How to Lock Period in QuickBooks Online

Closing the books at the end of a period is one of the most important accounting routines for ensuring your financial data is reliable. In QuickBooks Online, this process is controlled by "locking" the period, which prevents accidental changes to past transactions that could unravel your carefully reconciled accounts. This guide will walk you through why this feature is so important, what you need to do before locking the books, the step-by-step process in QBO, and best practices for managing closed periods.

Why Locking Your Books in QuickBooks Online is a Non-Negotiable Step

Using the “close a period” feature in QuickBooks Online isn’t just for tidy bookkeeping; it’s a fundamental internal control that safeguards your financial information. Think of it as drawing a line in the sand—once a period is closed, its financial story is finalized and protected. This provides several key benefits.

First and foremost, it protects data integrity. An accidental date change on a new invoice or a misplaced-yet-approved expense report being entered into a prior month can silently wreck your financial statements. A locked period prevents team members from making these unintentional errors, which can have ripple effects on everything from bank reconciliations to inventory counts. When last month's numbers are solid, you can trust this month's starting point.

Second, it’s a powerful deterrent to fraud and unauthorized activity. Without a locked period, a user could go back and delete a sales invoice from a prior month to hide revenue, or alter a vendor payment to cover their tracks. By setting a closing-date password, you create a necessary barrier. Any change to a closed period requires explicit permission from a trusted administrator, creating a clear audit trail and adding a layer of accountability.

Finally, locking your books is the bedrock of accurate reporting. Lenders, investors, and the IRS expect finalized financial statements that don’t change. Finalizing each period allows you to confidently file sales tax returns, prepare formal financial packets for stakeholders, and make strategic business decisions based on numbers you know are accurate and unchanging. It transforms your bookkeeping from a fluid document into a reliable record of historical performance.

Your Pre-Closing Checklist: 7 Steps Before You Lock the Period

Before you flip the switch to close the period, you need to be certain that the period itself is complete and accurate. Rushing to close the books on incomplete data just means you'll have to unlock them later to make corrections, which defeats the purpose. Follow this comprehensive checklist every month or quarter for a seamless close.

• 1. Reconcile All Bank and Credit Card Accounts: This is the most crucial step. Reconciling confirms that every transaction in your bank and credit card statements has an equivalent in QuickBooks. This process catches duplicate entries, missed transactions, and potential bank errors, ensuring your cash balance is correct. Don’t stop at bank accounts; reconcile any loans, lines of credit, and clearing accounts as well.
• 2. Clear Out the Undeposited Funds Account: The "Undeposited Funds" account is a temporary holding account for payments you’ve received but haven’t yet deposited into the bank. If left unchecked, this account can become a dumping ground for miscategorized payments and old checks, leading to overstated income and an incorrect cash balance. Before closing, ensure every entry in undeposited funds properly reflects a corresponding bank deposit.
• 3. Review Accounts Receivable and Payable Aging: Run an A/R Aging report to identify overdue invoices. Follow up with customers or, if necessary, write off uncollectible balances to bad debt expense. Similarly, run an A/P Aging report to make sure all submitted bills have been entered correctly and that you don't have old, unpaid bills lingering on the books. This ensures your revenue and expenses are recognized in the correct period.
• 4. Account for Long-Term Assets: Fixed assets lose value over time through depreciation, and intangible assets through amortization. Before closing, be sure to record the current period’s depreciation and amortization expense. This is a common adjusting journal entry that’s easy to forget but is essential for an accurate balance sheet and income statement. Also, document any asset purchases or disposals that occurred during the period.
• 5. Make All Necessary Adjusting Journal Entries (AJEs): This is where accrual accounting comes to life. AJEs account for expenses that have been incurred but not yet paid (accrued expenses), revenue that has been earned but not yet invoiced (accrued revenue), and expenses paid in advance (prepaid expenses). Getting these entries right is key to matching revenues with the expenses that generated them.
• 6. Verify Inventory Quantities and Valuations: If your company holds inventory, the end of the period is the time to make adjustments. Perform a physical spot-check or cycle count and adjust your inventory asset account in QuickBooks to reflect reality. This adjustment often involves a corresponding entry to Cost of Goods Sold to account for shrinkage, spoilage, or damage.
• 7. Run a Final Review of Your Key Financial Statements: The final sanity check. Pull up your Profit & Loss and Balance Sheet reports. Compare them to the previous period and the same period last year. Do the numbers make sense? Look for large, unexpected variances. A sudden spike in a particular expense account could indicate a miscategorization. This final review is your last chance to catch errors before locking them in place.

How to Close the Books in QuickBooks Online: A Step-by-Step Guide

Once you’ve completed the pre-closing checklist and are confident in your numbers, you’re ready to formally lock the period. The process inside QBO is straightforward.

1. Navigate to Account and Settings
Start by clicking the Gear icon (⚙️) in the top right corner of your screen. Under the "Your Company" column, select Account and settings.

2. Select the Advanced Tab
On the left-hand menu of the settings page, click on the last option, Advanced.

3. Find the Accounting Section
This tab contains several configuration options. You’re looking for the first section, labeled Accounting. Click anywhere in this section to edit its fields.

4. Turn on the "Close the books" Feature
The top option in the Accounting section is Close the books. Click the toggle switch to turn it on (it will turn from gray to green).

5. Choose Your Closing Date
In the Closing date field, enter the last day of the accounting period you intend to close. For example, if you are closing the books for January 2024, you would enter 01/31/2024. Any transaction dated on or before this date will now be protected.

6. Select Your Exception Setting
QuickBooks gives you two options for how to handle attempts to change transactions after the closing date. This choice is critical for your internal controls:

• Allow changes after viewing a warning: This is the less restrictive option. When a user tries to save a transaction in a closed period, a warning message appears. However, they can click "Yes" to proceed and save the change anyway. This is suitable for single-user accounts or very small, high-trust teams where everyone has administrator-level authority.
• Allow changes after viewing a warning and entering a password: This is the recommended setting for almost any business with more than one person using QBO. It forces the user to not only see the warning but also enter a specific password to save the change. This creates a hard stop, ensuring that only authorized personnel can make edits to closed periods.

7. Set a Password and Save
If you chose the password option, two new fields will appear: Password and Confirm Password. Enter a strong, unique password that you will share only with designated administrators. Click the green Save button at the bottom of the section, then click Done.

After the Close: Managing a Locked Period

Closing the books isn’t a one-time action; it’s part of a cycle. Knowing how to manage the locked period is just as important as setting it up.

Keeping Track of Changes

Even with a password, you need a way to monitor edits to closed periods. QuickBooks has a dedicated report for this: the Exceptions to Closing Date Report. It lists every single transaction that was modified or added to a closed period after the closing date was set.

To access it, go to your Reports center and search for "Exceptions to Closing Date." Make a habit of reviewing this report regularly. It’s your official audit trail for any post-close activity.

Making Necessary Edits

Corrections are sometimes unavoidable. When an authorized user needs to edit a transaction in a closed period (with the password protection active), they will attempt to save their changes and be met with the warning pop-up. They must enter the correct password to proceed. This ensures the change is deliberate and not accidental.

Establishing a Firm Policy

Technology is only as good as the policy behind it. You should establish a formal internal policy for changes to closed periods. It should clearly define:

• Who holds the closing date password (it should be limited to one or two top-level administrators).
• What constitutes a valid reason for changing a closed-period transaction (e.g., correcting a bank reconciliation error, reclassifying a material transaction at the request of your CPA).
• The process for requesting and documenting the change. At minimum, a log should be kept detailing the transaction date, amount, reason for the change, and who authorized it.

Final Thoughts

Setting a closing date in QuickBooks Online effectively transforms your dynamic accounting file into a set of reliable historical records. By implementing this feature as part of a structured closing process, you safeguard your data’s integrity, strengthen internal controls, and produce financial reports that you and your stakeholders can trust completely.

When finalizing the books and making these critical adjusting entries, tough questions about the proper tax treatment for a transaction or new depreciation rules often come up. Rather than getting sidetracked by hours of manual research in IRS publications, our team gets instant, citation-backed answers with Feather AI. It helps us confirm complex tax positions in seconds, ensuring our period-end adjustments are not just a best guess, but are precise, and defensible under audit.