Using QuickBooks. To Manage Your Farm Business: A Workshop Series for the Modern Farm Basic Training Guide

Transcription

1 Using QuickBooks To Manage Your Farm Business: A Workshop Series for the Modern Farm Basic Training Guide Presented by: Penn State Extension Dairy Team & Ag. Entrepreneurship Team

2 Table Of Contents Basic Use of QuickBooks:...3 Farm & Family Expenses: The Great Divide...5 A Little about Centers...6 Vendor Center...9 Employee Center...11 Reconciling: It s not just the checking account...15 Standardized Data:...17 Available Resources:...18 References...18

3 QuickBooks-Overview Basic Use of QuickBooks: Once the backup file is loaded, the home screen will appear for your farm account From this screen (which can be customized), you can do and see a lot in relation to the business finances. To start, let s look at the basic chart of accounts seen below (by operation type). Check out extension.psu.edu for downloadable chart of accounts for QuickBooks. Accounts are sorted by type. Sub-accounts appear as indents. Check out the resource area for example COA by operation. Page 3 Where trade names appear, no discrimination is intended, and no endorsement by Penn State Cooperative Extension is implied.

4 From the home screen, click on the chart of accounts icon. In the new window, select the account of choice, click on the Account button, and choose the appropriate task (new, edit, delete). In this new window, account names, type, and creation of sub-accounts can be updated, along with making accounts inactive or assigning account no. (bank accounts, credit cards, etc.). Accounts can also be mapped to a tax line, though this will not be discussed in this manual. What are Items? Items in QuickBooks are simply parts of transactions (services products sold, things you buy, standard Page 4

5 discounts and fees, etc) that are set up to simplify the process of creating checks, invoices, buy new equipment, record a milk check. Below are the lists that are generated for you: To add, delete, or change an item, select the Item button (circled above). This will open the Item window, where the description, type, price, related account can be updated or new information may be added. Farm & Family Expenses: The Great Divide In today s fast paced world, it is becoming increasingly important to monitor all income and expenses of the dairy operation. It truly needs to stand on its own. When going for a loan, the lender will be, or should be concerned about the ability of the business to repay the loan, not necessarily the owner. It is strongly advised that the farming account and family account be separate. This allows more flexibility in reporting and tracking the various profit centers (classes) of the dairy business. A secondary family account can be created and be used to track family expenses as well. Though this is the best way to handle farm and family accounts, most people still only want the one checking. It is not advised to go this route, but if it is a necessity, there are a few things to consider. Family Draws: How are you going to be paid as the farm owner? Are you taking out and tracking personal tax liabilities on a regular basis? Well, there are two ways to do this, and it all depends on how the dairy business is structured. If the dairy is incorporated, then you would treat yourself like any other employee, and would be paid on the same pay cycle at a set rate. Most of the time, the dairy operation is a partnership or a sole proprietorship. In this scenario, you would need to record your (the owner/partner) wages as a draw. A draw is actually a reduction in equity (the portion of the business that is yours) and is treating differently than actual wages. When writing yourself a check, be sure that there is an Owner s Page 5

6 Withdrawal sub-account created under the Owner s Capital equity account. This will make it easier to track the family draw over time. Tracking Family Living Expenses: As state before, though this is not the preferred method, it can be used. When trying to track farm and family expenses together, it is critical to set up a separate enterprise or class for FAMILY. A separate income account for Spousal Income and a Family Expenses account will also need to be utilized. Some suggested sub-accounts to the Family Expense account include: insurance, utilities, auto, banking, clothing, entertainment, groceries, household, health, etc. The key to combined accounting will be to print out profit/loss reports by Classes, and separate out the family when dealing with the dairy business. A Little about Centers Customer Center This button takes you to the location where a user can manage the buyers of their products. In the case of dairy example customers include: milk cooperative, livestock auction, bull calf buyer, and other dairy producers, just to name a few. From this center, you can view both active and inactive customers, add new customers (click New Customer & Job) and view all transactions by customer for a general time frame, specific transactions, a specific time frame, and any combination thereof. Users can also create Page 6

7 new invoices, sales receipts, statement charges, receive payments, or create credit memos/refunds. In this picture we can see we have invoices, payments, and sales receipts. Sales receipts were used when payment was provided at the time of sale and could be entered directly into the checking account. Invoices and invoice payments were used when a bill needed to be sent to the other dairy for the crops that were provided. We can also view transactions across all customers by selecting the Transactions tab. Adding a Receipt To maintain accrual based records, it is vital to record when products are shipped or bills are received, and not waiting until the cash actual changes hands. Let s look at an example sales receipt. In this example, the gross amount of the milk check is calculated by the Rate (gross price of milk per cwt) and the pounds of milk shipped (in cwt or hundred pound units). Then any deductions are taken. These deductions are recorded as Items (discussed earlier). Some deductions are standard (same amount check to check), and can have a set value. In the example above, the administrative fees for RutLeaf Page 7

8 Cooperative is a flat $65, so once this item is created, it can be easily applied to any future milk check receipts created. The milk hauling fee is not a flat fee, and is based on the hundred weights of milked shipped. The easiest way to add this information month to month is to type calculated value from the milk check. Creating and updating percentages based off hundred weights can be tedious and frustrating. Memorized Transactions: Don t forget, if you have any transaction (receipt, accounts payable invoice, payment, etc) that is a common occurrence; be sure to add it to you memorized transaction. To do this, open the transaction and complete all common information, or be sure to leave values empty (such as hauling fees in a milk check that vary month to month) before performing a memorized transaction. Select Edit and then Memorize Transactions or you can simply hold the CTRL-M button combination (that s the CTRL button with the M button). From hear, set up any reminders (if necessary) and enter the name of the desired transaction. Memorized transactions can be a real time saver for nearly any common transaction you may have. If you need to update a memorized transaction, simply open the memorized transaction, make necessary Page 8

9 changes, and follow the steps above to memorize the transaction. QuickBooks will recognize it as a duplicate, and ask if you which to replace the existing one, or add a new one with a different name. Vendor Center Very similar to the Customer Center, the Vendor Center is the control center for vendors, or common companies your dairy operation pays bills from on a regular basis. You can also create bills and pay bills, view bill transactions by vendor or by transaction type, add new vendors, and much more. Creating a Bill: Once a vendor is created (with the desired information), select New Transactions followed by Enter Bills, or click on the Bills icon on the home page or on the menu bar near the top of the page. From the bill window, you may select the vendor, enter the date, any reference number, and the bill due date. Under the expenses, you may assign one or multiple account expenditures (in this example, we have a bill that contains costs for breeding and state dairy association fees) from the bill. You may also add any notes under memo, or assign a class to the category. Don t forget, you can memorize transactions for common bills as was available for invoices and receipts. Paying Bills: Page 9

10 Instead of entering bills, and then entering similar information into the register of a payment account (such as a checking account), try using the pay bills option. This option will show you unpaid bills for a given date range, or by due date (if due date is entered on the bills). All you need to do is check the bills to be paid (left column) and this will automatically select the amount to be paid (for the full amount of the bill). Once selected, you may choose which account (checking, credit card, etc) the payments will be drawn from under the Payment Account location. If paying by check, you can either assign check no or to be printed (if you print checks directly from QuickBooks). Then select Pay Selected Bills button. If paying by checks, you may manually assign a check number, or let QuickBooks select one for you. You may also enter bills and income via the Register of an account (for example a checking account). This may be more familiar to some, but remember that you ll still need to add the bills and receipts for those transactions. Adding items through Page 10

11 the vendor or customer centers may save some time with a little practice. Users may which to experiment with both styles to see what fits best for their usage. Employee Center This is probably one of the most confusing and difficult sections of the three centers. The employee center is the location to manage the employees of the dairy operation. Like the rest of the centers, employees can be added, modified, and deleted, and users can also view all transactions related to the employees. If you search through the QuickBooks help feature on employees, be aware that some of the references and steps given are only available for those that have activated the optional payroll feature. This feature will not be apart of the scope of this workshop. Paying an Employee: checks. Unfortunately, the ability to pay employees, and manage withholdings, sick leave, etc, is limited unless users sign up for the payroll feature. If the operation only has a few employees, one may simply create employees, and then use the checks feature to pay the employees their When doing so, a reminder will appear asking to use the built-in payroll features. THIS IS NOT AVAILABLE, unless the payroll option is activated. Check the do not display message option and click o.k. From here, you can actually create an itemized check for each employee (seen below). With this area, you may select the employee, date paid, and then move down to the expenses tab. Here, if this is the first creating an employee paycheck, you ll need to create a wages expense and current liability accounts for any withholdings (in the example, only federal withholdings were used, but others may also Page 11

12 include FICA, state withholdings, etc). With these accounts entered along with the gross pay, selecting the recalculate button will calculate the net payment for the employee * Don t forget about the memorized transactions for paychecks either. Setting Up Loans: There are a few things to remember when setting up loans or notes. First, be sure to have the appropriate accounts set up for the loan. For example, a real estate Page 12

13 note is a long term liability. Also be sure that the opening balance on the account is zero, unless it is a balance transfer. You ll also need accounts to house the interest paid as well as any bank fees that may be incurred, and an escrow account if necessary. Once the account is created, use the general journal to create the initial amount of the loan by transferring the amount of the loan from the lender to the asset account (in the example of the Real Estate note, it would be from the bank to the real estate note). Once this is done, the Loan Manager (Banking menu and select Loan Manager) can be used to create and pay various loans. At this point, loans can be added, edited, or payments can be done (either regular or extra). To setup a loan, select add a loan, follow the windows to select the appropriate account, original amount and date, term of the loan, next payment due, payment amount (both interest and principal), payment period, any escrow information, the interest rate, compounding period, payment account, interest account, and bank charges account. Once created, the payment schedule tab will reveal how each regular payment will go towards paying interest and principal for the term of the loan. Page 13

14 A useful feature from the loan manager is the what if scenarios button. This button will let you look at a current loan to see how various changes (such as unscheduled payment on the principal or interest rate change) may affect the payments. It also allows you to compare the current loan to a potential new loan, very useful when looking to refinancing a loan. Monitoring Home Raised Feeds and Inventory: Using feed inventories can be very useful in tracking the amounts and costs of farm raised products (such as haylage, corn silage, hay, corn, etc). This is a critical part of record keeping, especially if there is interest in tracking income over feed cost (which will be discussed in the next chapter). To purchase inventories for the dairy, use the general journal entries (or the memorized transactions apart of Imagine Dairy). What has happened in this bill of sales are four items. First, the hay inventory is credited the amount for the sale (since there is a reduction in the inventory). The price for the hay can be determined either by market value or by the actual cost it takes to produce the crops. It is recommended to use market value when the records and expenses to produce various crops are not recorded or cannot be split (but hopefully this is not the case). Then there is a debit from the expense account for the farm raised hay (in this case, feed and grain: hay and silage: farm raised feeds). By entering these inventory transfers on a regular basis, the true feed costs for the operation can be estimated. Page 14

15 Reconciling: It s not just the checking account Most business owners understand the importance of reconciling accounts. Some call it balancing the account. Regardless of the term used, it s simply the steps to make sure what you ve entered into an account match your monthly/quarterly statements. QuickBooks makes this task very simple to accomplish. Let s look at reconciling a checking account. We may have an April 2008 statement from All Purpose Bank on a checking account. Select Banking Reconcile (QuickBooks Pro 2010, as will be used for the rest of these chapters). In the next window, you ll be able to select an account (i.e. checking), and enter the statement date, ending balance, and any service charges or interest earned (DON T forget to make sure any charges or interest earned are mapped to the right account and class). Page 15

16 QuickBooks-Budgets It is also important to make sure that the beginning balance also matches. What if it doesn t? Not to worry, you have two options: 1. Try finding the discrepancy using a Reconciliation Discrepancy Report (Reports Banking Reconciliation Discrepancy). Look for items listed that may have been edited since the last reconciliation that were a part of a previous reconciliation. 2. Undo Last Reconciliation (if you think the error was within the last time the account was reconciled). Th e final screen you ll get to will list checks/payments and deposits/credits since the last reconciling. All you have to do is check those that match your statement. Once done, check in the lower right hand corner to be sure the difference is If it s not, be sure all items checked actually match the statement. Once the difference is 0, you may select record now, and that s it, you ve reconciled that account. (Don t forget Page 16

17 QuickBooks-Budgets that reconciling accounts is not just for checking accounts. Be sure to reconcile other accounts like loans, lines of credit, credit cards, etc.). Standardized Data: It s important to remember the accounts you use need to be clear and useful for both you as a business manager, and for your account (tax and finance purposes). If you are unsure of your chart of accounts, refer back to the QuickBooks Basic workshop chart of accounts, or check out extension.psu.edu at the Penn State Extension Dairy Team or the Ag. Entrepreneurship Team. Make sure to work with your individual accountants when looking at modifying a chart of accounts. Also, remember, changes to chart of accounts WILL NOT apply to previous entries, so you may wish to make changes only at the beginning of the fiscal year for data entry purposes. Page 17

18 QuickBooks-Budgets Available Resources: (As October 30 th, 2012) Basic QuickBooks website: Penn State Extension Dairy Team: (the income over feed cost spreadsheet, cash flow spreadsheet, other useful tools from the website). Penn State Ag. Entrepreneurship Team: QuickBooks community forum: (select agriculture under the industry on the right, or type a particular question in the search feature). QuickBooks support website: Quicken farm manuals Oklahoma State University: University of Missouri dairy QuickBooks: University of Tennessee QuickBooks: References: Anonymous Income Statement ; Wikipedia. Biz/Ed Cash Flow Learning Trail: Part 5: Why Cash Flows Statements and Profit and Loss Accounts Differ. 1/31/2009. Holland, R.W. and D.C. Gerloff Texas A&M Cooperative Extension. The Development and Use of Financial Statements: The Balance Sheet. Huey, M.M Ohio State University factsheet. The Profit and Loss Statement: What does it mean? Page 18