fiscal year?

A4: If you have an inactive account when you close the fiscal year, the account status does not change. This is true regardless of whether the inactive account has a balance.

Q5: How do I view the journal entry that represents the income and expense accounts that were zeroed out and then posted to the Retained Earnings account?

A5: To view the journal entry, follow these steps:

1. On the Company menu, point to Company Lists, and then click Chart of Accounts.
2. In the Chart of Accounts list, double-click the Retained Earnings Income account to open the Account Register.
3. Double-click the line that meets the following criteria:
   • The date is the last day of the closed fiscal year
   • The Memo box description is Closing Fiscal Year.