As the year comes to a close and you prepare to hand over your financials to your CPA for tax preparation, one crucial step can save you from major headaches down the line: locking the period in QuickBooks effective 12/31. This simple action ensures that your financial data remains intact, preventing accidental or unauthorized changes that could disrupt your tax filings and financial reporting. 

The Importance of Locking the Books

When you lock the period in QuickBooks, it serves as a clear signal to everyone on your team that the books for the prior year are final. No changes can be made without an additional layer of approval, requiring a password to edit transactions in a locked period. Here’s why this is so important:

1. Prevent Unintended Changes While Taxes Are Being Prepared

Your CPA relies on the numbers in your books to prepare your tax return accurately. If transactions are modified after you’ve handed over your financials, it can lead to discrepancies, rework, and potential errors in your tax filings. Locking the period ensures that what your CPA sees is exactly what they need to work with.

2. Maintain Accuracy After the Tax Return is Filed

Once your tax return has been filed, any changes to the prior year's data can create significant issues. These changes can impact roll-forward balances, create discrepancies in retained earnings, and even lead to the need for an amended tax return. Keeping the books locked ensures that prior-year data remains intact and consistent with what was reported to the IRS.

3. Eliminate CPA and Accountant Frustrations

Ask any accountant, and they will tell you that one of the most frustrating challenges they face is when prior-period numbers don’t match up due to post-close changes. Adjustments to previous years can disrupt roll-forwards and financial reconciliations, leading to time-consuming investigations into what changed and why.

When Should You Make Changes to a Locked Period?

The only time you should unlock a period after submitting your books to your CPA is to enter their adjusting journal entries. These adjustments are typically necessary to align your books with tax adjustments, depreciation calculations, or other year-end reconciliations. In such cases:

1. Temporarily unlock the books.
2. Make the CPA’s recommended entries.
3. Re-lock the period immediately after making the changes.

A Best Practice for Monthly Closing

Locking your books shouldn’t be just a year-end practice—it’s a good habit to adopt monthly as well. Regularly closing and locking your books ensures that any changes to prior periods are carefully considered and documented. It also helps prevent mistakes and unauthorized edits that can throw off your financial statements.

Essential for Businesses with Outside Reporting Requirements

If your business has investors, bank loans, a board of directors, or a management team relying on financial reports, they expect the numbers they review to be final and accurate. Locking your books ensures that reports provided to stakeholders remain consistent and that financial decisions are based on solid data.

A Simple Step That Prevents Big Problems

Locking the period in QuickBooks is a small action that can save a ton of stress and confusion later. It protects the integrity of your financials, keeps your CPA happy, and ensures you’re following best practices for financial management.

So, do yourself and your CPA a favor—lock QuickBooks at the end of the year. You’ll thank us later!

Need help locking the period in QuickBooks Online? Here’s a helpful guide you can share with your bookkeeper: Close your books in QuickBooks Online

About Dark Horse CPAs

Dark Horse CPAs provides an integrated suite of services including tax, accounting, fractional CFO, and wealth management to small businesses and individuals across the U.S. The firm was established to transform the client experience by offering personalized, high-quality services that small businesses and individuals deserve. As Dark Horses in their industries, these businesses benefit from advanced tax strategies and accounting insights typically reserved for larger companies. With a nationwide presence and a team of dedicated professionals, Dark Horse CPAs is committed to your success. Get a quote today.