If you're half a fan of dystopian fiction as we are then you know exactly what a quarter quell is. If you didn't happen to get caught up in the Hunger Games frenzy, then allow us to fangirl/boy with you for a moment. In the Hunger Games series, the quarter quell was special hunger games reaping that happened every 25 years that proved to be more horrific than the regular games. With Quarter 1 of 2017 fast coming to a close, it got us to thinking that something similar of accounting proportions could happen to you and your business if you're don't take the necessary steps throughout the business months.
Prepare for the Reaping
Much like the Games, the closing of a business quarter is unavoidable but doesn't have to be as horrific. Preparation throughout the three months can save you a lot of time and frustration when it's time to close your books. Being efficient in your record keeping and monthly bank reconciliations can mean the difference between smooth sailing come March 31 or a veritable Hunger Games-esque reaping. If you're using QuickBooks as your accounting software, it's become remarkably easy to upload and attach receipts via their app, match bank transactions, and reconcile your accounts all online. Below are some necessary steps, you or your assistant/accountant will need to do in order to successfully close your books:
Post entries to the general ledger. Transfer the account totals from your journals to your general ledger accounts.
Total the general ledger accounts.
Prepare a preliminary trial balance. Add all of the general ledger account ending balances together. Total debits should equal total credits. This will help assure you that your accounts balance.
Prepare adjusting journal entries. Certain end-of-period adjustments must be made before you can close your books. Adjusting entries are required to account for items that don't get recorded in your daily transactions, such as accrual of depreciation, accrual of real estate taxes, etc.
Foot the general ledger accounts again.
Prepare an adjusted trial balance. Prepare another trial balance, using the adjusted balances of each general ledger account. Again, total debits should equal total credits.
Prepare financial statements. After tracking down and correcting any trial balance errors, you're ready to prepare a balance sheet and income statement.
Prepare closing entries. Prepare your general ledger for the next accounting period by clearing out the revenue and expense accounts and transferring the net income or loss to owner's equity.
Prepare a post-closing trial balance. All revenue and expense accounts should have a zero balance. Prepare one more trial balance. Since all revenue and expense accounts have been closed out to zero, this trial balance will only contain balance sheet accounts. Remember that the total debit balance must equal the total credit balance. This will help ensure that all general ledger account balances are correct as of the beginning of the new accounting period.
If this all sounds like Greek to you or you'd much rather be off expanding your business, we recommend involving your friendly assistant or accountant, be they virtual or in-house. as soon as possible to help you navigate through the necessary steps. The closing of your books is an important step in maintaining healthy financial oversight of your business and greatly reducing your stress at tax time. So get to it and may the odds be ever in your favor.