Year-End Equity Closing Entries Guide for QuickBooks Online

Understanding Year-End Closing Entries: At year-end, temporary accounts (Revenue, Expenses, and Dividends/Draws) are closed to a permanent equity account (Retained Earnings or Owner's Equity) to start the new year with zero balances in the temporary accounts. QuickBooks Online automatically closes Revenue and Expense accounts to Retained Earnings, but you might need to manually close Dividends/Draws.

1. Verify Income and Expense Accounts are Finalized: Before closing equity, ensure all income and expense transactions for the fiscal year are accurately recorded and reconciled. QBO will automatically close these to Retained Earnings when the closing date is set. Review your 'Profit and Loss' report for the year to confirm accuracy.

2. Determine the Balance of Owner's Draws/Dividends: Run a 'General Ledger' report for the Owner's Draw or Dividend account(s) for the entire fiscal year ('Reports' > 'For my accountant' > 'General Ledger'). Note the total debit balance of this account. This is the amount you will close out.

3. Create Journal Entry to Close Owner's Draws/Dividends: Go to '+ New' > 'Journal Entry'.

Date: Use the last day of your fiscal year (e.g., December 31, 2024).

First Line:

                        Account: Retained Earnings (or Owner's Equity, depending on your business structure)

                        Debit: [Total amount of Owner's Draws/Dividends]

                        Description: To close out Owner's Draws/Dividends for the year [Year]

Second Line:

                        Account: Owner's Draws (or Dividends Paid)

                        Credit: [Total amount of Owner's Draws/Dividends]

                        Description: To close out Owner's Draws/Dividends for the year [Year]

Click 'Save and close'. This entry moves the balance of the temporary Owner's Draw/Dividend account into the permanent Retained Earnings/Owner's Equity account.

4. Verify Account Balances After Closing Entries: Run a 'Profit and Loss' report for the fiscal year – it should show zero balances for all income and expense accounts. Run a 'Balance Sheet' report as of the fiscal year-end date. The Retained Earnings (or Owner's Equity) account should now reflect the net income/loss for the year, adjusted for any manual closing entries like draws/dividends. Run a 'General Ledger' report for the Owner's Draws/Dividends account; its balance should now be zero.

5. Set Closing Date in QBO: Once all year-end adjustments and closing entries are verified, set the closing date in QuickBooks Online to prevent accidental changes to the prior fiscal year. Go to 'Gear icon' > 'Account and settings' > 'Advanced' > 'Accounting' > 'Close the books'. Enter the closing date (last day of your fiscal year) and choose whether to allow changes after warning or not.

Year-End Equity Closing Entries in QuickBooks Online