Accounting 101: Part 5

Throughout the year, your income and expense accounts run a total — every Membership Dues sale, every Staff Appreciation check, adds up. Closing the fiscal year is the step where that running total gets zeroed out and folded into Carry Over Funds, ready for a fresh count next year.

This is optional. Most nonprofits never formally close their books — but we recommend doing it anyway. It’s the difference between “our income and expense numbers are approximately right” and “our income and expense numbers are locked in and settled.”

When to close

Don’t close the moment your fiscal year ends. Wait until:

1. Your bank accounts are reconciled (see Part 7) — you want the books to match the bank before you lock them.
2. You’re ready to prepare your taxes.
3. Anyone who needs to sign off — a board vote, an audit committee — has done so.

What closing actually does

Once you close, the year’s Net Income (from Part 2) gets rolled into Carry Over Funds, and Membership Dues, Event Expenses, and every other income and expense account reset to zero for the new year. Most importantly: transactions dated in a closed period get locked. Nobody can edit or delete a transaction from a closed year by accident — if something needs to change, the year has to be reopened deliberately first.

Next: Voiding a Transaction