open invoices at year end

Welcome to the Community space, @michaelyoung11. Let me share with you some insights about the application of payments to the open invoice. 

The application of your payments would depend on the accounting method you use, either cash or accrual. 

When you use the cash method in reports:
 

• Your report will count income and expenses when you receive the payment or pay the bill.
• If you've sent an invoice or received a bill but the money hasn’t changed hands yet, your report doesn’t include it in your income and expenses.

When you use the accrual method in reports:
 

• Your report will count income and expenses as soon as you send an invoice or record a bill.
• It will include income and expenses even if the payment has not been made.

 I also suggest consulting your accountant for further accuracy of your books, and any accounting helps.

If you want to learn about what you and your accountant need to do in QuickBooks Online to close out the previous year and prepare for the new one. Visit this link as your reference: Year-end guide for QuickBooks Online

If you need assistance, please know that the Community will be there for you. You're welcome to submit questions and get answers, share advice, ideas, and more. Have a good one!

@michaelyoung11 

I apply the payments first to the open invoices of the previous year. Is this the best way?

The lease should specify how payments are to be applied - partial payments, payments applied to late fees first, etc.  If the lease does not specify how payments are to be applied, then it's up to you and your tenant but your suggestion of applying them to the open invoices first seems like the obvious way. 

At year-end, there is no need to close out invoices and create new ones.  If you're a cash basis taxpayer, you only report income when you receive the payments so the date of the tenant's invoice is irrelevant as far as income is concerned.  If you're an accrual basis taxpayer, you report income as of the tenant's invoice date.  Therefore, if, at the end of the year, you have not collected December's rent, closing out that invoice and creating a new invoice dated Jan. 1 would shift that income to January if you had not accrued the income as of Dec. 31.  That is deliberately shifting income from one tax year to the next and the IRS doesn't like that.