OutSource Connect, Inc.

A number of months ago I listed areas in the use of QuickBooks that I see continual problems. I have expounded on most of them since then. Those that I discussed dealt with inventory, chart of accounts, paying bills and equity type transactions. Now I would like to discuss fixed assets and payroll.

QuickBooks users that have minimal accounting background have problems with classifying transactions that deal with the balance sheet. When an item is purchased that is in the nature of office furniture, office equipment, vehicles, real property, etc., it needs to be classified as a fixed asset. That means it is a balance sheet item and not something that should show up on the profit and loss statement. By properly coding those purchases there, time will be saved by your accountant when it comes time to do your income tax return. Those items need to be entered on a depreciation schedule by your accountant. The description, date of purchase as well as the cost is needed to do that. When you post those purchased to say a furniture and equipment balance sheet account, you should enter in the memo section a description of the item. When these are not entered on the balance sheet accounts and instead are listed as an expense on the profit and loss statement, your accountant is going to have to try to identify such items and make adjustments, which is more time and money.

You don’t need to deal with depreciation on your books. Your accountant will have to accurately calculate it when the income tax return is prepared anyway, and so it isn’t necessary for the average user to worry about how to calculate it and get it on QuickBooks. Hopefully your accountant will provide a journal entry each year to keep the books in agreement with the tax return.

There are only about four or so fixed asset accounts in the chart of accounts that any business should have, no more. They are probably office furniture and equipment, plant equipment (if manufacturing for example), buildings and vehicles. Please don’t set up a new account for each purchase, which I have seen. Again, the important thing is to have enough detail as to what was purchased for your accountant to properly classify. At year-end, simply print out a report of the account register for each fixed asset account for that year’s period of time and give it to your accountant.

MY discussion about payroll will start with the statement that I generally want nothing to do with it. By that I mean, I don’t recommend any business to try to do payroll in-house. QuickBooks does a good job with payroll, but in my mind, based on many years of experience, it is not worth the potential problems it can cause to deal with it. The payroll services are organized to prepare payroll and the many reports and make the proper tax deposits in an efficient manner. It is worth paying the fees. When OutSource Connect, Inc. (www.outsourceconnect.com) provides our outsourced bookkeeping services to businesses, we get the payroll reports from the payroll service and enter the payroll into QuickBooks. The level of service I always recommend is the full service. Have the payroll service company simply take three amounts out of your bank account – net pay, payroll tax deposit and their fee. Use direct deposit and don’t have checks go through your bank account.

So, there you are. Those are the problem areas I have seen and will continue to see. The reason is that users and their managers think QuickBooks is simple and don’t even realize the complexities that exist in trying to be an accountant. Again, using QuickBooks does not make a person an accountant.

Ken Miller

My last note covered my thoughts on QuickBooks problems involving inventory and the chart of accounts. The other problematic areas I want to discuss are paying bills, equity transactions, fixed assets and payroll. I constantly see users having trouble with these areas.

Most users appear to be using QuickBooks as “checkbook” software. They write checks manually and then enter them in the check register or use the software to print checks to pay bills. I recommend using the feature in QuickBooks of entering bills and then paying bills. This provides a better picture to the business owner of the financial status by showing accounts payable for cash flow planning. It also results in a better match of expenses with income. The common problem users have in this area is that they enter bills and then pay them by writing a check in QB. They don’t use the “pay bills” feature so the bill continues to show up as payable even though it has been paid, and the user doesn’t know why. The user also doesn’t know how to fix it.

I am also a fan of the online bill pay feature in QuickBooks. This is a service set up in the software where bills are paid without having to write, print, sign and mail checks. This can save a tremendous amount of time. This is a feature we always set up to use for the outsourced bookkeeping service our company, OutSource Connect, Inc., provides. There is a minimal charge for this that is on the bank statement. A check is mailed to the vendor that requires a check and it clears through the bank account with a different number series than the manual checks. I highly recommend it.

In general, many problems users have are accounting problems, not necessarily QuickBooks problems. They are not trained accountants and the software does not make an accountant out of the user. The equity section of the balance sheet is one of the problematic areas for many people. Transactions that include the owner’s funds coming into or going out of the company are included here. These many times get miscoded and can have a significant effect on the bottom line for tax purposes. The initial set up of a company in QuickBooks affects the equity section and confuses users. That’s why it’s a good idea to get a professional accountant to help with the set up. When it comes time to do the company’s income tax return, the CPA usually focuses on this area to spot transaction problems. Comparing beginning and ending balances can show that transactions were coded to the equity accounts in error.

When we set up new files for clients, the accounts in the equity section fit the type of entity. Corporations, partnerships and sole proprietorships have different equity accounts. They generally only make sense to an accountant. Of course the QuickBooks created equity account we are all familiar with is the Opening Balance Equity account. This is the “balancing” account that the software uses for “one-sided” entries. So, please be aware that normally no business operation transactions would be coded to an equity account.

I will continue later with my thoughts on the other QuickBooks user problem areas.

Ken Miller

I have seen a lot of examples of QuickBooks problems in businesses. A quick review of the balance sheet many times will point out these problems. Looking at the chart of accounts is also an indicator of the wrong use of QuickBooks. This is great software! It is inexpensive and it does a great job of providing a means to a good set of books for almost any kind of small to medium sized businesses. However, it’s the users of this software that typically create the problems.

Many users have problems because they are not trained accountants. QuickBooks is accounting software but it does not make a person an accountant. We in the accounting profession went to school a long time studying the subject. So, QuickBooks users who haven’t had that educational background should not be expected to have the knowledge necessary to keep an accurate set of books (general ledger) automatically. Business owners do not realize this. They think that if a person says they have QuickBooks experience they are an accountant and they should know what they are doing.

A listing of the areas I have seen as problematic for many users include the chart of accounts, inventory, paying bills, equity transactions, fixed assets and payroll. I will briefly try to discuss these problems and explain why they happen and how they can be avoided. Fixing the problems correctly is difficult for most people. My advice for a QuickBooks file that has many problems is to start over. It is not that difficult. The extra time needed for the set up is not significant and is well worth it. Just start with year-to-date balances and go forward. The old QB file will always be there to refer to if needed.

For inventory, I recommend to never set up items to track quantities. The reason is that those quantities will invariably be off. And when the users discover it, they will not use it because they will not be able to rely on it. Also, it will be difficult to fix. This happens because users are not careful enough or don’t know how to make sure the QuickBooks transactions that effect inventory quantities are recorded properly. The QuickBooks “items” list can be set up to track costs and sales to do profitability reports of items without tracking quantities. The key is to use “non-inventory items” for this instead of “inventory items”. Users erroneously think that because the company has “inventory” they have to use “inventory items”. Physical inventory counts will need to be done periodically anyway, so just do them more often and adjust the books. The financial statements from month-to-month will still be reasonably accurate. I’ve seen totally inaccurate financial statements resulting from users turning on inventory tracking and then not knowing how transactions need to be recorded in QuickBooks for it to work properly.

The problem with the chart of accounts, in my opinion, starts with the one QuickBooks automatically sets up. There are way too many accounts. Then, many users continue to set up additional accounts when they can’t find one that sounds like it is the one to use. After a period of time the chart of accounts is three pages long or longer. Their profit and loss statement is then the same – three pages long. It’s unwieldy and hard to read. Also, users set up an account for each little detail of information they want to track. Items are to be used for this, not the chart of accounts. That’s one of the things that distinguish QuickBooks from other, high-end accounting software. With those, details are driven by the chart of accounts.

New outsourced bookkeeping clients of our company, OutSource Connect, Inc., are always started with a new QuickBooks file. I will never use their current file because it is normally a mess and the chart of accounts will be too long. I have a master QB file with a chart of accounts built from scratch and it fills about three fourths of a page. That’s all the normal income and expense accounts needed for financial statement presentation and tax return preparation.

My recommendation for users is that, when setting up the company file for the first time, you can use the QB chart of accounts, but then go in and delete all of the unneeded ones before any are used. By the way, I also never use sub accounts. I don’t think they are necessary and they make a financial statement hard to read.

I think that’s enough for now. I will follow up soon with discussion of the other QuickBooks problem areas.

Ken Miller

There has been a lot of talk for many years about going paperless in offices. Few companies have achieved this. Some professions have made great strides in this direction, but the paper industry flourishes. Usage of paper apparently has not changed much.

Some of the professions that have been working on this are medical, legal and accounting and I’m sure there are others. It is difficult to achieve a paperless office because of people. Having paper on a person’s desk is psychological. There is a feeling of control when the person can see the physical document. Workers feel they have to print the document to make sure it will be there. It is a hard habit to break.

The cost of not being paperless is substantial. The significant part is not just the cost of paper, copy machine and printer toner, or file cabinets and equipment. The big cost is labor. It is the labor for sorting, filing and retrieving documents.

I’ve heard of companies that have removed printers from workers desks to keep them from printing. This is probably a good idea and a step in the right direction. These companies have recognized the tremendous cost savings and productivity increases in using less paper. We have determined that we cannot handle paper in our outsourced bookkeeping processes. It will not work in the efficient way it has to for us to do this in an economical manner.

Our clients continue to get paper documents that we need to use. These are primarily vendor invoices. There is a trend for companies to issue paperless bills (email, etc.), but it has a long way to go. Our clients put those paper documents on a fax machine or scanner which creates a paperless document that we then get for our work. They can then put that document into a box and when it gets full put it on a shelf (hopefully for a short time until shredding).

The digital documents we get from them go into a document management system. This system is unique because each page of the digital file we get is physically viewed and named. This means each page could then be searched if needed. Other systems don’t do this. Our clients have access to these documents, which are stored on a secure server, and can look at any document at any time if needed. They could use this to also store other documents that are not necessarily used in our online accounting services.

Our staff has access to this same document management system to look at the documents and post the transactions into the client’s accounting system. Bills are paid online by our clients so we and they don’t print paper checks. This means that our clients send us no paper and we don’t go to their office to pickup paper. That would be very inefficient and not cost effective. Our outsourced bookkeeping services are designed to reduce costs for our clients.

Moving toward a paperless work environment is an ongoing process for businesses in general. We are ahead of the game. It can be done. Hopefully other businesses will see the benefits and get all of the people in the organization to adopt the idea and to achieve the goal of being paperless.

Ken Miller

Hello! Well, here we go! I’ve been thinking about getting this started for some time, but time is always the issue. Anyway, my intention is to do this blog to pass on information that I have from many years of experience and current experiences.

The information I plan to include will include current developments in the delivery of outsourced bookkeeping services, which is what OutSource Connect, Inc. does. The processes have been in development for some time and are revised from time to time. Efficiency is the key. Also I plan to pass on details about discussions I have with business owners when talking about bookkeeping, accounting and business processes. I will include recommendations that I have been passing on to business owners for years. And I plan to maybe add CPA related information if it is applicable to the area of discussion. That may include tax law. QuickBooks tips will also be included.

Online accounting is here. It’s amazing how technology has allowed new ways of doing old things. Bookkeeping is no exception. Helping businesses get good books has been a goal of mine for some time. There is tremendous need there. I constantly see businesses with a set of books that are meaningless because they are totally inaccurate. That’s because the person doing the bookkeeping does not know enough about accounting and does not know how to properly manage QuickBooks. That software can be very complicated for most users. It’s very difficult to make proper corrections, for example, when an entry needs to be changed. A strong background in accounting is needed along with a strong knowledge of how that software works. Many users try to make corrections and in the process create more problems. That’s because they are not making the correction the way the software requires.

That’s it for now.

Welcome to my first blog. This should fun! I have lots of useful informtion to pass on. See you soon.