Common mistakes in QuickBooks.
Items Coded to the Wrong Account
How can you tell if your Items are coded incorrectly?
When you look at a Profit & Loss Report and you see negative amounts in the wrong places, this is a strong indicator. You can also look at the details under an account and realize that items are not being posted where anticipated. Look for Checks, Bills & Credit Card Charges showing up under Income Accounts. If you're not dealing with Inventory, you should also not see Invoicing under COGS/Expense accounts. (If you do use Inventory Items, then you will see Invoicing under the transaction type in your COGS accounts.)
When Items are set up from an Invoice, typically an Income Account is entered in the Account field. This is fine as far as invoicing your customers. The problem comes later when this Item is used on a Check, Bill or Credit Card Charge. Since only an Income Account was set up, the Income Account is debited (reduced) whenever the item is used to record an expense.
Likewise, if the item was set up from a Check, Bill or Credit Card Charge, an Expense or COGS Account was probably used. Now whenever the Item is used on an Invoice, the expense/COGS account is credited (reduced) instead of an Invoice Account.
The solution to both of these situations is to mark the box directly underneath the Item Name, during setup. This expands the input screen allowing for an Expense/COGS Account on the left and an Income Account on the right. Whenever and wherever this item is used, it will now go to the correct account.
Understanding QuickBooks Payroll
QuickBooks Payroll, like the IRS, tracks payroll based on the date of the check. A lot of people will run the Payroll Summary Report for the payroll period worked, not for the check date. For example, you pay your employees weekly on Wednesday for the previous week. If you use the dates for the week worked, you would see the payroll paid for the previous week. If you're not sure you are looking at the correct paychecks, doubleclick on any of the earning amounts and verify that you are looking at the payroll you want.
The Payroll Liability report on the other hand is always run from the first of the year (01/01) through the date of the last check for which you are paying the taxes. If you file monthly, you should be able to run the Payroll Summary for Last Month and the Payroll Liability Report for 01/01/YR--Last Month end, and the amounts you owe for Federal Withholding, Social Security (Emp & Co), Medicare (Emp & Co) & State W/H should be the same. The only reason they would be different is if you had over- or under-paid your taxes for the previous month.
Another common problem is that people will write a check or enter a bill for their payroll liabilities instead of Paying liabilities. Checks & Bills don't affect Payroll Items. Remember, if it starts in Payroll it finishes in Payroll!
Posting Job Expenses on the Expense Folder Rather Than Using Items
If you really want to see good job cost reports, you need to use a Customer Job and an Item on every transaction that is related to the job. This includes Estimates, Invoices, Checks, Bills, Credit Card Charges and Payroll. All of the Project/Job Reports are based on the use of Items. If you review the Job/Project reports and you see at the bottom of the report "No Items," this means that job-related expenses were tracked to the Customer Job on the Expense folder rather than the Item folder.
Having Too Many Choices in the Chart of Accounts
Your Chart of Accounts (COA) should be a fairly straightforward list of your "WHATs"--what you do to earn your money and what you spend it on. When you are entering in your transactions and selecting an account to post to, think simple. What For? On Checks, Bills & Credit Card Charges all you need to know is Who To (the Vendor), How Much (the Amount) and What For (the COA).
I am always amazed at how much time people can spend scrolling up and down and back up and back down the COA trying to find the right account. Try simply starting to type in the What For. You'll be amazed at much time you can save. Keep in mind that your Profit & Loss statement should never be more than two pages long.
I also create an expense account called "I Don't Know" for all of my customers. I tell them they have 15 seconds to enter the correct account. If they're not sure, put it in "I Don't Know" and we can figure out where it should go later. At least the transaction is entered and I haven't met an accountant/CPA yet who didn't question what was posted to "I Don't Know."
Using Classes Incorrectly
Class should be used to separate locations, departments, and partners. You should be able to track both Income & Expenses by the class. Classes are not your customers, your employees, the things you sell or even your projects. (Remember, there are always exceptions to the rule.) Separating by class lets you print and/or filter reports by class. You can see all of the activities on a P&L with each class (dept, location, etc.) side-by-side or filter it for only one.
Checks Don't Pay Bills!
Whenever I say this to my students they always look at me like I've lost my mind. But, in QuickBooks, checks don't pay bills!. When you enter in a Bill you must go through Pay Bills to relieve the Accounts Payable. If you enter in a Check for the bill, you are duplicating the expense and the Bill will continue to appear as unpaid. Remember, if you've entered it once you should not be entering it again! You should be able to run an 'Unpaid Bills Report' and everything on it should still be unpaid.
Understanding Undeposited Funds
This is an account that no one had ever heard of before QuickBooks for Windows. It's actually a very simply account. When you are receiving payments from customers, unless you deposit each check individually, you should always group them with Undeposited Funds. I always tell people this is like putting the checks in the drawer, bank bag, safe, etc., until you're ready to go to the bank. Then when you go to the bank, you take them out of the drawer, bank bag, safe, etc. and make a deposit.
The same is true in QuickBooks. When you Invoice the customer, the system is debiting A/R and crediting the various income accounts your items are pointing to. Then when you receive payment, the system credits A/R and debits Undeposited Funds. It removes it from the A/R, because the customer has paid, but doesn't put it in the bank until you actually make the deposit. When you're ready to make a deposit, it credits Undeposited Funds and debits the checking account.
Another advantage of Undeposited Funds becomes apparent when you are reconciling your bank statement. Your check register will have the same deposit amounts as the bank statement and you won't have to play the adding game to figure out which checks equal which deposit. This alone could save hours!.
Receiving Customer Payments
For some reason, this step causes a lot of problems. When you look at the screen it says Customer Payment in big bold letters. In QuickBooks terms, a customer is someone who you invoiced. If you didn't (or you're not going to) create an invoice for this amount of money, you shouldn't be receiving payment! Receiving Payments credits A/R and debits either your checking account or Undeposited Funds. If this money was from a vendor refund, or any transaction that is not going to affect a customer invoice, then it should be added to the bottom of the deposit as a miscellaneous entry, not as a customer receipt.
Frequently, I will see negative balances on a customer's A/R reports. (If you look at an Open Invoice Report you'll see them listed as Payments.) Either the invoice was never entered and should be, or it was entered in the wrong place. I have had people tell me that they never knew they could enter money received any place but through Receive Payments.
To fix these takes time, but it's not impossible. From the Open Invoice Report, double-click on any entry that shows a transaction type which leaves the customer with a negative balance. This should take you to the Receive Payment screen. Click on the 'History' button on the top of the screen and this will take you to the deposit. You need to correct the deposit first. The easiest way is to highlight the payment in question, click on the Ctrl + Ins keys to insert a new line. In the new blank line, enter in the From Account field what this deposit was for (it's not Undeposited Funds). If this was a refund or rebate, use the expense account that you originally used when you purchased it. Enter in the payment method and amount. Now, highlight the original line and press the Ctrl + Del keys; this will delete only that line, leaving the rest of the deposit intact. Your original deposit amount should not change. Click on Save & Close to record your changes. You should now be back on the original Receive Payment. Since we no longer need it here, press the Ctrl + D keys to delete it.
Clearing Credits to Invoice
Most of the time when I look at a customer's Open Invoice Report (under Customers & Receivables), I will find several entries where the customer's balance is zero, yet the Invoices & Payments/Credits are still showing. This usually is a result of entering in the payment before the invoice or entering in a credit memo and not matching it to the invoice. To fix this, go to Receive Payments, enter in the Customer Job name, leave the amount received as zero (you're not receiving any money), highlight the outstanding invoice, then click on the 'Set Credit' button. (In QuickBooks 2001 and older, you had a button that said 'Apply Existing Credits' and it automatically applied all open credits to the open invoices-much easier!) You can now apply any credits/payments to the invoices. When all the credits have been applied, click OK, then Save & Close.
The same thing can happen in A/P, when you have a bill entered, and then you enter in a credit, leaving the vendor with a zero balance. Go to Pay Bills, and select the bill to be paid, then click on the Set Credit button to apply the credit to the bill, leaving a zero check.
Maybe I'm biased, but I don't like the Easy Step Interview. I usually joke that I've never seen anyone who went through the Easy Step Interview and had things set up correctly. You are new to QuickBooks. The interview is asking you a question about the way in which something will be used that you cannot answer, so you guess. When everything is complete, you really don't have any idea how anything was set up because it was done for you.
I recommend that you click on the button 'skip the interview' when creating your new company. It's much better to set up things (Charts of Accounts, Customers, Vendors, Items, etc.) when you need them. The other down side to the Easy Step Interview (in my opinion) is that it asks for balances; when you enter in the amount you think it wants, QuickBooks automatically offsets the entry in an account it creates called Opening Balance Equity and you have no idea how or what it is.
Understanding Opening Balance Equity
Like Undeposited Funds, this is an account created with QuickBooks Windows. Whenever you set up a new balance sheet account, there is a field for the Opening Balance. Unless this is the first day you've started using QuickBooks and you're carrying over balances from another accounting program, you do not have an Opening Balanced. Not for any of your Charts of Accounts or Customers or Vendors or Inventory Items. Nowhere on Nothing!
For example, let's say you've been using QuickBooks for awhile and you just purchased a new vehicle with a down payment of $1,000 and a loan balance of $25,000. If you set up a new fixed asset account called Vehicles and enter the Opening Balance of $26,000, the offset account would be Opening Balance Equity. You also need to create a Long-Term Liability account for the Vehicle Loan. Again, if you enter in the Opening Balance, the offset account is Opening Balance Equity. Unless you now enter the check in Opening Balance Equity, you would end up with a balance in the wrong account.
The best way to record this is to enter the check for $1,000 on the first line of the expense folder, enter in your fixed asset account for vehicles (if you don't have one, set it up but do not enter an opening balance). Enter in the full price you paid for the vehicle. Now, on the next line create a new Long-Term Liability account for your new loan (again, do not enter in an opening balance). On the expense folder, enter in the amount of the loan balance as a negative number. On the next line enter in any fees (taxes & licenses) to the correct expense account. You should end up with a total of $1,000, the amount you wrote the check for and all of your accounts will be posted correctly.
Here is another example of setting up a new Inventory Item and using this account incorrectly. It asks for a quantity on hand. If you enter in the quantity you are purchasing, then you buy that same quantity, you've now doubled your inventory!
I think it's best to say that if today is not the first day you've entered transactions into your QuickBooks file, then it's not an opening balance.
Looking at Reports
I am always surprised at how many people are using QuickBooks to enter in all of their transactions but never look at the reports to see the effect of the transactions. If you use Invoicing, you should periodically (at least once a month) look at both the A/R Aging Summary and the Open Invoice Report. Do these people really owe you this amount of money? If you use Bills, you should look at the Unpaid Bills Report. Do you really owe that amount of money? Even if you don't totally understand the Profit & Loss, you'd still be able to detect that something just didn't look right.
As with any program, QuickBooks is only as good or accurate as the information someone puts into it. The program doesn't know what you mean or want unless you tell it. On the plus side, there is rarely anything you can do that can't be corrected.
Since Dawn Ashpole started SBA Services, Inc., in 1989, she has provided training and support in all versions of QuickBooks, Peachtree and Red Wing Business Software to more than 1,500 small- to medium-size businesses. She may be reached at firstname.lastname@example.org or 800-321-4744.
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|Title Annotation:||Troubleshooting QuickBooks & Peachtree|
|Publication:||The National Public Accountant|
|Article Type:||Product/Service Evaluation|
|Date:||Oct 1, 2003|
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