Lesson 11 of 12

In this lesson you will:

Work through a month-end close checklist.
Make the common adjusting entries: depreciation, prepaid expenses and accruals.
Understand what happens to income and expenses at year end.
Lock a closed period so it cannot change by accident.

The month-end checklist

Enter everything: all sales, bills, receipts and card charges for the month.
Reconcile every bank, credit card and loan account to its statement (lesson 7).
Clear Undeposited funds: every payment received should be in a deposit.
Review the A/R aging and the A/P aging. Follow up on overdue invoices; check nothing is paid twice.
Check that payroll liabilities and sales tax payable match what you owe for the period.
Make the adjusting entries below.
Run the profit and loss and balance sheet. Look for anything odd: a negative balance where there should not be one, an expense far higher than last month, a large Miscellaneous balance.
Lock the period with a closing date.

Common adjusting entries

Adjustment	Example	Debit	Credit
Depreciation	$40 a month on equipment	Depreciation expense $40	Accumulated depreciation $40
Prepaid expense used	$150 of a $1,800 annual insurance policy	Insurance expense $150	Prepaid insurance $150
Accrued expense	$600 of wages earned in the last days of the month, paid next month	Wages expense $600	Accrued wages $600
Deferred revenue earned	$500 of a customer deposit now earned	Customer deposits $500	Service income $500
Loan interest	Split the loan payment between principal and interest	Loan $X and Interest expense $Y	Bank (the full payment)

Adjusting entries are what make accrual books accurate month by month. Many repeat every month, so they can be memorized or scheduled.

What changes at year end

Income and expense accounts measure one year at a time. At the start of a new fiscal year they start again at zero, and last year's net income moves into retained earnings on the balance sheet. In a manual ledger this is done with closing entries; accounting software does it automatically when the year changes, so you do not need to post them yourself.

The closing entry the software makes for you (a year with $48,000 income and $31,000 expenses)
Account	Debit	Credit
Income accounts (closed to zero)	$48,000.00
Expense accounts (closed to zero)		$31,000.00
Retained earnings (net income of $17,000)		$17,000.00

The year-end checklist

Do the December (or last-month) close above, with extra care.
Count inventory and adjust the books to the count.
Review receivables and write off debts you will not collect.
Review fixed assets: record new purchases, disposals and the year's depreciation.
Payroll year end: W-2s (US) or T4s and the T4 Summary (Canada). Contractor forms: 1099-NEC (US) or T4A (Canada).
Send your accountant the trial balance, the reconciliations, the A/R and A/P agings and the fixed asset list.
Enter the accountant's adjusting entries, then set the closing date so the filed year cannot change.

Lock it: the closing date

Once a month or year is reviewed and reported, set a closing date in your software. Transactions dated on or before it cannot be added or changed without moving the date (and, optionally, entering a password). This protects the figures you filed taxes on from a stray edit.

Tip: Close the month within two weeks of month end. Small problems found in March take minutes to fix; the same problems found the following January take days.

Key terms

Try it

Monthly closing checklist (guide): A longer printable checklist.
Year-end closing checklist 2026: This year's dates and forms.
Budget template: Compare each closed month with your plan.
Tax calendar: Deadlines for W-2, 1099, T4 and T4A.

Practise in AcboBooks: set a closing date in the sample company's settings, with an optional password, then try to edit a transaction from before that date. Free 15-day trial.

Check your understanding

4 questions · pass with 3 right

Pick an answer to see if it is right and why. Nothing is sent anywhere; your result is kept in this browser.

1. Which is an adjusting entry?

2. At the start of a new fiscal year, what happens to last year's net income?

3. Why set a closing date?

4. Employees earned $600 of wages in the last days of March that will be paid in April. On accrual, what is the March entry?

0 of 4 answered.

Sources

Part of Bookkeeping Basics, a free course from AcboBooks LLC. General information, not tax, legal or accounting advice. Last reviewed October 25, 2026.

Month-end and year-end close