QuickBooks: Transactions Containing Both Income and Expense

You are probably already familiar with recording income through a deposit or recording an expense. There may be times that one transaction contains both. Do you record each separately? NO. You want to record a single transaction, so that the transaction amount matches the amount hitting your bank account. This makes for better tracking and easier reconciling.

An example of when this type of transaction occurs is when you pay a vendor a monthly subscription, but you also receive a sales commission. The vendor processes one statement each month that has both pieces combined.

Expense is More Than the Income

Let’s say you’ve just started a new vendor relationship where each month you pay $100 subscription fee to utilize their online shopping platform. You are also paid a monthly commission on the sales processed through their platform. Your first month’s commission is $60. In this scenario, you will record the transaction as a net expense.

Figure 1: Enter the expense for the $100 subscription fee as normal. Before hitting Save, you will add a second line under Account Details, but since it is income, it will be a negative amount. The net between the expense and income will be the amount of the transaction ($40 in this case).

Figure 1 – CLICK TO EXPAND

Income is More Than the Expense

We still have the monthly $100 subscription fee, but the next month commissions earned is $120. In this scenario, you will record the transaction as a net deposit.

Figure 2: Enter the deposit for the $120 commission as normal. Before hitting Save, you will add a second line under Add New Deposits, but since it is an expense, it will be a negative amount. The net between the income and expense will be the amount of the transaction ($20 in this case).

Figure 2 – CLICK TO ENLARGE

**Note: you cannot duplicate a name as both a vendor and a customer. If you expect income to regularly exceed the expense, I would recommend setting it up as a customer. If you expect to the expense to regularly exceed the income, I would recommend setting it up as a vendor.

If you’d like additional help with handling combined transactions, please comment below or CONTACT ME today!

 

QuickBooks: Accounting for a Mix of Business and Personal Items

Last month I talked about Mixing Business and Personal Funds in a previous blog, so today I’ll go over in more detail how I account for this in QuickBooks. It’s totally doable when there’s some intermingling, you just want to be sure you’re keeping receipts and identifying business versus personal items.

These examples will be done under the assumption that you have separate business accounts, but use the wrong account for purchases. If you are like me, and have a shared account for business and personal, the easiest method for segregation is to set up classes in QuickBooks for each.

Example:  Business purchase made on personal account

Let’s say you inadvertently use your personal credit card to pay a vendor. In the expense module, choose your vendor as normal. I’ve set up a bank account called “Personal Funds,” which should always have a zero balance, and I’m going to proceed as I normally would with recording an expense.

Since this is not actually coming out of our business account, we’re going to have an account called “Owner Contribution.” This account is saying that you as an owner are contributing your personal money into the business. If you haven’t already set this account up, add it, with category type as Equity, and the detail type as Partner Contribution.

Notate in the description “paid with personal card.” Then we’re going to record a negative for the dollar amount. Notice how our total for the expense is zero. In one line we recognize the expense for the company, and the next line we recognize that the money came out of a personal account, which is why there will be a net zero affect to any of the banking accounts for your business.

Example:  Personal purchase made on business account

Let’s say you inadvertently use your business card to pay a personal bill. Choose the vendor, and this time since it’s coming out of our business bank account, choose that account. Our account coding is simply going to be an “Owner Distribution”.

You’ll want to set that account up if you haven’t already. An owner distribution means the same as if you had paid yourself a salary and then took those funds and paid your own bills. It’s the opposite of a contribution. Category type again is going to be Equity, detail type is Partner Distribution.

You don’t necessarily need to have a description in the expense, just add the amount. This will show as coming out of the business account but will NOT hit the business profit and loss since this is a balance sheet equity account.

Example:  Mix of business and personal purchase made on business account

Sometimes you may make a purchase that includes both business and personal items. Essentially, your expense entry will have both and expense line and equity line. Choose the business account, enter the expense amount for the portion that is business related. Then do Owner Distribution for the portion that is attributed to personal items.

If you’d like extra help on this topic please feel free to CONTACT ME and I can go over it in more detail with you.

What to Expect from Me as Your Accountant

You’ve been running your business and have come to a crossroads where you’ve finally made the decision to hire an accountant (if you’re still on the fence about that, read up on “When to Hire an Accountant”). Congratulations! You have just made a positively impactful decision. Next, I’d advise you to do some research on different accountants you have the opportunity of working with. Take the time to meet with them and learn about their work ethics, communication styles, and expectations when working with clients.

I always want my clients to get to know my personality since it’s reflected in how I run my business, how I handle my work, and how I correspond. When I partner with a new client, this is what they can expect:

More insight into their business than they’ve ever had before. My breadth of experience and attention to detail results in greater visibility and understanding of the story behind all those numbers.

A lot will be accomplished in a lesser amount of time. Through years of self-taught trial and error, I have nailed down many highly efficient processes for completing accounting tasks. Not only am I lightning fast on the 10-key, but I can work magic in Excel and QuickBooks like nobody’s business! I even had one client who would only respond in expletives because the turn-around time was so much less than anticipated.

Work smarter, not longer!

Work will be completed in a timely manner. Although this is contingent on my client’s providing source documents and responding to emails in a timely manner as well. Of course, things come up and a client may need some extra time to address a request, but correspondence on this is always appreciated so I can adjust my timeline accordingly (I also return the courtesy). I never want to underserve any of my clients so it’s essential for me to stay on top of my work.

They’re always invited to ask questions. My priority is for my client’s to not just hire me but for them to feel confident in the results of what I provide. I will never shy away from discussing a question or concern until my client is satisfied with their level of comfort in the matter. I also ask many questions since the more I know about their business and how it operates, the more value I can create in the long-run.

In most circumstances, the first month working together is an Evaluation Period. This not only allows me time to assess your business and services needed, but it allows for a non-commitment trial, if you will. Everyone has different ways to approach the same thing, not that any certain way is necessarily better, but is more so preferential-based. I strive to work with clients where we both feel comfortable with the dynamics of the partnership, so if either of us feels that we’re not best-suited in working together, then we can part ways with no hard feelings.

CONTACT ME today if you’re interested in meeting to see if we can work some magic together!

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Excel Tip: Pivot Tables

Today I’m going to go over pivot tables in Excel. When you have large volumes of data to analyze, pivot tables allow you to summarize and manipulate the data quickly and easily. I’ll be using a sample set of data to show you the steps to creating and modifying a pivot table.

With the use of pivot tables, you’re going to want to start with data that is organized. In this sample data, it’s organized by date, region, rep, item, units, unit cost, and total. You want to make sure that your data is in some organized fashion.

To create a pivot table, go to the insert tab of the ribbon, click on Pivot Table, and then you’ll be able to select a table or range. We’re going to make sure to include the header and go all the way down to the bottom of the chart. Hit OK.

Once you scroll back to the top of your spreadsheet, you’ll see where your pivot table will be inserted. To the right, is your pivot table fields. This is where you will choose what will go into your pivot table and where. You can check next to the items if you want them included. My preference is to drag and drop the items into the sections where I want them.

I’m going to first summarize by region and drag it down into the rows section. All of that data will be categorized by Region in the rows. Let’s say I want to know how much in dollars there is per region. I’m going to take the Total and drag it into the Values section. Now I can see the dollars by region. We can also subcategorize the regions by pulling the Reps down into the rows section. Now I can see by region, by rep, the total dollars for each.

I can also move items around. Let’s say I want to move the Region into the columns. Now I show the Reps in the rows, categorized in each column by the Region.

Once you have your pivot table the way you want it set up, you can easily change the rows and columns by clicking on the down arrow. You can choose just to have a few items show, or add them all back in. You can also sort in whichever direction you want.

If you want to change the look of your pivot table, you can go to Format as Table under the home tab and to have it formatted with those colors.

Those are the basics of creating and modifying a pivot table. If you’d like me to go over a specific functionality of a pivot table in a future blog, please comment below or EMAIL ME and I’d be happy to go over it.

When to Hire an Accountant

Today I stumbled upon a Forbes article, “When To Hire A Professional (And Which Ones To Hire First) At Your Startup.” I assumed – no, I was certain – that Accountant would land the list. Low and behold, you will find Accountant as one of only four professionals listed in this article. So, what gives? Why is hiring an accountant so critical to the success of your business?

In the article, Jesse Kolber points out that “the cost of an accountant doesn’t necessarily equate to quality, but if you don’t find a good accountant from the beginning, you could pay

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dearly later on.” This statement hits a home-run in my mind, as I’ve worked with numerous clients looking to get their books straightened out – after-the-fact. Some clients may have already been in business for only a year, or they could have been in business for many years.

Typically, either the client is so overwhelmed that they continue to dodge out on even starting their catch-up work, or they end up with a fairly big financial hit, since catch-up work can be tedious and time-consuming. Catch-up projects can be prone to missing information, which equates to extra research time for both accountant and client.

Another key point is to hire a good accountant who has the breadth of experience needed to truly assist small business owners. One thing that sets me apart from some accountants is that I have a wide-range of industry experience and have been exposed to multiple facets of business operations. I often work with clients in retail who would not have known about things like sales and use tax reporting, and finding out about those types of requirements later on can cost a business owner big bucks in fines and interest.

Kolber also writes “Our first accountant loved to use fancy words and actually called me a neophyte during our initial consult… [your accountant] should articulate information clearly and thoughtfully answer your questions.” This is great advice for any business owner. Yes, you want your accountant to know their stuff, but you need to know it, too! Trying to lead your business by blind faith in others puts you in a very volatile and risky position.

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When you are looking to hire an accountant, have them glance over your financials and discuss one or two things that jump out at them. Do you fully comprehend their explanation or does their accounting jargon go right over your head? My personal approach is to broadly state things in formal terms and then take the extra time to educate the client on my thought process. Sometimes we may go over the same concept multiple times, but I’m okay with that because I sincerely want my clients to have confidence in what story their financials are telling.

Don’t wait! From day one, keep your eyes open for a great accountant so you can keep your books in order from the start. If you think I might be a good fit for your company, please reach out to me for a free consultation.

Reasons to Do Bank Recons – And Timely!

I recently was working with a client who was not regularly reconciling their bank accounts. It was very apparent, even though they are a small not-for-profit with minimal transactions, just how important it is to complete monthly bank recons. If you don’t do these yourself, or you simply don’t do them in a timely manner, read on! You just may realize what a priority it should be for your business.

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Posting Errors

The blindingly obvious reason that my client needed to be doing their monthly bank recons was to identify a recurring posting error: duplicate deposits. A common error was occurring where customer payments were being posted through the “Receive Payment” module and through the “Record Deposits” module. I discuss this situation in a previous blog: QuickBooks & Common Deposit Mistakes. The takeaway from this is that a bank recon would have shown left-over deposits in QuickBooks that don’t match up with the bank. A little research would show the duplication and corrections could be made.

The same can be true for duplicated expenses, which I discuss in more detail in a previous blog: QuickBooks & Common Expense Mistakes.

Reason for timeliness: You may over-assume how much cash you have on hand if you’re only looking at your accounting records and not comparing with the bank. This could lead to cash-flow problems but can be mitigated if corrections for posting errors are done as soon as possible.

Missed Transactions

Bank recons will identify transactions that did not get posted. This could arise from simple oversights or could be an indication that communication from a third party was not received. No matter the reason, it’s critical to become aware of items still needing to be posted.

Reason for timeliness: Again, you may over-assume how much cash you have on hand by not comparing bank transactions to ones posted. A large transaction clearing the bank for more than you actually have will not only create a cash flow problem but will likely result in overdraft fees or rejection by the bank.  Catching these transactions early reduces the risk of spending more than you have.

Fraud

This ties in with missed transactions. If you are not reconciling your bank account, how would you ever know if an employee was embezzling funds? This type of fraud often involves masking the situation, but if an employee knows that the bank recon is not done, the embezzlement becomes that much easier. It may be difficult, if not impossible, to connect unposted transactions with fraud months or years after it occurs.

Another common occurrence of fraud is unauthorized charges. Most banks will have a specific time frame in which you can get reimbursed for these charges and if you miss that window, you’re simply out of luck!

Reason for timeliness: Even if you only commit to reviewing your bank statement, time is of the essence! The more recent the date, the easier it will be to distinguish legitimate charges from potentially fraudulent ones. Memory will play a big part in why timeliness is so important. As always, go a step further than simple review and do a bank recon.

If you’ve never reconciled your bank accounts and are overwhelmed at the idea of doing so, please reach out to me to discuss getting your recons caught-up. Bank recons are my absolute favorite (yes, I’m not kidding!) and I can get through them quickly and accurately. Once they are caught-up, I can train you on the process and I guarantee it won’t feel so daunting going forward. All you need is a clean start and the confidence from having learning a tried-and-true process.

QuickBooks: Bank Feeds – Matching and Unmatching

Utilizing the bank feeds in QuickBooks makes for a more seamless bank reconciliation process and allows you to keep up on your banking transactions more timely. Once you have your bank feed set up (which is a fairly straight-forward process that uses your online banking login information), you can begin matching transactions posted with those that download from your bank feed.

These steps and figures will all be using QuickBooks online. If you need help with using the desktop version of QuickBooks, please feel free to CONTACT ME.

Figure 1: First, from the left-hand menu, click on “Transactions” and then on “Banking.” You will see any linked accounts at the top. Clicking on each account will display a list below of unmatched transactions. It’s always good update the bank feed often by clicking on “Update” in the top right.

Figure 1 – CLICK TO EXPAND

Figure 2: Once your bank feed is updated you can start matching transactions. When QuickBooks finds assumed matched transactions – ones with the same amount, payee, and date range – it will indicate “Match” in the Category/Match column. If you confirm they are a true match, click “Match” under the Action column to the far right. Doing so will remove that transaction from the list.

Figure 2 – CLICK TO EXPAND

Figure 3: If you match a transaction by mistake, which can be an easy thing to do if you have multiple transactions to the same payee for the same amount, you can simply unmatch it. Notice how directly under the accounts there is: For Review, In QuickBooks, and Excluded. Click on “In QuickBooks.” This will display all the transactions you have matched. Simply find the transaction in question and click “Undo” under the Action column to the far right. This will unmatch the transactions and place it back under the “For Review” section, where you can match with the correct transaction.

Figure 3 – CLICK TO EXPAND

Figure 4: As I mentioned, using bank feeds will streamline the reconciliation process. To see this in action, click on “Go to Register” on the far-right side. This brings you to the register of all posted transactions to this account. Notice the two green squares in the column second from the right. This is indicating that the transaction has been matched to a bank feed item. Once reconciled, that “C” above the squares will change to an “R.” Essentially, when you start a bank reconciliation, it will already take into account the matched items so you do not need to mark those manually.

Figure 4 – CLICK TO EXPAND

Those are the basics for using bank feeds. There are some other functions that relate to bank feeds but the items above should be enough to get started. I invite you to give it a shot, it’s a great time saver! It’s also a great stress-reducer if waiting to do bank recs with a monthly statement is a hairy task due to a high volume of transactions.

Tax Time is Over…Now What?

We’re now a full week into the month of May. The rain has been falling, the sun is shining, and flowers are in bloom. It’s an especially great season since tax time is now just a distant memory, right? WRONG! If you’re like most small business owners, you probably wait until January, February, or maybe even as late as April to start checking your list of items needed for your tax preparer. Does waiting last minute give you anxiety? Does waiting last minute put you into a time crunch and keep you up at night?

Instead of dealing with the stress and time constraints of this situation every year, wouldn’t you rather just keep swimming along after year-end in the same manner as the rest of the months? Today, I’m going to give you some tid-bits of advice on how to accomplish this consistent swimming and avoid the tax-time drowning.

Keep Your Receipts

This is probably one of the biggest organizational problem I’ve encountered in the past, both with clients and employers. Keeping your receipts, ALL of them, is your best line of defense. Keeping them organized, just by month, or type, is even better! As a new business, your bookkeeper or accountant will thank you for having documentation for every purchase or deposit made. Plus, if you are ever audited by the IRS, you already have your backup ready to go. No stressful calls are needed to try and track down a receipt from 10 months ago to show that the large purchase you made at Best Buy was indeed for business purposes.

Retain Copies of Your Statements

Whether you do this digitally or print them out each month, retain copies of your monthly statements. This includes checking, savings, credit cards, and other sources like PayPal. Again, your accountant will thank you later. Plus, creating this routine will likely force you to at least look at the statement and quickly glance over for any issues (What?! I had 3 overdrawn checks this month? I need to see if that’s a bank error or if I have a cash flow problem!)

Start Early

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This is the most straight-forward advice I can give! The earlier you start, the easier the on-going record process is. Think about being offered a whole pecan pie, but you also must eat it in one sitting. Sounds painful, and maybe impossible, right? But what if you were able to eat it just a bite at a time until it was gone? That’s what monthly bookkeeping is all about. Breaking it down into more manageable bites.

You’re also better able to proactively fix errors, follow-up on monies owed to you, and more efficiently track bills coming due when you have a consistent record-keeping process in place. And if you hate the idea of doing this task so regularly, hire someone who enjoys doing it so that you both benefit from the timely work.

If you’d like to start working on your manageable bites together, CONTACT ME to schedule a free consultation.