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Posts tagged accounting
Neat Promotion Features of QuickBooks POS Pro v10
Feb 19th
Do you use QuickBooks POS Pro version 10? There may be some advertising features that would be useful to implement to help you increase sales.
Printing Coupons on Receipts – with this feature you can print a coupon on receipts you print. For example, on the receipt it could say 10% off your next purchase of $25 or more on non-sale items. You can even dictate when a coupon prints on a receipt: always, randomly (such as every 10th receipt printed), or if the sale is greater than a certain amount (such as $45). If you already have a customer set-up to receive customer rewards, you can exclude coupons for that customer.
Email Marketing – with this feature you can automatically add customers to Constant Contact. Maybe you have a new sale this weekend and want to alert your customers. Send an email to your customer base through Constant Contact!
Email Documents – you can email receipts to your customers in several formats: .PDF, Text, HTML, & Excel.
Reward Manager – if you turn on this preference, you can give rewards to loyal customers. For example, you can say that if a customer spends $100 in merchandise, the customer can receive $10 or 10% off a future purchase. You can set rewards to occur during specific time frames. For example, if you want to set-up rewards only for purchases made for a specific weekend, you can do that. In addition, you can make rewards expire, which may entice the customer to come in sooner versus later to use the rewards and purchase more items from your store. In addition, you can exclude some items from earning rewards. For example, if you have a rare expensive item that you do not want a customer to earn rewards on, you can exclude that item.
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Remote Access Options for QuickBooks
Feb 19th
Let us say that you do not use QuickBooks Online but you want to be able to access your QuickBooks program remotely. Below are a couple of options you can use.
Intuit QuickBooks Remote Access – there are two levels of service provided by this company. For $3.95 per month you get access only to your QuickBooks program and transferring files. For $7.95 per month you get access to your entire computer. If you are a QuickBooks ProAdvisor you get this service for free for QuickBooks only access for up to two computers.
I tried this service on my father’s companies as a test. At first I got a green screen and nothing happened, but I was able to use the transfer file feature so I knew there was definitely a connection. I had to wait until the next day to access online chat support to find out how to resolve the issue. The steps did not work. Later, when someone was in the office, I was able to see the QuickBooks program. I think the computer went to sleep and that is why I could not access QuickBooks. When I could use the QuickBooks, I made a bunch of memorized reports for the companies for his employee to send to his tax accountant. I talked the employee through exporting the memorized reports to Excel, password protecting them, and emailing them to the tax accountant.
The service states that it is possible to print locally, but with my ProAdvisor access I could not figure out how to print locally. Perhaps it is only possible with the full access subscription.
For more information on this service, visit http://quickbooks.intuit.com/product/add_ons/remote_access.jsp.
LogMeIn – this is a service that was highly recommended on the Intuit Community website to access QuickBooks files remotely. I tried this program and like it a lot. The best part is that it is free!
With this program, you can access your computer wherever you are. The program allows access to the entire computer and prints locally. In fact, as soon as you log in, the program finds the local printer and shows a message that it can print there. The interface is easy to use and it worked the first time!
Another neat feature of LogMeIn, for iPhone/iPad users, is a free app that allows you to access your computer. I have used that and it works!
For more information on this service, visit https://secure.logmein.com/products/free/#RemoteControl.
Comparison – for both programs, it seems that if the computer is set to fall asleep after x amount of time the programs do not work. LogMeIn has the ability to wake up a sleeping computer, but only if Wake on LAN is enabled from the BIOS. You can change the settings on your computer to never fall asleep if the computer is plugged in.
LogMeIn worked right away and I did not need to contact customer support, but with QuickBooks remote access I had to wait until the next day to contact support and the steps that were recommended did not work.
LogMeIn allowed me to print locally from my printer and the program found the printer when I logged in, but with QuickBooks remote access I could not figure out how to print locally. It did not appear that I could, so maybe I would need the full access to do this.
I liked the security features of LogMeIn. First, you have to log into the program online with a username and password. Second, you have to log into your computer with a username and password. You could set-up users on your computer to only have access to certain programs and not allow someone to transfer files. Third, someone most likely would have to log into QuickBooks with a username and password. However, with QuickBooks remote access you just have to log into the website once and cannot have multiple users. Although QuickBooks might have multiple users, the person with remote access can transfer files from your computer.
If you need to use remote access, I recommend using LogMeIn over QuickBooks remote access.
If you are a QuickBooks ProAdvisor that needs to walk a client through an issue, I recommend using QuickBooks remote access.
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Consignment Sales in QuickBooks
Jan 14th
Some businesses sell items on consignment. Consignment goods are not part of your business’ inventory, so there should never be a value of the consignment products on your Balance Sheet. However, you may want to track how many items you have in stock to sell and how many items you did sell so that you know when you have to order more product from your vendor or pay your vendor for the product. There is more than one way to track consignment sales. The following is one way you can do it:
Create Inventory Items on Consignment – for each item that you sell on consignment, create a new inventory item. You could even create a main inventory item called “Consignment” and create sub-items under that for each item you sell. For the COGS account, use an account called Cost of Goods Sold – Consignment. For the income account, use Consignment Sales.
Receive Items – you want to be able to see how many consignment items you have in your store, but you do not want the items to have any value because they have not sold yet. You can receive the items in using the Inventory Adjustment screen. Create an adjustment to show you received the items. This will increase the number of units on hand but will not increase the asset value on your Balance Sheet.
Invoicing – invoicing is the exact same process as with regular inventory items. Choose the item that you sold and invoice your customer. Because the consignment item was received in at $0.00, after recording the transaction $0.00 will post to your Cost of Goods Sold – Consignment account.
Paying for the Consignment Items – typically you do not have to pay for consignment products until they are sold. You can generate a sales by item summary report to see how many consignment items were sold. Using this report you can determine how much money you have to pay your vendor. When you pay your vendor, instead of using the item tab like you do when you purchase inventory, use the expenses tab and choose the account called Cost of Goods Sold – Consignment.
Reports – if you only want to see the profit made on consignment sales, you can generate a Profit & Loss statement and filter the report to show Consignment Sales and Cost of Goods Sold – Consignment. If you want to see how many consignment items you have available to sell, you can generate an Inventory Stock Status by Item report.
In addition to using the above steps, you could use class tracking to keep a handle on your consignment activity.
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Job Costing Using WIP in QuickBooks
Dec 25th
Some small business owners, such as construction firms, want to utilize job costing reports in QuickBooks. There is more than one method for recording job costing information in QuickBooks. The following summarizes a method recording the information using Work in Process (WIP) by keeping all revenue and costs on the Balance Sheet until the job is completed. This method assumes you are an accrual basis taxpayer.
Create a Job – the first step in job costing in QuickBooks is to add a main customer and add a job to that customer. For example, customer Juliet Hurley might have a job called Kitchen Project.
Create Items – you need to create service items which will be the services you invoice to the customer:job. For example, Plumbing, Cabinets, Windows, and Electrical. In the item set-up put a check box under the item name to indicate that the service is provided by a subcontractor. The expense account would be Work in Process (an Other Current Asset Account) and the income account would be Construction Income.
Create an Estimate – create an estimate for the project detailing out each invoice line item.
Invoice the Customer – typically you can use “progress invoicing” for an estimate, but for this example you should invoice your customer using an item called Security Deposit. Create a sub-item for each deposit you collect. For example, you would create a sub-item called Down Payment #1 for the first down payment you invoice the customer for, Down Payment #2 for the second down payment you invoice the customer for, and so on. The service item and sub-items would point to the Account called Customer Deposits (an Other Current Liability Account) for both the expense and income account.
Enter Vendor Bills – enter the bills that you receive from vendors for services rendered. Instead of using the “Expenses” tab, use the “Items” tab and choose the type of service performed. For example, Plumbing. Enter the job that the expense was for.
Close the Job – when the job is completed, you need to close it out so you can see if you made or lost money on the project. Create two “Other Charges” items called Reverse WIP (pointed to the Work in Process account) and Cost of Goods Sold at Closing (pointed to the Cost of Goods Sold account). Also create a new bank account called Adj Register.
Create an invoice for the total amount of the estimate. Under the last item add in new lines to subtract the amounts already paid as down payments that were previously invoiced. For example, if you originally invoiced $10,000 as Down Payment #1, type in the item Down Payment #1 and in the amount column enter -$10,000.
Enter in a zero dollar check using the bank account called Adj Register. Using the Items tab, choose Reverse WIP. Enter in a negative amount for the balance in the Work in Process account for that job and enter the job name on the same line. In the next line choose Cost of Goods Sold at Closing. The amount will be the exact same amount for the line above but entered in as a positive amount instead of a negative amount so that the net check amount is $0.00. Enter the job name on the same line.
Generate Reports – if you want to see a summary of profit (loss), you can run the Profit & Loss by Job report. If you want to see actual revenue and actual costs of the job, you can run the Job Profitability Detail report. To see revenue and costs by individual line items of the estimate, modify the report and remove the account filter. If you want to see if you were over or under your cost estimate, you can run the Job Estimates vs. Actuals Details report.
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Job Costing & Payroll in QuickBooks
Dec 18th
Some small business owners like to use the job costing feature in QuickBooks. QuickBooks Desktop Pro & Premier, MAC, and Online Plus and above have the ability to perform job costing. Job costing is where you can tag both income and expenses to a specific job and then view a profitability report by job to see if that specific project made money or lost money. Typically construction firms and real estate management firms use job costing. For example, if you have a subdivision where you are building multiple homes, you may want to see which homes that sold made a profit. The main customer could be the subdivision name (ABC Subdivision) and the jobs could be the addresses (124 Turtle Ave., 456 Stark Road, etc.). Job costing can work with a variety of industries. It just depends on how much time you are willing to put into your accounting to achieve the results.
Job costing also allows you to tag expenses to be invoiced back to the customer at cost or at a % markup. For example, if you purchased some bricks for job 124 Turtle Ave. and had the “billable” box checked, you could invoice job 124 Turtle Ave. for the bricks (note: in the MAC version, to be able to invoice costs back to jobs, the chart of account type had to be “expense” and cannot be type “cost of goods sold”. In the desktop versions the chart of account type can be “cost of goods sold”).
Assuming you use Intuit’s payroll (a QuickBooks subscription service for the desktop and MAC versions or QuickBooks Online Plus w/ Payroll) you will have to use a journal entry to assign the payroll costs to specific jobs. The following briefly describes ways to perform job costing for payroll.
Online Plus w/ Payroll – Although there is the option to enter in time by employee and job using the timecard feature, the job information does not import into the payroll module. Instead, only the hours import for the employee. The sole purpose of the timecard in this online product is to be able to invoice time back to a job. So if you want to assign payroll and payroll taxes to specific jobs, you have to create a journal entry. QuickBooks Online does not allow the import of Excel .iif files, so you would not be able to create an import template. This method would be very tedious and time consuming if you had several employees and several jobs to assign costs to.
Desktop and MAC Versions – In these programs, you can use the timecard feature by employee and job and the information will be able to break out payroll costs by job. However, the payroll taxes will not be assigned to a job so you would need to enter a journal entry to allocate payroll taxes to specific jobs. The good news is that you could create an import file from Excel to help make the process easier, especially if you have several employees and several jobs that you want to assign payroll taxes to.
With both methods, unfortunately you cannot avoid having to enter in a journal entry. However, if you have multiple employees and jobs, the desktop or MAC version would save you more time than the Online version.
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Improvements to QuickBooks 2012 Pro & Premier Desktop Versions
Nov 21st
Each year QuickBooks creates a new accounting software program that has either new features or enhanced features from the prior year. These are a few new or enhanced features that I thought were useful or interesting:
Amending Reports Already Exported to Excel – if you are the type of person that enjoys making Excel reports look pretty, then you will like this feature. After exporting a report to Excel, you can modify certain parts to make the report look nicer. And the modifications will stay the next time you generate and export the report. For example, if you want the header to be blue or purple instead of black, you change it once and then refresh the data. Or if you want to change the verbiage on some of the accounts, the wording will stay the same when you refresh the data. You can even change the column width!
Generate the report, click on Excel, and choose the Create New Worksheet option to export your report to Excel for the first time. Modify the report and save the file. The next time you want to generate the report, maybe this time using different dates, but you do not want to have to modify the colors, names, and fonts again, choose the new Update Existing Worksheet option from the Excel button. Choose the file that you saved and the tab to update and wa-la! A pretty report appears!
Contributed Reports – this feature is not new but has been improved. This is the first time I have seen this option, so it is new to me. Contributed Reports allow you to share your memorized (customized) reports with other QuickBooks users in the cloud. Also, you can access memorized (customized) reports that other QuickBooks users have created and placed in the cloud.
Add Leads & Convert to Customers – I really like this feature. You can enter in contact information of a person and company without having to create a customer. When creating a lead, you can tag it as being Hot, Warm, or Cold. Once a lead has been created, you can add Notes or To Dos, such as to make a call, e-mail, or meeting. Leads can be copied and pasted from Excel to add in multiple leads to help you save time. If you gain this lead’s business, you press a button to convert the lead into a Customer.
Calendar – this is another new neat feature to help you with productivity. In this screen you can see all of your To Dos, past due invoices, past due bills, etc. in one screen. If you click on the day where there is an action item, the details show up below the calendar. You can even view transactions that have been entered, such as a payment received by a customer.
One Click Transactions – this feature allows you to create a credit memo or apply a payment to a specific invoice without having to be in the create credit memo or receive payment screen. Simply open the invoice, click the Create button and choose Credit Memo for this Invoice or Payment for this Invoice. If you are creating a credit memo you do not have to remember which line items to choose. After pressing the button the credit memo screen appears with the correct information. The same is true for payments. The applicable fields, except for check number, are already populated.
You can do the same thing with bills. After entering a bill you can click on the Pay bill button and the program takes you right to the pay bill screen.
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Year-End Accounting Prep Tips to Save Time & Money on Tax Preparation
Nov 14th
So it’s almost the end of the year and you still have not implemented an accounting software program, such as QuickBooks, into your business routine. Yes, preparing your tax return will be more time consuming and difficult (and expensive) because you have not used a computer software program for your accounting. However, there are still things you can do to minimize the time your tax preparer will have to spend preparing your tax return which should minimize your tax preparation fee.
Bank Statements – some tax preparers will recreate your financial information on their end using your bank statements. If so, make sure you have all of your bank statements from January through December in a folder for your tax preparer. If one month is missing reprint an online statement or obtain a reprinted statement from the bank now so your tax preparer does not have to ask for it.
You do not print off bank statements because they are available online? Then either print all of them or save them to your computer and zip them up to email to your tax preparer.
Now, your tax preparer is not a mind reader but s/he will make reasonable assumptions of how to code your bank deposits, debits and checks. However, sometimes it is not evident what type of deposit or expense you made. Instead of waiting for the tax preparer to send you a list of questions, be proactive and make your own list for unusual items. For example, on the list you may write that the $5,000 deposit on May 5th was from your personal account and not from a customer. Or you may write that the $25,000 check #8364 on July 25th was for the purchase of a new photocopier (it is very fancy!).
New Purchases to Capitalize – sometimes when you spend money it is not considered an “expense” on your Profit & Loss statement but instead is considered an “Asset” on your Balance Sheet and has to be recorded and depreciated over time (or section 179). Instead of making your tax preparer play detective and try to figure out what should and should not be capitalized (especially if you are making several payments for a purchase over time), make a list.
Some examples of new purchases include vehicles, computer equipment, furniture, tools, etc. If you are not sure it belongs on the list, put it on – let your tax preparer decide if it should be expensed or remain a capital asset. On your list, write down the date of purchase, the amount you paid for it, the vendor that you purchased the product from, and a brief description of the item.
Receipts – receipts for debit card purchases (credit card purchases) are useful for tax preparation to help properly code the expense without guessing using the vendor name. Find all of your receipts and give them to your tax preparer. But do not just put them in a shoebox and hand them to your tax preparer, unless you want higher tax preparation fees. Instead, make twelve envelopes and label them January debits (credit cards), February debits (credit cards), March, etc. and put the receipts in the appropriate envelope. This will reduce the amount of time it takes for your tax preparer to find a receipt.
Those are just a few examples of ways to save on tax preparation fees and aggravation if you have not implemented a computerized system to record your accounting data.
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Are You Compatible With Your Accountant?
Oct 19th
A small business owner who needs the services of an accountant should feel comfortable working with that person. The relationship is similar to a marriage because you have to trust the accountant with very sensitive financial information and trust that the accountant keeps information you talk about confidential. But different small business owners behave in different ways and there is no one-size-fits-all accountant. Just like with personal relationships, not all business relationships work out, so find an accountant you are compatible with to feel confident about your company’s financial information.
Proactive vs. Reactive – some small business owners are proactive while others can be reactive. Proactive business owners are interested in their financial statements, want the work completed in a timely manner, and help facilitate the process. They usually have their bank statements in date order, have receipts handy in an organized fashion, and produce missing accounting information in a timely manner.
Reactive business owners are not interested in their financial statements. They only care about the final tax return result one time per year. They do not care to participate in tax planning and put all the burden of preparing financial information in other people’s hands. Usually it takes them weeks or months to produce a missing financial document, if they get around to it at all.
Organized vs. Disorganized – some small business owners, whether or not they understand the accounting process, are very organized. They will have most of their financial documents in one place, typically organized in folders by category or date. If you need a financial document, they usually know where to find it right away.
A disorganized small business owner usually has no system in place to keep their accounting records in order. Some receipts may be in their car, some in their house, some in the office drawer, or some thrown out. They may not have all their bank or credit card statements available. They may contact you several times, asking for the same information over and over again because they lost it.
Guiding vs. Holding Hands – some small business owners just need guidance. They enjoy learning and if you show them how to do something new they pay attention and implement the process. They ask you questions about their accounting information which means they are interested in their business and want to keep it successful. Furthermore, they like to try new techniques and will play around in their accounting system to see what happens.
Other small business owners need a lot of hand holding. They need step-by-step instructions in great detail to follow. They will not deviate from your teachings and implement them because “you told them so” instead of critically anayzing the situation and modifying the process as they see ways to improve the process. Moreover, they will not try to learn anything new until you show them because they are afraid they will break their accounting program.
Cash Strong vs. Cash Strapped – some small business owners have no cash flow problems. You could pay their bills each week without performing an analysis of accounts receivable and payables or even looking at the balance in the bank account. The money comes in on a regular basis and does not have huge fluctuations.
However, some small business owners are cash poor. They barely make enough money to pay their bills. Some have bills that grow each week with less and less cash coming in the door to pay them. You might have to do a spot reconciliation each time you are about to pay bills and then can only pay critical bills and payroll even though a lot more money is owed to vendors.
Strictly Business vs. Very Personal – some small business owners are very business-like in talking with you. They rarely share personal information and only tell you about pertinent business affairs.
On the other hand, there are some small business owners who talk to you as if you are their therapist. They will tell you about their divorce, separation, kids, family problems, and other information that would normally be shared with a therapist or close friend.
Accountants are just like small business owners – all different types of personalities. So when shopping around for an accountant, do not look soley at the price. Meet with the potential professional to determine if the accountant has similar personality characteristics as yourself so you match yourself up with a compatible accountant. That will lead to a longer and more satisfying business relationship, and in the long run may save you a lot of money, taxes and aggravation.
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Help! My Accounting Records Are Out of Control!!
Oct 12th
Before you go all gung ho and launch your business, one of the things you should think about is implementing a solid accounting system. Now, I am not talking about a computer program to perform your bookkeeping because most small business owners think of that item last. I’m referring to a system to organize physical documents that may come your way or that you need to send and electronic documents received and sent.
When a small business owner opens his/her doors the volume of accounting records may be small. A handful of invoices to mail/e-mail out per week, a few bills in the mail per week, and maybe keeping a receipt or two in the drawer. However, as your business grows so does the volume of paperwork and electronic communications. If you do not have a system in place up front, you may get overwhelmed by the documents and give up with frustration, not knowing how to control the inflow and outflow of information.
Here are a few tips on how to implement an accounting system:
Electronic communications – Once you have set-up your company email system, create a general email that will collect accounting data from customers or send accounting data to customers. For example, create an email called Accounting@yourfirm.com. When you send invoices to customers, use the accounting email address instead of your personal business email. If you have an online store that sends customers confirmations for their orders, have the reply-to address be the accounting email. Tell your vendors to email bills to the accounting email address. By having one email address for accounting data, you have started to create an organized accounting system.
The second step is to create a bunch of folders to be able to segregate the emails coming and going out of Accounting@yourfirm.com. For example, create a folder called Vendor Bills, Customer Invoices, Customer Orders, etc. If your system allows, create sub-folders such as To Pay and Paid under the Vendor Bills folder; To Invoice and Invoiced under the Customer Invoices folder; and To Ship and Shipped under the Customer Orders folder. Then sort your emails to the various To xxx. That organizes your “to dos” into buckets instead of having a mass of emails sitting in the in box. After you ship an order, move the email from To Ship to the Shipped folder. No further action is needed in the Shipped folder, but the email stays there in case a customer has a question in the future about a past order.
You can also organize your sent emails in the same way. Create different folders under your Sent folder to categorize your emails into different subject matter. That will make it easier to find an email if you have to. For example, if you send contracts to new customers, create a folder called Contracts Sent. After sending the contract to the customer put the email into the Contracts Sent folder. Under the Contracts Sent folder you could also make a folder called Accepted and one called Not Accepted. If the customer accepts the contract, move the email out of the Contracts Sent folder and into the Accepted folder.
Depending on your email program, you may be able to set-up rules for incoming emails. For example, if customer orders to ship come into the accounting inbox with the subject line “New Order”, you could create a rule that tells the program to send all emails with the subject line “New Order” into the To Ship folder.
Deposit receipts, debit receipts, and credit card receipts – No, the proper accounting system is not to put them in the drawer or a shoe box. Keep receipts together with the source document (bank statement, credit card statement, etc.). For example, all the receipts for deposits and debit card purchases for the month of May will stay with May’s bank statement. If you have a few receipts you can staple them onto the bank statement, but if you have several put them in an envelope labeled May receipts and staple the envelope to the bank statement. Do the same process with credit card receipts. Staple (or put in an envelope and staple) the receipts to the credit card statement for the month the charge was made. So, purchases on a visa card for May would be attached to the visa statement with that May charge.
Other paperwork – You can set-up a very simple and inexpensive accounting system using manila folders. Label a bunch of folders to store your accounting documentation. For example, write (or print off a label if your handwriting looks like mine) Documents to Enter, Payroll 2011, Customer Invoices 2011, Customer Payments 2011, Paid Bills 2011, Bank Statements 2011, Taxes 2011, etc. The Documents to Enter folder is your inbox which are your action items. As vendor bills come in, payroll reports are generated, invoices are printed to keep on file, put them all in the Documents to Enter folder. Sit down when you have a couple hours of dedicated time to sort through the folder and either file a document in its respective folder or enter the document into an accounting software program, such as QuickBooks, and then file it in its respective folder. When you are finished, store the stack of folders in a drawer or in a pile in the corner of your office.
As your paperwork volume increases and you can afford a better accounting system, buy a filing cabinet. Buy hanging file folders and more manila folders. Now you can store your information in more detail. For example, one drawer of the filing cabinet could be for customer information: contracts, invoices, and sales orders. One drawer of the filing cabinet could be for vendor bills and one could be for payroll and employee records. In the vendor bill drawer, instead of putting in a folder called paid bills, you could create folders that say A-C, D-F, etc. and create specific vendor folders for regular bills such as Duke Energy or Blue Cross and Blue Shield of NC. You could be specific in the customer file too by labeling the folders with customer names or A-C, D-F, etc.
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Help! I’m Living in an Accounting Nightmare!!
Oct 11th
Does that sound like you and your business entity/entities? Like a lot of small business owners, people go into business for themselves to do what they do best. Unless the person decides to open his/her own bookkeeping or tax business, then chances are that the person is not good at keeping good business records.
Are you the type of person that puts business receipts into a shoebox and hands them to your tax preparer once a year, or types up a spreadsheet of what you can recall is a business expense even if you cannot find the receipts? Maybe you have no idea how much cash is really in your checking account except once or twice a year when you hire someone to clean up your books, which means you do not know if you are making a profit, incurring a loss, or should be making quarterly estimated tax payments. Without keeping good accounting records you are not able to plan for taxes, submit solid financial statements for a loan, try to entice investors to invest in your company, cannot make sales and profit projections, and may not be taking all the deductions you can come tax time.
Dilemma – I have one personal bank account with many business transactions – First, I am no legal expert (so this is not legal advice), but I am pretty sure that your corporate structure could be nullified if you mix your personal expenses with your business expenses, and if you get audited by the IRS you may have to justify each deposit to prove what is and what is not income. So, if you file an LLC for legal protection, co-mingling funds could eliminate that protection and open up your personal assets to lawsuits. Not to mention potentially a more painful audit.
Proactive Solution – Buy QuickBooks and open a checking account for each individual company that you own. That will separate personal expenses from business expenses. Create a new company file in QuickBooks for each business entity. This would be the cleanest way to record the transactions for all of your business entities. Reconcile your bank statements monthly and look at your Profit & Loss statement and Balance Sheet to get a feel for the health of your business.
Band-Aid Solution – If you refuse to open up separate checking accounts for individual entities because you do not feel like it, or you do not want to pay bank fees, etc. then buy QuickBooks. Activate class tracking for each individual business entity. Set up a “fake” checking account called “Personal Checking Account”. Record only business transactions that are posted to your personal checking account, tagging each one to a class (business entity).
Typically when someone pays for business expenses with his/her personal funds, the transaction is recorded in QuickBooks as a journal entry. You enter the expenses as debits and then depending on your legal structure credit “Member Contribution” or “Shareholder Loan”. But in the band-aid solution, you are entering transactions in QuickBooks in detail, entering checks, debits, and deposits. The balance in the “Personal Checking Account” is a fictitious balance because it only represents a part of activity occuring in your personal bank account.
The balance in the “Personal Checking Account” needs to be zeroed out each month. Make a journal entry and for all monies recorded as deposits debit the proper equity or loan account, such as “Member Distribution” or “Shareholder Loan” depending on the type of business entity. For monies recorded as expenses, the sum will be recorded as a credit to “Member Contribution” or “Shareholder Loan” depending on the type of business entity.
For example, let’s pretend your personal checking account balance is $-12,450 at the end of the month. Of that balance, $10,000 were deposits (revenue) and $22,450 were expenses. The journal entry to zero out the personal checking account balance for the month, assuming the entity is an LLC, would be to debit “Member Distribution” $10,000, debit “Personal Checking Account” $12,450, and credit “Member Contribution” for $22,450. That sounds easy if it is just for one business entity, but in this example there are several business entities and we used class tracking! That makes the closing entry more complex. You would still debit “Personal Checking Account” $12,450, but the contributions and distributions would have to be recorded to the proper business entity’s equity sections. So, you might have some credits posting to “Company I, LLC:Member Contribution”, some to “Company II, LLC:Member Contribution”, and some to “Company III, LLC:Member Contribution”. The same would apply to the “Member Distribution” section, posting the amounts to the proper LLC.
In order to figure out how much to record to each business entity (class), generate a detailed report of the “Personal Checking Account” and sort it by class. Modify the report to show the Debit and Credit columns. Export the report to Excel and sum up the amounts by class and those are the amounts to record in your closing journal entry.
Sound complex? Then migrate to the Proactive Solution mentioned above to avoid a ton of headaches.
Dilemma – I have several personal credit cards with many business transactions
Proactive Solution – Instead of getting dismayed when you are trying to sort through months worth of credit card transactions from several credit cards at tax time, try implementing a proactive solution. For each business entity, open up a separate business credit card just for that business. So if you have five LLCs, open 5 credit card accounts, one for each LLC.
Band-Aid Solution – Just like with the personal checking solution, you will record transactions in detail with the proper class and then close out the credit card account each month as stated above. For each credit card, create a new chart of account and record each transaction through Banking – Enter Credit Card Charges. For example, if you have one personal visa, one personal mastercard, and one personal AMEX card, create three credit card accounts (choose type credit card when you create a new account): “Personal Visa”, “Personal Mastercard”, and “Personal AMEX”.
Dilemma – I have a garbage bag full of cash receipts paid for several businesses – No, do not shred them. You want to record cash receipts to maximize the amount of deductions you can take on your tax return.
Proactive Solution – You bought QuickBooks, opened a checking account for each business entity, and created a separate QuickBooks file for each entity. Record a journal entry dated 12/31/20xx for the sum of all the business receipts for that one business entity. Debit the expenses and credit “Member Contribution” or “Shareholder Loan” depending on the business entity.
Band-Aid Solution – Just like with the personal checking solution, you will record transactions in detail and then close out the cash account each month as stated above. Create a bank account called “Cash Receipts” and enter each receipt through Banking – Write Checks, but leave the check number field blank. Tag the transaction to the proper class. At the end of the month close out the balance as explained with the personal checking account.
The Most Proactive Strategy – Admit to yourself that accounting is not your strength and spend the money for a high quality bookkeeper or accountant to set-up your accounting system for you before it gets out of control. In the long run you will save yourself a lot of money and aggravation.
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