QuickBooks is by far the dominant provider of accounting software for small businesses in the United States. The product was initially intended to be a DIY application that small businesses could use with little formal finance training. So why do so many business owners use outsourced accounting services? The reason is straightforward. Most small business owners have found that even though QuickBooks is designed to be easy to use, it can become a serious problem when mistakes are made. With proper financial reporting so crucial to a business’s success, owners don’t have the time or patience to learn all the ins and outs of accounting and find it expensive and frustrating to correct mistakes after they are discovered. Let’s look at some common QuickBooks mistakes and how they can be corrected.
Running a business can get hectic, and situations arise where financial transactions occur that are not entered into QuickBooks. The best way to avoid this is to have a well-documented process for all your financial transactions. Most importantly, you will need to have a month-end review. This process can identify any missing transactions or transactions that may be booked incorrectly so that they can be corrected at the end of the month.
In many cases, a transaction that may be missing in QuickBooks is related to deposits or expenses. You may have situations where bills are paid, or deposits are made and are not recorded in QuickBooks. This will cause a discrepancy when you try to perform your bank reconciliation in QuickBooks and will need to be correct. The same thing can happen with bills that get paid and are not recorded. With bill payments, it can be compounded by not knowing how to categorize expenses in QuickBooks (or how to categorize credit card payments in QuickBooks).
Correcting this issue can be done quickly with a daily review. Now, most people don’t want to review their transactions daily. Still, outsourced bookkeeping solutions can review your daily transactions and report any transactions that do not match your QuickBooks files. This enables you to have a daily review without the headache of needing to go through the process yourself.
Setting up your chart of accounts in QuickBooks is a critical issue and should be done with your CPA’s help. Suppose your chart of accounts is not set up correctly. In that case, your financial reporting will not provide you the insights into your business that you need to assess your business’s performance properly.
So, what is your chart of accounts, and how should it be structured? The chart of accounts is a list of accounts that make up the balance sheet and income statement. When a transaction is entered into QuickBooks, it must be booked to a specific account. For example, when you enter the bill in QuickBooks, you will choose which expense category to book it to. If you don’t have your chart of accounts set up correctly, you may book the expense to the wrong account. This mistake may be minor (an office expense books to rent), or it could be a significant problem. For example, booking a capital expenditure to an expense account because capital expenditures need to be depreciated and cannot be expensed all at once.
The best solution for making sure your chart of accounts is appropriately setup is to review it with your CPA annually. If you think you want to add an account because you have a transaction that doesn’t appear to match your existing accounts, check with your CPA before adding it. As the saying goes…an ounce of prevention is worth a pound of cure!
Adjustments can be made to transactions in QuickBooks in several ways. You may update a transaction within QuickBooks, or you may enter a journal entry. Either way, making adjustments can affect the transaction you are working on and other transactions or processes. For example, if you have completed your bank reconciliation for a previous month and then try to change the amount of a cleared transaction within that month, your beginning balance for this month will be out of balance. Making adjustments in QuickBooks can be done easily, but a word of caution…be careful! The more adjustments you make, the harder they will be to correct if you make a mistake.
If you are entering an adjustment in QuickBooks by editing a transaction, be sure to understand how this will affect your books. If you get a warning that the transaction will affect other transactions in QuickBooks, and you’re not sure what that means, contact your CPA, bookkeeper, or call QuickBooks support. When it comes to journal entries, it is always best to leave these to a bookkeeper or CPA unless they have instructed you on creating the journal entry. Journal entries record financial transactions directly into your chart of accounts as opposed to entering bills and creating invoices. Therefore, they must be handled carefully.
One of the nice features of QuickBooks Online is the ability to find transactions quickly. If you ever have an adjustment created through a journal entry, you can find journal entries in QuickBooks by clicking on + New, then Journal Entries, then click the clock in the upper right-hand corner. You can also find transactions using the QuickBooks audit log.
Whether you use cash or accrual basis accounting, Expex is the bookkeeping solution for your business. Many small businesses do not require the services of a full-time bookkeeper or even the expense of a part-time person to perform bookkeeping duties on site. Expex is an automated bookkeeping application implementing bank-level security and financial controls to ensuring all aspects of your financial data and transaction processes are safe and secure.