1. Preparation

1. Verify you have a current and complete backup of your entire data folder.
2. Verify that you have no prior year adjustments, or that you have already closed your prior year adjustments to your retained earnings account. See steps to confirm if you have prior year adjustments and steps to close the prior year adjustments for more information.

2. Determine last fiscal year's retained earnings ending balance

1. In General Ledger, from the Setup menu, select Accounts.
2. In the Account box, type the retained earnings account number.
3. Select the Balances (Accrual) or Balances (Cash) tab depending on your accounting method.
4. Note the amounts in the Year end 1 year ago, YTD net change, and Current balance boxes.

3. Determine the closing entries made to the retained earnings account

1. From the Reports menu, select Entries > Entries by Account.
2. Select GL Transaction (history), and then click OK.
3. In both the Accounting Date From and Accounting Date To boxes, enter last year s fiscal year-end date.
4. Click Conditions and then click Add.
5. In the Field section, select Source.
6. In the Operator section, select Equal to.
7. In the Value section, select Close fiscal year.
8. Click OK.
9. Click Add.
10. In the Field section, select Accrual or Cash.
11. In the Operator section, select Equal to.
12. In the Value section, select the accounting method you are reconciling (Accrual or Cash).
13. Click OK twice.
14. Click Start to print the report to a file or printer.
15. Note the difference between the total debits and total credits for the retained earnings account.

4. Calculate the correct retained earnings balance

Year end 1 year ago (from Step 2.4) + the closing entries made to retained earnings (from Step 3.15) + YTD net change (from Step 2.4) = the correct current balance.

5. Compare the balances

Compare the correct current balance (from Step 4) to the amount in the retained earnings Current balance box (from Step 2.4).

5.a If they don't equal

Change the amount in the Current balance box to the correct current balance as follows:

1. From the Tools menu, select Options.
2. Select the Audit setup activity check box.
3. Click OK.
4. From the Setup menu, select Accounts.
5. Click Start to print the audit report.
6. In the Account box, type the retained earnings account number.
7. Select the Balances (Accrual) or Balances (Cash) tab depending on your accounting method.
8. Change the Current balance amount to match the correct current balance you calculated (from Step 4).
9. Change the Future balance amount to be the sum of the correct current balance (from Step 4) and any future activity.
   Note: You can determine future activity by adding the amounts in the six boxes on the left-side of the Activity (Accrual) or Activity (Cash) tab.
10. From the Tools menu, select Options.
11. Clear the Audit setup activity check box.
12. Click OK.

5.b If they do equal

Review the closing entries to verify whether they correctly offset each Income, Expense, and Cost account's last fiscal year ending balance. Create a simple report that shows the last fiscal year ending balances for each Income, Expense, and Cost account as follows:

Note: You can also download and use the report below instead of creating one in Report Designer.
Attachment: GLEndBalance1YearAgoReport.rpt

1. In Report Designer, from the File menu, select New Design.
2. Select GL - Account and then click OK.
3. From the list of GL - Account fields, double-click the following fields:
   • Account
   • Account Title
   • Account Type
   • End Balance 1 year ago (if you use Cash accounting, double-click CEnd Balance 1 year ago)
4. From the Design menu, select Totals.
5. Select the Report Totals check box and select the check boxes corresponding to any other prefix totals.
6. Click OK.
7. From the Design menu, select Conditions.
8. In the Field section, select Account Type.
9. In the Operator section, select Greater or equal to.
10. In the Value section, select Income.
11. Click OK.
12. Click Add.
13. In the Field section, select Account Type.
14. In the Operator section, select Less or equal to.
15. In the Value section, select Other Income.
16. Click OK twice.
17. From the File menu, select Print.
18. Click Start to print the report to a file or printer.
19. Compare the End Balance 1 year ago (or the CEnd Balance 1 year ago) to the closing entries on the report you printed in Step 3.14 for each account. The End Balance 1 year ago (or CEnd Balance 1 year ago) should be reversed out by the closing entry. For example, if the End balance 1 year ago was a debit of $100.00, then the correct closing entry would be a credit of $100.00.
20. If the End balance 1 year ago (or CEnd Balance 1 year ago) is not reversed by the closing entry for any of your accounts, then the fiscal year was closed while that account was set up with an incorrect account type. See Related Solutions for information about the fiscal year with an incorrect account type.