Common Mistakes made in QuickBooks
Common Mistakes made in QuickBooks
So our Top Ten Tips list is going to be pointing out some common mistakes made in QuickBooks by the uninitiated. It is the recommended that you have a professional bookkeeper do your books for you, or you get well trained in accounting/bookkeeping in order to be sure your books are correct.
The importance of this is that if your data is entered incorrectly, then your financials and reports that you will be printing and using from QuickBooks will be incorrect, making you unable to make proper financial decisions for your company. Even worse, you will think the reports are correct, because you are not aware of the errors and make decisions based on these reports. This can be serious, especially in regards to cash. You may think you have more than you do, you may think you are making more money than you are, you spend and within in a month or two, you begin experience cash flow problems and don’t know why. Had the info been correct, you may not have spent that money and have your company remain sound and in the black. This is a very important ‘life or death’ issue for small business. You must know the condition of your company and you must have financials that are accurate.
Please read the following list with attentiveness. To put it succinctly, “Garbage in, Garbage out!” So it is to your advantage to be sure that your books are correct and that your data is continuously being entered properly, in order to have helpful, effective management tools in the reports and financials that are produced for you out of QuickBooks.
1. Bank reconciliations are not done. Bank reconciliations are extremely important. Unfortunately, many small business owners do not realize this, because they do not even reconcile their own personal checking account. They just figure they can look on line for a balance and as long as there is money in the account, they are fine. The issue is this, bank recs are a must because they are the final way to be sure all entries are made into your books and that there are not any double entries. When bank recs are done properly, they will determine that all your ‘ins’ and all your ‘outs’ are recorded, and you can know that your profit and loss is correct. It cannot be emphasized enough how important bank recs are in establishing correct books.
2. Bank Recs are not done thoroughly. This means that when the bank rec is done, all the transactions on the statement are checked off, but the balance is not at zero for reconciling, so rather than find the mistake, the person doing the reconciliation just clicks the ‘reconcile now’ button, and they think they are done. This is a huge, but common mistake. If you do not find why you are not balanced, then QuickBooks will just make an entry in the reconciliation discrepancy account, and you will not ever find out what is incorrect in your books. You could have a double entry, missing an entry and many other possibilities, which make your books incorrect. Again, if you have ‘garbage in.’ then you get ‘garbage out,’ and your financials and other reports are worthless.
3. Bank recs could be balanced and correct one month, and then the next month you find that the beginning balance is different than that listed on the statement. The problem is that you have made a changed on a reconciled item, and therefore impacted the previous reconciliation. This is very common, and so if the person doing the reconciliation, just again clicks on ‘reconcile now’ button, and does not dig in and find out what is wrong, then these errors just continually accumulate, until after months of this, your books are completely off and again, your reports are worthless.
4. Bank recs are your best way to double check all of your books. If these are not done or done sloppily, then you can never know that your books are correct. Do not just click on ‘reconcile now” button. The only time that that button should be used is if you are off by a few pennies and you don’t need to or want to take the time to find that simple error. I have seen books where the reconciliation amount that is recorded in the reconciliation discrepancies ‘catch-all’ account have been in the hundreds and thousands of dollars. If this is the case, it is a guarantee that your books are off and it could be serious.
5. Expense accounting. For the uninitiated in bookkeeping/accounting, it is thought that entering your expenses is very simple. A common mistake that happens is that an expense is entered in an asset account. For example, you may have bought a part for a computer repair for $35, you go to enter it in your books and see an account called computer equipment. Without understanding that there is an asset account called computer equipment and an expense account called the same, you may enter this expense in an asset account inadvertently. QuickBooks will not warn you of the error. This is improper accounting and impacts both your balance sheet and your profit and loss statement. An asset account is listed on your balance sheet and is only to have asset values and depreciation entered in them. An expense account is listed on your profit and loss and an expense decreases your profit for the month. The big picture issue is if you enter an expense in an asset account, then your value of your company goes down and the profit increases, meaning more taxes to be paid at the end of the year. The problem with this is it is just plain incorrect and has your books upside down. If this happens continually, then your books are completely incorrect and of no value.
6. Asset accounting. A common mistake in asset accounting is that it is not done. If you do not do asset accounting, then you do not have a true value of your company. Many times, the uninitiated do not know what should be entered as an asset and what should be entered as an expense. This again affects the value of your company and the amount of taxes you will be paying at the end of the year.
7. Asset accounting: it may be done, but it is not done correctly. For example there is no depreciation entered monthly and so you do not have correct values for your assets.
8. Loan accounting. You may have loans and you simply have not known how to enter them, but tried. There are two kinds of loan accounting, payable and receivable, you have borrowed the money or you have loaned it, respectively. I have seen where someone loaned money and entered it as a billing and it reflected in their accounts receivable. This is not correct accounting of a loan you made. Again QuickBooks will not give you some kind of a warning regarding this and your books will be incorrect. When you loan someone money, it is an asset that should be listed as such on your balance sheet, and so it is entered differently and should be separate from your billings/accounts receivables.
9. Cash entries. When making cash entries, either money in or money out, it is imperative that the correct bank account is used to make the entry into QuickBooks. If you have never done a bank rec or have done the cheater’s version of it by hitting the ‘reconcile now’ button, without investigating the problem, you can have entries in wrong bank accounts and not even know it. This makes your cash management impossible, because the balances are now incorrect, but because you have not done a bank rec, you are not aware.
10. Taxes. If you have entered your revenue or billings improperly, you will end up with mistakes on filing your taxes. Once you get behind on taxes or have your books set up improperly, so that you are paying too much or too little, then you can end up paying too much or too little on your taxes. You just don’t want to be wrong on taxes. Once you begin down that path, it can be a hard road to recovery.
(In this list, we have not even addressed common mistakes that revolve around payroll. This may be a topic we will cover in the near future.)
There are many more reasons why you need to have accurate books; from how much you end up paying for taxes at the end of the year, to being able to know if you can invest, how well you are doing, the value of your company, etc, etc.
Let it be said, that we have found more oft than not, if you are someone trying to ‘wing’ it or do not have training/experience in the accounting field, you have many mistakes that you are not aware of and your books cannot be the management tool that you need.
Again, because QuickBooks is so easy, it is both its pro and con. It makes it easy for the uninitiated to make entries in their accounting software, but is it right? This is something you should want to be sure on. We recommend that it is worth the money to have your books reviewed monthly and have yourself or your bookkeeper trained by a professional, if they have been entering your info incorrectly and get your company back on a good track. An outsourced professional can do this for you at a very reasonable rate, as opposed to a Jr Accountant in your CPA firm, that can charge anywhere from $80 to $120 per hour to do the same. Depending on the size of your business, this can end up being a very nominal fee and very well worth the peace of mind that it buys you.
Common Mistakes made in QuickBooks - To learn more about this author, visit Jacquie M. Adkins's Website.
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This month we are going to address common mistakes made in QuickBooks. As we all know, QuickBooks is a very user friendly program, and is used by the majority of small businesses. The user friendliness of QuickBooks is both its pro and its con. What is meant by this is that QuickBooks is very simple to use, and for those that are not trained in bookkeeping/accounting who use it, there are many mistakes made without being aware of them. Yes, QuickBooks is easy to use, but it is also easy to make mistakes in and there are not very many safeguards in place to help those that are uninitiated in bookkeeping or accounting to keep from making these mistakes.
So our Top Ten Tips list is going to be pointing out some common mistakes made in QuickBooks by the uninitiated. It is the recommended that you have a professional bookkeeper do your books for you, or you get well trained in accounting/bookkeeping in order to be sure your books are correct.
The importance of this is that if your data is entered incorrectly, then your financials and reports that you will be printing and using from QuickBooks will be incorrect, making you unable to make proper financial decisions for your company. Even worse, you will think the reports are correct, because you are not aware of the errors and make decisions based on these reports. This can be serious, especially in regards to cash. You may think you have more than you do, you may think you are making more money than you are, you spend and within in a month or two, you begin experience cash flow problems and don’t know why. Had the info been correct, you may not have spent that money and have your company remain sound and in the black. This is a very important ‘life or death’ issue for small business. You must know the condition of your company and you must have financials that are accurate.
Please read the following list with attentiveness. To put it succinctly, “Garbage in, Garbage out!” So it is to your advantage to be sure that your books are correct and that your data is continuously being entered properly, in order to have helpful, effective management tools in the reports and financials that are produced for you out of QuickBooks.
1. Bank reconciliations are not done. Bank reconciliations are extremely important. Unfortunately, many small business owners do not realize this, because they do not even reconcile their own personal checking account. They just figure they can look on line for a balance and as long as there is money in the account, they are fine. The issue is this, bank recs are a must because they are the final way to be sure all entries are made into your books and that there are not any double entries. When bank recs are done properly, they will determine that all your ‘ins’ and all your ‘outs’ are recorded, and you can know that your profit and loss is correct. It cannot be emphasized enough how important bank recs are in establishing correct books.
2. Bank Recs are not done thoroughly. This means that when the bank rec is done, all the transactions on the statement are checked off, but the balance is not at zero for reconciling, so rather than find the mistake, the person doing the reconciliation just clicks the ‘reconcile now’ button, and they think they are done. This is a huge, but common mistake. If you do not find why you are not balanced, then QuickBooks will just make an entry in the reconciliation discrepancy account, and you will not ever find out what is incorrect in your books. You could have a double entry, missing an entry and many other possibilities, which make your books incorrect. Again, if you have ‘garbage in.’ then you get ‘garbage out,’ and your financials and other reports are worthless.
3. Bank recs could be balanced and correct one month, and then the next month you find that the beginning balance is different than that listed on the statement. The problem is that you have made a changed on a reconciled item, and therefore impacted the previous reconciliation. This is very common, and so if the person doing the reconciliation, just again clicks on ‘reconcile now’ button, and does not dig in and find out what is wrong, then these errors just continually accumulate, until after months of this, your books are completely off and again, your reports are worthless.
4. Bank recs are your best way to double check all of your books. If these are not done or done sloppily, then you can never know that your books are correct. Do not just click on ‘reconcile now” button. The only time that that button should be used is if you are off by a few pennies and you don’t need to or want to take the time to find that simple error. I have seen books where the reconciliation amount that is recorded in the reconciliation discrepancies ‘catch-all’ account have been in the hundreds and thousands of dollars. If this is the case, it is a guarantee that your books are off and it could be serious.
5. Expense accounting. For the uninitiated in bookkeeping/accounting, it is thought that entering your expenses is very simple. A common mistake that happens is that an expense is entered in an asset account. For example, you may have bought a part for a computer repair for $35, you go to enter it in your books and see an account called computer equipment. Without understanding that there is an asset account called computer equipment and an expense account called the same, you may enter this expense in an asset account inadvertently. QuickBooks will not warn you of the error. This is improper accounting and impacts both your balance sheet and your profit and loss statement. An asset account is listed on your balance sheet and is only to have asset values and depreciation entered in them. An expense account is listed on your profit and loss and an expense decreases your profit for the month. The big picture issue is if you enter an expense in an asset account, then your value of your company goes down and the profit increases, meaning more taxes to be paid at the end of the year. The problem with this is it is just plain incorrect and has your books upside down. If this happens continually, then your books are completely incorrect and of no value.
6. Asset accounting. A common mistake in asset accounting is that it is not done. If you do not do asset accounting, then you do not have a true value of your company. Many times, the uninitiated do not know what should be entered as an asset and what should be entered as an expense. This again affects the value of your company and the amount of taxes you will be paying at the end of the year.
7. Asset accounting: it may be done, but it is not done correctly. For example there is no depreciation entered monthly and so you do not have correct values for your assets.
8. Loan accounting. You may have loans and you simply have not known how to enter them, but tried. There are two kinds of loan accounting, payable and receivable, you have borrowed the money or you have loaned it, respectively. I have seen where someone loaned money and entered it as a billing and it reflected in their accounts receivable. This is not correct accounting of a loan you made. Again QuickBooks will not give you some kind of a warning regarding this and your books will be incorrect. When you loan someone money, it is an asset that should be listed as such on your balance sheet, and so it is entered differently and should be separate from your billings/accounts receivables.
9. Cash entries. When making cash entries, either money in or money out, it is imperative that the correct bank account is used to make the entry into QuickBooks. If you have never done a bank rec or have done the cheater’s version of it by hitting the ‘reconcile now’ button, without investigating the problem, you can have entries in wrong bank accounts and not even know it. This makes your cash management impossible, because the balances are now incorrect, but because you have not done a bank rec, you are not aware.
10. Taxes. If you have entered your revenue or billings improperly, you will end up with mistakes on filing your taxes. Once you get behind on taxes or have your books set up improperly, so that you are paying too much or too little, then you can end up paying too much or too little on your taxes. You just don’t want to be wrong on taxes. Once you begin down that path, it can be a hard road to recovery.
(In this list, we have not even addressed common mistakes that revolve around payroll. This may be a topic we will cover in the near future.)
There are many more reasons why you need to have accurate books; from how much you end up paying for taxes at the end of the year, to being able to know if you can invest, how well you are doing, the value of your company, etc, etc.
Let it be said, that we have found more oft than not, if you are someone trying to ‘wing’ it or do not have training/experience in the accounting field, you have many mistakes that you are not aware of and your books cannot be the management tool that you need.
Again, because QuickBooks is so easy, it is both its pro and con. It makes it easy for the uninitiated to make entries in their accounting software, but is it right? This is something you should want to be sure on. We recommend that it is worth the money to have your books reviewed monthly and have yourself or your bookkeeper trained by a professional, if they have been entering your info incorrectly and get your company back on a good track. An outsourced professional can do this for you at a very reasonable rate, as opposed to a Jr Accountant in your CPA firm, that can charge anywhere from $80 to $120 per hour to do the same. Depending on the size of your business, this can end up being a very nominal fee and very well worth the peace of mind that it buys you.
Common Mistakes made in QuickBooks - To learn more about this author, visit Jacquie M. Adkins's Website.
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Staging DivaDebra Gould, aka The Staging Diva®, is President of Six Elements Inc., an internationally recognized home staging company. Inspired by many requests from aspiring home stagers wanting to start similar businesses, Gould created the Staging Diva Home Staging Business Training Program. Gould has trained over 1000 Staging Diva Graduates worldwide to start staging businesses. Buying decorating and selling six of her own homes in four years lead to an interest in real estate staging which she turned into a career with the launch of sixelements.com in 2002. Since then she has staged hundreds of homes in addition to teaching home staging training. Gould is the author of several home staging resources including a series of popular ebooks made up of a Design Guide, Color Guide and Portfolio Guide. For more information about Debra Gould visit stagingdiva.com. - Visit Staging Diva's Website |
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