We use ADP and we have them issue the paychecks drawn on our account (don’t ask, I can’t change this). I enter the info from ADP weekly using Journal entries. The entry debits all the labor accounts and credits all the employee withholding accounts, along with a credit entry for the direct deposit and checks written.

Problem occurs at the end of the month during reconciliation. All checks are not cleared so I cannot balance. I thought I would need a journal entry for each uncleared check to offset the amount entered in the Journal entry, but that doesn’t work.

Any suggestions on what kind of entry I can make at the end of the month when I determine which payroll check for the month have not cleared? I would prefer not to change the way we are entering the Journal entry for the payroll.

Answer:

The only way to reconcile individual checks is to enter one line in the journal entry for each check that makes up the direct deposit and regular paychecks. You would use the same cash account on each line of the journal entry, enter each check amount as a credit and at the start of the memo field list the identifying DDvoucher / check ref no supplied by the ADP report. Under the name field enter the employee name. You will then get each check listed on your reconciliation screen so you can checkmark only those that cleared. After you modify the payroll entry, you can always memorize it under the edit menu and then select it from the memorized transaction list and just change check numbers in the future.

The point of reconciling an account is not to force the book balance to equal what the bank says, it is to explain the difference between the two which is what you get on the report that runs at the end of the reconciliation.

The method I described above simply treats paychecks the same as any regular expense check, one line for every check/charge that hits your bank. The change in journal entry only needs to be made once and then memorized and used from now on. If you want, open your last payroll journal entry, memorize it from the edit menus and name it “Temp JE” . Open this from the mem tx list, make changes and then memorize again as “New Payroll Entry”.

I give away gift certificates as incentives to customers which are “funded”  by the store so no money actually is received for them. How do I clear them from the books once they are redeemed?

Answer:

You should create a journal entry to record the issuance of these gift certificates and  record the debit to Advertising & Promotion or perhaps a separate selling expense called “Customer Incentives” and credit an other current liability account called Gift Certificates Sold. When they are redeemed record the sale on your customary sales form (i.e. Sales Receipt or Invoice) and use an item associated with an other current liability account called Gift Certificates Redeemed.

I would suggest adding the following set of accounts (all as Other Current Liabilities) like this if you haven’t already:

Gift Certificates

—Gift Certificates Sold

—Gift Certificates Redeemed

How do you enter your open balance equity?

Answer:

 I normally suggest only limited or no usage of the Opening Balance Equity account. It should only be used temporarily and should be left with a zero balance and made inactive or even deleted after startup . It is solely a Quickbooks creation and does not exist in any accounting textbook. Even Quickbooks Official Guides recommend eliminating this account after your initial start up.

For anyone needing to show their financials to a tax preparer, CPA, bank officer, loan manager, etc. you might as well label this account the “I don’t have a clue what I’m doing” account.

A better account to use in the above scenario showing an initial cash investment would be to Debit Cash and Credit:

Capital Stock

or

Owners Investment (for Sole Proprietors)
Partners Investment (for Partnerships)
Members Investment (for LLC’s)
Shareholders Investment (for S Corps and C Corps)

all setup as Equity type accounts.

How do you close the books on a monthly/yearly basis?

Answer:

Quickbooks does not “close” the books in the classic accounting sense. The closing date/set password feature in Edit > Preferences > Accounting is simply a safeguard to not allow postings to periods that have had financial statements printed or even more importantly tax returns completed. For this reason, to the clients I work with, I suggest setting the closing date to the end of the most recent fiscal year. A previous post asked what happens when you post vendor invoices from a previous month. Assuming you are reporting on the accrual basis the date of the invoice will reflect the month in which the expense is recorded. If you have set the closing date to the end of that month you will receive a warning and have to enter the password. If you know invoices are still due from vendors from the prior month then you probably have not issued financial statements and there is no need to set a closing date yet.

When users setup their companies originally they have to indicate their fiscal year. Quickbooks then knows what reporting period constitutes a year and is smart enough to know at what date net income is transferred to retained earnings. Whenever a report is requested you always have to put a date range. Quickbooks knows how to show income and expenses based on the dates entered.

This is why there is no “closing” procedure in Quickbooks.

Question:

I am having problems, I recently started working for a company and it seems like their deposits against their sales is reporting twice. Is there a way I can fix this? I recently updated their check register, well when I did I went to reports to look at company financials and it looks like the deposits and their sales is showing as income added together when it should just list as one income. Any help would be great.

Answer:

 It sounds like you are recording the invoices, receiving the payments, but not recording the deposits. Then you are going to the bank account register and recording the deposits there. That is why your sales are double counted. The recording of the invoice increases your sales and the entry in the bank account does it a second time.

This is a common misunderstanding in Quickbooks, probably the most common. After you receive payments, the next step is to click the record deposits icon on the homepage (notice the arrows indicating the workflow sequence). This will open a window which contains all your received payments and it will total to the amount in your undeposited funds account. For each deposit slip you take to the bank you were supposed to check off the individual payments to total the slip. This puts the deposit slip total into your bank account register automatically.

If you had done this your undeposited funds would now be zero and your deposits would equal the sales.

To fix this there are two different methods. You could revisit the deposits one at a time and delete them from your bank account register and then follow the procedure above or you could simply go to the record deposits screen, select all the deposits to make one big deposit and on the next screen scroll down to the first available row and enter your sales account in the from account column and a negative number in the amount column in the amount required to make the total deposit zero. Save and Close.

Both methods will reduce your sales by half and clear out the undeposited funds account.

 I have done a JE to get rid of old checks that were duplicates or never cleared. NOW how do I get them out of my bank reconciliation screen. I see them in there but when I click them out to clear it tries to force me into doing the bank reconciliation and wants to adjust the bank balance to an offset account. I just want to clear the transaction.

Answer:

If you are entering a journal entry to clear old checks you will be creating a debit entry to the cash account which will show on your bank reconciliation as a deposit on the right side of the screen. I would suggest you make one debit in the journal entry for each check.

In the bank reconciliation there should now be one line (the old un-cleared check) on the left check side to match with the new “deposits” on the right side. These are a wash and do not change the difference amount when you match them up with checkmarks on each side.

I need 12 different departments and need to use accounts #’s not just acct names. Example 615-01, 615-02 thru 615-12. We have 12 different stores that have to be tracked for their own income and expenses. How do I set the chart of accts up?

Answer

You don’t want to setup the numbering scheme as you have, there would be no way to print out separate P&L’s based on just the “-01′s”, “-02′s, etc.

Setup only one rent expense, one office supplies, etc.

Turn on QuickBooks Class feature by going to Edit > Preferences > Accounting > Company Preferences and select “Use Class Tracking”. While there check out the help button which will give you a summary of how this feature works. Basically all transaction screens will now have a new column labeled class and your entries in that column would be Store 1 or Store 5 or whatever is appropriate. You use the same account it’s just the class that changes. In the reports menu under Company & Financials you will see one of the choices is Profit & Loss by class which will display a multiple column P&L with each Store having its own column. If you want a separate store just filter the report by class using the Modify Button on the report screen.

I’ve recently started using Quickbooks to attempt to clean up my husband’s horrible accounting habits. He is a sole-proprietor. Around tax time, we right claim a percentage of the apartment rent & utilities for the area which he does his work. Form 8829 is funny in the way it asks for a TOTAL of rent paid and then gets you to enter a percentage of the used area in the apartment to be applied to the % deduct. My question is how should this be recorded in Quickbooks?

Say our rent is $1000 and 30% of the apartment is his work area. Should we write a check for $700 from our personal account and he write a check for $300 from his business account? Should we do this with all the bill like internet-connectivity, electricity for each month?

Answer:

There is no need to record your personal expenses onto your company’s books. Of course, for tax purposes, there is Form 8829 to deduct a portion of your homes expenses for “tax” purposes. In the future, if you work out of a home you own, don’t forget depreciation, the IRS won’t if you sell your house later!

Notice on your Schedule C where you take the home office deduction, it is after the calculation of business net income. Don’t unnecessarily lower book income; you may be looking for a line of credit from your local bank at some point in the future.

I have a small business and I’m trying to figure out how to take and record owner’s draws. I set up an Equity account, and titled it “Owner’s Draw”. Does that work? The way I currently take a draw, is by transferring the money from my business account to my personal account. What is the correct way to take an owner’s draw? And if a transfer is correct, should I record it as an actual transfer? Even though I can’t assign it an account? Or if I should record it as a check? If I do write checks or record as a check, I don’t want it to look funny, or look like I’m receiving income twice. Thanks, so much!

Answer

Transfers are for money moving from one business account to another, do not use that feature.

If you are taking a draw, use the write check window and in the expense tab enter your Owner Draw account.

The entry created on your books decreases cash and increases the draw account, neither of which is an income account and therefore has no effect on your income statement. (they effect your balance sheet asset and equity sections)

I do a lot of training and consulting on QuickBooks software and am a frequent contributor to the QuickBooks forums answering many user questions.

The responses on that forum are seen by the users of Quickbooks who use the Live Community feature found in the programs help menus and other users who visit the forum at www.quickbooksgroup.com.

I will be reprising the “best of” those answers and/or the answers to questions I see very often. This is the first in a series of answers to some of the most common queries I see.

Why should you trust my answers? Well, besides the fact that you can try them out yourself and then comment on my answers, I am a practicing accountant, bookkeeper and tax preparer for over 25 years and run my own accounting firm, more info at http://www.theleftbrain.com. I am an MBA, an EA (IRS Enrolled Agent) and an Advanced Certified Quickbooks ProAdvisor.

The first Q&A follows below:

How do I “trade” with a customer who is also a vendor (someone I buy products or services from). For example, I billed a customer $1,500 for work I did, and I also have a bill from them for $1,000. My customer said instead of sending me the full $1,500 can he just apply what I owe him and he will pay the remaining balance of $500. How can I do this in QuickBooks?

The solution I use is quite clever and even elegant, at least I think so.

First, make sure you and the other party are in agreement exactly what amount is being traded and to which invoice(s) you will be applying the money to.

Second, following the example mentioned above, create a new account in your Chart of Accounts and call it “Barter Account” or “Trade Account” and designate it as a bank type account. I know, you’re thinking why would I create a bank account that doesn’t exist? Bear with me, it will make sense…read ahead.

Third, following the example, go to the Pay Bills screen, find the bill sent to you by your customer ($1,000) and “pay” it using the new bank account you created which will be available in the list of payment accounts at the bottom of the Pay Bills screen. Save and Close the screen. Temporarily, the balance in your fictitious bank account is -$1,000.

Fourth, now go to the Receive Payments screen, and enter the customers name. You will see the $1,500 balance appear. “Receive” $1,000 and apply to the balance. You can use Cash as the payment type or create a new type called Trade if you want. Make sure to deposit to the new bank account again on this screen (or on the Make Deposits screen if you are using the Undeposited Funds account). Save and Close.

The end result of following this procedure will reflect the payment of the bill in full to your vendor, the balance due from your customer of $500 and the balance in your Barter Account will be $0 which is what you want to keep this accounts balance at (since it doesn’t exist). You want to use this account only for this purpose. If you want, you can make this account inactive and only make it active when you want to use it again for future trades.

There you go.

Darren

Look for future posts about QuickBooks, bookkeeping in general and tax questions.