Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks

Transcription

1 Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks Outline All right, here's what this course covers: 1. How to use the Course 2. Course Downloads 3. Why You Need a Bookkeeping System 4. Getting Started 5. The Flow Chart 6. Step 1 - gather documents 7. Step 2 - sort into folders 8. Step 3 - enter into QuickBooks 9. Step 4 - reconcile and correct 10. Step 5 - reports and filings 11. Step 6 - store and backup 12. Making and using a Checklist 13. Modifying the bookkeeping system 14. Tips 15. Feedback 1. How to Use the Course Everything is in video form Every topic covered is done in video form, so you can simply watch all the videos as opposed to reading. I personally like to skim writing, so I made sure to include in writing everything that was talked about in the videos. The one thing that the videos have over the written word is screen shots and visual examples, so it's worth watching. Highly recommend full screening the videos Since there's a lot of detail in QuickBooks, you're best to full screen the video once you press play. It is the button on the bottom right corner of the video. To get out of full screen mode, you press the esc button. If you're trying to go back or forth in the video, it is best to pause the video first and then move the cursor to the time you want to go to (then press play). The flow chart is key! The basis of the whole course is the flow chart. This whole course really is designed so that you'd be Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.1

2 able to put the flow chart up on your wall, on your desk, or up on your monitor as you do your books. You don't need to understand the flow chart at the start of this course, that's why there's a video talking about each step in the flow chart. You can download the flow chart from the Course Downloads section. Questions If you have questions regarding the course, leave at the very bottom of the page, and I will answer. Otherwise, you can direct any other questions directly to me at greg@smallbusinessdoer.com 2. Course Downloads Here are all the docs that you can use to help you follow along and execute the teachings of this course. 1. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks Course (PDF). You have this document, it's this one! 2. Flow Chart (PDF) 3. Checklist and Important Dates Spreadsheets (Excel) Note that the videos are not downloadable. Right now I'm not offering this since the files are quite large (since I wanted you to be able to fullscreen the videos). 3. Why You Need a Bookkeeping System The best way to keep your financials organized is to make sure your bookkeeping is entered in a timely and consistent way. That s where a bookkeeping system comes in handy. As easy as QuickBooks software is, because it needs to appeal to so many users, it can seem quite overwhelming to many. Combine this with the fact that there is more than one way to do bookkeeping and more than one way to enter transactions into QuickBooks, it can get quite confusing on how to do things properly. The bookkeeping system I present is simply one way of doing things. After working with QuickBooks for over 10 years, I find this system makes the whole process a lot easier because it allows me to be consistent and it lowers the chance of errors. This guide will walk you through collecting, organizing, entering, and filing all your bookkeeping documents using QuickBooks. Doing this correctly will allow you to get what you really want, which are the financial reports. Knowing your numbers is so important to business but often doesn t get paid attention to until there are problems. Financial reports need to be timely and accurate, and this bookkeeping system will help you be both. So, how exactly can this bookkeeping system help me? Here s the problem. A lot of people pile all their bookkeeping documents into, well, a pile, and then start entering those documents into QuickBooks. This is an inefficient and error-filled way of using QuickBooks. That s because you ll have to be switching back and forth between different QuickBooks windows. If you forget to switch the windows Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.2

3 and use for example, the enter credit card charges window instead of the write checks window, then you ve entered something incorrectly. Catching and fixing the error is time consuming. So sure, you can enter documents a pile at a time into QuickBooks, but there s a much better way to do it. The solution. Pre-organize all your receipts before you enter them into QuickBooks and enter those documents in a particular order. This is because certain transactions, such as a bill payments, require a bill to be entered first before you can pay it. Who is this course for? For anybody who wants to do their bookkeeping in QuickBooks easier, faster, and with less errors. This guide was designed with the beginner in mind, someone who doesn't know bookkeeping or bookkeeping terminology. However, the system that was designed will be useful to both QuickBooks beginners and experts. In fact, the more complicated your bookkeeping is, the more useful the system becomes. What s in this guide A filing system for sorting through all your bookkeeping documents so that you can enter those documents into QuickBooks in the best way possible. It shows you which QuickBooks window to use for entering each type of bookkeeping document you will collect and in what order you should enter the documents. A work flow that takes you from start to finish of entering your transactions to getting your financial reports. A customizable checklist that you can use to make sure you re doing your bookkeeping on-time and not forgetting anything. What s not in this guide This guide is not a course on QuickBooks. It will inform you on which QuickBooks windows to use for which transactions, but it won t go into detail about how to enter each type of transaction. 4. Getting Started There are three parts to this guide. This guide itself A flow chart A checklist The goal is that after reading this guide, you can use the flow charts and checklist every time you do your bookkeeping. If you need a refresher, you can go back to this guide. Let me first introduce you to the flow chart. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.3

4 There are six steps in the bookkeeping system. 1. gather documents 2. sort into folders 3. enter into QuickBooks 4. reconcile and correct 5. reports and filings 6. store and backup I will go through the why and how of each step after we go into the flow chart in a bit more depth. 5. The Flow Chart Here s the bookkeeping flow chart. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.4

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6 How to use the flow chart The chart is color coded and laid out from left to right and from top to bottom on purpose. You do step 1 to 6, from left to right. You enter transactions from 1 to 11 (there is no 12 and 13 because these are not entered as new transactions into QuickBooks) You ll notice that there are many folders that are green in color. This is because you could do number 5 before you do number 1. But, you have to do green before you do the red, because you can t reconcile transactions before you enter transactions. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.6

7 You ll also notice that the green has two shades, light green and dark green. You can t enter the dark green before you do the accompanying light green entry first (ex: you can t 02 - pay a bill before you 01 - enter a bill and you can t 06 - record a deposit before you 05 - receive payments / sales receipt). The blue don t know / other folder is for transactions that you don t quite know how to categorize. This can be because you don t know how the receipt was paid for, or perhaps it was paid for using multiple methods. This is a catch all for anything you don t quite know how to deal with or that don t fit in any of the other folders. I put blue between the green and red for a specific reason. The green folders are documents that you know how to categorize. By entering all the known transactions first, it will leave less unknown transactions to deal with, less possibilities for your 09 - don t know / other folder. Think of all the transactions as pieces of a puzzle. The more pieces you can put down, the easier the puzzle becomes. 6. Step 1 - gather documents Gathering documents is one of the most crucial steps in bookkeeping. After all, bookkeeping is all about entering information, and if you don t have the information, you can t do your bookkeeping. At the most basic form, for bookkeeping purposes, you need to gather any document that will show money going in to or out of your business s accounts, whether it be a bank account, credit card, loan, line of credit, etc... For example, if an item shows up on your business bank statement, you need a document explaining the item. You also need to collect documentation of any monies that have been paid with non-business accounts, but are legitimate business expenses, such as: 1. Expenses employees paid for themselves and need to be reimbursed for 2. Any thing an owner paid for using a personal debit card, credit card, or cash Usually you are issued these bookkeeping documents in-person (ex: paper receipt) or the documents are ed to you. However, sometimes you have to go and collect the documents yourself. This is why I use a checklist, so that I don t forget what document to collect and when to collect them. For example, I have a whole section in my checklist called Download Statements. It is formatted like this: Download Statements Chequing Account - 1st of the month Visa Account - 19th of the month Paypal Account - no official statement, have to download when needed Mastercard Account - 15th of the month I also have a section in my checklist for places that I need to download receipts from as the documents are not physically mailed or ed to me. Common charges that you may need to download on a monthly basis are: Download Receipts Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.7

8 cell phone bill shipping bill car lease membership payment web hosting payment So, the 1st step is gathering the documents. The 2nd step is sorting those documents. Extra Info There is an article I ve written explaining what information the bookkeeping documents you collect should have and some other tips on gathering bookkeeping documents at 7. Step 2 - sort into folders Why? Sorting all the collected bookkeeping documents into folders before entering them into QuickBooks provides huge benefits. 1. It allows for faster entry. The way QuickBooks is structured, different transactions using different accounts get entered using different entry windows. For example, a debit card receipt gets entered using the write checks window whereas a credit card receipt gets entered using the enter credit charges window. If you pre-sort all your documents before you start entering them into QuickBooks, you can open one window at a time. 2. There are certain documents that you can t enter before another type of document is entered. For example, you can t pay a vendor statement that has multiple bills until you first enter the bills. What happens when you don t pre-sort? 1. You start jumping from one QuickBooks entry window to the next, which will slow you down. 2. When you are switching back and forth between windows, it is so easy to open up the wrong window or choose the wrong account. This can lead to incorrect entries. Digital or Paper? In this day and age, you ll need both a paper based folder system and a digital folder system. You re going to need to collect your records using a paper based system as a large amount of invoices and receipts are still issued in a paper format. You can switch these paper documents into a digital folder system by scanning the documents into a computer, but you first have to use a paper based folder system when sorting through the documents. You will want a digital folder system as well, even if you will not be digitizing (scanning in) your documents. This is because you ll need to store any of the digital documents that are ed to you or that you download. Some businesses and people you do business with will only provide you with a digital document. ** In Canada, if you get a file digitally, you must store it digitally, the printed record does not count as a valid receipt. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.8

9 How to sort your documents? Once you have collected the right documents, organizing them and filing them properly is the big task. There are many different ways to file your documents. This bookkeeping system is based on a system that is designed specifically to work well with the work flow of QuickBooks. It s quite simple, you create folders (both paper and digital) that are numbered and the numbers are based on the order in which you would enter the transactions into QuickBooks. Here s the numbering system: 01 - bills 02 - bill statements and payments 03A - bank account 03B - petty cash 03C and up - any additional bank accounts 04A - credit card 04B - personally paid 04C and up - any additional credit cards 05 - receive payment 06 - deposit 07 - pay employees 08 - payroll liabilities 09 - don t know / other 10 - bank statements 11 - already entered 12 - non-bookkeeping ** The above folder and numbering system is based on a system for basic business needs. It may be that your business has need for more folders, such as folders for inventory, like the Purchase Orders, Receive Inventory, and Enter Bills Against Inventory QuickBooks windows. I ll talk about modifying the folders in the modifying the bookkeeping system section of this guide. The folder system is only to be used before entering the transactions into QuickBooks. Once you enter a transaction into QuickBooks you move the document out of the folder. Where you move it to is discussed in the 06 - store and backup section of this guide. QuickBooks transactions are best entered in a particular order If you take a look at QuickBooks, they have arrows showing you that you have to enter one type of transaction (say enter bills) before you can enter another type of transaction (pay bills). Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.9

10 So, you can see that what this bookkeeping system does is to create a folder system that matches QuickBooks work flow. Here is QuickBooks work flow with the bookkeeping system s numbers over top of each type of QuickBooks window. Bookkeeping numbering system on QuickBooks work flow Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.10

11 What to put in the folders Below is a list of each folder you ll want to create and the explanation behind what kind of documents you would put in each folder vendor bills These are bills from your vendors (not bills that you ve given to your customers). Vendors are people you buy things from. Bills are usually reserved for items that are paid at a date after a sales transaction took place. Invoice is another word for bill. Examples of bills 1. Your phone company sends you a bill that you have to pay once a month. You have a certain amount of time to pay this bill, so you are paying this bill at some time after the bill was issued to you. 2. You regularly purchases goods from a company and they grant you credit. Every time you purchase an item, they give you a bill (invoice). You pay those bills after the sales transactions took place. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.11

12 Examples of documents that are not bills 1. You buy something at a store and pay for it at the cashier or teller. That s a receipt, because you accepted the goods or service at the same time that you paid for them. 2. At the end of the month, a vendor gives you a statement, which lists all the bills you have received in that month. You may be tempted to think this a giant bill, but it s a statement, and in QuickBooks statements get treated differently than bills. Examples of documents that can be bills, depending on how you treat them 1. The phone company sends you that bill and you pay it on the same day you enter the transaction into QuickBooks. Dealing with vendor bills takes 2 steps in QuickBooks, entering the bill and paying the bill. Instead of the 2 steps, you can enter it in a single transaction, using the write checks or enter credit card charges windows. 2. A vendor gives you a monthly statement, and in that statement is a complete listing of every single item you have purchased. You can treat this as a bill since it has all the transaction information in it bill statements A bill statement is a document that you receive from a vendor that totals all your outstanding bills within a certain time period. If you buy from the vendor often, there may be many bills that show up in the statement. Sometimes the statement only contains one bill. You usually get statements from vendors with whom you have credit (have an account). Getting credit with a vendor means that you don t have to pay for an item when you receive it and that you can pay the vendor at a later date. In other words, it s like giving an I.O.U. every time you buy something from a person, and then at the end of the month, the person gives you back all the I.O.U. s and asks for payment. That collection of I.O.U. s is exactly like a bill statement. For a mechanic shop, a vendor with whom you have credit could be the company that supplies your tires or the company that supplies your brake pads. For a restaurant, your vendor with whom you have credit could be the distributor that you buy your produce from. Statements have terms, such as net 15 or net 30 (meaning you have 15 days or 30 days to pay). Most statements have a detachable portion that you can cut off and send back with your payment, so that your vendor knows what you are paying for bank account You use the bank account folder for any transaction that takes money out of your bank account. I m very specific in bolding out, because you use a different folder for money going into your bank account (the 05 - receive payments and 06 - record deposits folders). If you have multiple bank accounts, you would make one folder per account. This is because in QuickBooks when you are entering transactions using the write checks window, you have to use a drop down menu to select the correct bank account. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.12

13 It s very easy to forget to choose the correct bank account each time you enter a transaction, so that s why this system uses one folder per bank account. Petty cash can also be considered a bank account, so if you use petty cash, create a folder for petty cash. Now, there are plenty of exceptions for items that take money out of your bank account that you wouldn t put in the bank account folder. It s these exceptions that make people love bookkeeping with QuickBooks! That was me being sarcastic in case you didn t catch on. The exceptions 1. If you used funds from your bank account to pay a bill (whether by a check, debit card payment, electronic payment, or other method), you would use the pay bills window in QuickBooks to pay the bill, not the write checks window. So in this case, that payment receipt would go into the 02 - bill statements folder. In fact, if there is a vendor with whom you have an outstanding bill, QuickBooks will warn you. 2. If you are doing payroll using the QuickBooks pay employees window, you would use the pay employees window to issue pay checks and use the 07 - pay employees folder to file related documents before entering them into QuickBooks. 3. If you paid for something with mixed funding sources, meaning you used something like a credit card and debit card to pay for an item. For mixed funding sources, you d enter the item first as a bill, then pay the bill using two (or however many funding sources you used) payments. Because this is a mixed funding sources payment, I put it in the 09 - don t know / other folder. How to enter a mixed funding sources transaction into QuickBooks 04 - credit card You use the credit card folder for any transactions that were paid for using a credit card or for any refunds that you receive back to your credit card. Unlike a bank account, when you receive a refund back to your credit card, you still enter the refund (credit) to your account using QuickBooks enter credit card charges window. Like bank accounts, you also have one folder per account, so if you have more than one credit card, create a folder for each account. Additionally, I use the credit card type of account to enter any items that were paid for with nonbusiness cash by the owner, and I call the folder and QuickBooks account personally paid. If you have more than one owner, or if you have employees you regularly reimburse, you can have several of these personally paid accounts. You use the enter credit card charges window for personally paid items because you can treat any purchase made with personal funds like you would a credit card. Instead of owing money to a bank, you owe money to a person. Whenever the business feels like, it can pay back the person by putting funds into the personally paid credit card account. The way you pay off a Visa credit card account is the exact same way you would Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.13

14 pay off the personally paid credit card account. As with bank accounts, there are exceptions for items that you used a credit card to pay for that you wouldn t put in the credit card folder. The exceptions 1. If you used your credit card to pay a bill (that you entered into QuickBooks using the enter bills window), you would use the pay bills window to do this, not the enter credit card charges window. In fact, if there is a vendor with whom you have an outstanding bill, QuickBooks will warn you. 2. If you paid for something with mixed funding sources, meaning you used something like a credit card and debit card to pay for an item. For that, you d enter the item first as a bill, then pay the bill using two (or however many funding sources you used) payments. Because this is a mixed funding sources payment, I put it in the 08 - don t know / other folder receive payments You use the receive payments folder to put in any payments that you receive from customers. Whether they pay via cheque, cash, debit card, credit card, PayPal, gift certificate, or any other method, you use the receive payments folder. Also, whether you are using an invoice or sales receipt to charge a customer, the payment you receive would be put into the receive payments folder. If you don t know whether to invoice a customer or issue a sales receipt, you can view record deposits The record deposits folder is for any item that has been put into a bank account using the undeposited funds account in QuickBooks. Undeposited funds is an account that holds funds until they are deposited into a bank account. If you deposit money you receive directly to a bank account, you do not use the Record Deposits window. People often get confused with the Receive Payments vs. Record Deposits windows in QuickBooks. They also get confused about whether to use the undeposited funds account or deposit money directly into a bank account. Here is an article that helps to explain it all pay employees The pay employees folder is what you would use to collect any items related to paying employees, such as your employee time sheets payroll liabilities The payroll liabilities folder is for government forms for your liability payments don t know / other The don t know / other folder is a catch-all folder for any documents that: Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.14

15 you don t know where they go don t fit into any of the folders you have set up One of the gifts and curses of QuickBooks is the many different ways you can enter transactions and the large number of specialized windows available to do different transactions. The gift is that there is usually a good way to enter any type of transaction that you run into. This makes QuickBooks quite powerful and adaptable to the needs of a variety of users. The curse is that if you are starting out, you can have 29 different icons staring out at you, and you may have no idea which one to click. So, there s a very good chance that you re going to run into a situation where you don t know how to enter a transaction into QuickBooks. This is where you use the don t know / other folder, for transactions you don t know how to handle. The don t know / other folder can also be for transactions that happen so infrequently, that it doesn t make sense to create a folder for those transactions. For me that s my sales tax return, which happens once a year. If you process sales taxes on a monthly basis, it may make perfect sense for you to create a special folder just for your sales tax documents. You can learn how to do this in the modify the bookkeeping system section statements The statements folder is for any bank or credit card statement that you receive that you will then go on to reconcile using QuickBooks Reconcile window. What s reconcile? Reconciliation is the process of matching your bookkeeping records to your bank records. Reconciliation is in my opinion one of the crucial parts of bookkeeping, since it helps you fix any errors in your records. It can t catch all you errors, as some transactions don t touch your bank account. In other cases, some transactions may reconcile properly, but can still be entered incorrectly. However, reconciliation does catch a large amount of errors already entered The already entered folder is used for items that have already been entered into QuickBooks, but that haven t been filed away yet. Why use this already entered folder? For example, let s say you bought some gas for your car with a credit card, but you temporarily lost the receipt under your car seat. When you go to reconcile, you need to enter that transaction into QuickBooks, even though you don t have the receipt. You then discover this receipt and you don t know what to do with it. If you put it in the credit card folder, you risk making a double entry into QuickBooks (entering the transaction twice). This is where the already entered folder comes in handy, since it stops you from making a mistake non-bookkeeping docs I had to add the non-bookkeeping docs folder, as I get documents that are business documents, but not what I consider bookkeeping documents. These are documents like your insurance policy, contract Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.15

16 agreements, business licenses, and so on. They are definitely important business documents, but not documents that you would enter into QuickBooks. I find it handy to have a non-bookkeeping docs folder to hold the documents until I can get a chance to file them away. 8. Step 3 - enter into QuickBooks Once you have all your bookkeeping documents gathered and sorted, it s time to enter them into QuickBooks. Luckily, if you ve done a good job sorting your documents, entering the transactions into QuickBooks is a lot easier. Here are some guidelines when entering the transactions into QuickBooks 1. As you enter items into QuickBooks you have to find a way to mark them as entered. If you are entering non-digitized paper receipts, you can get a POSTED or ENTERED stamp to mark the item as entered into QuickBooks. Once entered, you also move the document out of the folder into another filing system (this is discussed in the 06 - store and backup section of this guide) 2. For digitized receipts, you can mark them POSTED / ENTERED in several ways: Have one set of folders for unentered documents and another for entered documents. When you ve entered a document, move it from one folder to another. Rename the file by adding entered to the end of the file name. Some digital attachment software moves / renames the files for you. On the digital file itself, such as in adobe acrobat PDF viewer, you can add something to the document to mark it as entered. 3. There will be cases where you don t quite know how to enter a transaction. These are the items I ll put into the don t know / other folder. If it is a simple matter of not knowing what expense or income account to use for the transaction, then I record the transactions to the default ask my accountant account that QuickBooks creates. This allows me to enter the transaction so that I can reconcile the books, but because it is in the ask my accountant account, I know to review this account. Below shows which QuickBooks window to use for each folder you have. Again, this guide does not go through the details of how to enter each transaction, but instead shows you which QuickBooks window to use for each type of document. If you are looking for videos showing how to enter transactions into QuickBooks, lynda.com has four hours worth of training videos for only $25. QuickBooks Windows to Use 00 - Invoices / Sales Receipts The whole work flow in this Organizing and filing your bookkeeping documents in QuickBooks guide assumes that you ve already invoiced a customer or created a sales receipt (and that you ve collected the money). That s why you won t see creating invoices or sales receipts as part of this work flow, although you could modify the system to make it part of your work flow if you like (visit the modify the bookkeeping system section of this guide to learn how) enter bills Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.16

17 To enter a bill, go to Vendors > Enter Bills pay bills To pay a bill or statement, go to Vendors > Pay Bills write checks choose name of bank account To pay money out from your bank account, go to Banking > Write Checks (CTRL+W). Make sure to choose the correct bank account. In the example above, there are two choices, PayPal and Chequing enter credit card charges choose name of account To use your credit card account to pay for something or enter a refund, go to Banking > Enter Credit Card Charges. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.17

18 Make sure to choose the correct credit card account. In the example above, there are a few choices, personally paid, MasterCard, and Visa. Now, with credit cards you have the option of choosing to make a Purchase/Charge or Refund/Credit. Make sure the correct one is chosen. You ll notice that when you choose the Refund/Credit that the entry form turns red receive payments / sales receipt To receive a payment for an invoice you go to Customers > Receive Payments. To create a sales receipt, go to Customers > Enter Sales Receipts. When you issue a sales receipt, this charges a customer and receives a payment at the same time, so you can t use the receive payment window. If you look at the QuickBooks home screen, you ll see there are arrows that go from left to right. Create Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.18

19 Sales Receipts is after Receive Payments exactly because you don t receive payments for sales receipts using the Receive Payments window. Whereas when you use the Create Invoices window, you then have to use the Receive Payments window to receive the payment record deposits To record undeposited funds into a bank account you use Banking > Make Deposits pay employees To pay employees you use Employees > Pay Employees payroll liabilities To pay payroll liabilities you use Employees > Payroll Liabilities transactions you don t know how to enter Unfortunately, there is no QuickBooks button called don t know or other. So, good luck with figuring it out! No, I m kidding. You ll need more than luck. Here s a few different resources that you can use for those difficult transactions Part of what I m trying to create on is to try provide solutions for each type of How do I do this in QuickBooks question. It s an evolving resource, so if you don t see the answer to your problem, feel free to ask some questions. QuickBooks has their official Product Forums at The more I understand bookkeeping and QuickBooks, the more this forum is helpful to me. However, if you don t understand much about bookkeeping, accounting, or QuickBooks, sometimes the answers can be overwhelming. Also, you can get conflicting answers. Sometimes it s because there simply are different ways to do things in QuickBooks. Other times it is because the person answering doesn t know what they are doing. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.19

20 A book that I find very helpful is the QuickBooks 2012 book by the missing manual. It s 700 pages, so quite big, but I find the explanations are well done and with 700 pages, it does try to cover off every possible situation that you might run into reconcile To reconcile you go to Banking > Reconcile. Since reconciling is so important, it has it s own section, which is the next section, so read along. 9. Step 4 - reconcile and correct Reconciliation is a crucial part of bookkeeping. Reconciling is the verification that your bookkeeping records match those of your account statements (ex: your bank statement or your credit card statement). Data entry is always prone to error, so reconciling becomes essential to make sure that your records are accurate. Reconciling catches errors you have made, whether this be a double entry of a receipt, missing entering a receipt, or entering the wrong dollar amount. That s why this section is called reconcile and correct. Without the reconciliation, you won t be able to print out accurate reports, whether it be profit and loss, accounts receivable, accounts payable, or how much taxes you owe. Reconciliation Tips Transactions after the statement date don't need to be verified since you are only concerned with transactions before the statements end date. Transactions before the statement date that are left over after you reconcile do need to be verified. Are they errors, duplicates, posted to the wrong account, cheques not cashed, or delayed postings (credit cards often post transactions many days after the transaction occurred). When you are entering a transaction, you may find that there are items that you don t know which account to put them in. Ex: Does paper the bought for printing promotional flyers go into an office supplies or advertising and promotion account? EX: Is the digital camera purchased considered an expense or an asset? For these types of transactions I use QuickBooks default Ask My Accountant account when I m unsure of a transaction but want to reconcile. That lets me reconcile, but since the transaction is now in the Ask My Accountant accountant, I know that it is a transaction I should figure out how to categorize. By the way, you don t actually have to follow the account name and ask your accountant. Think of it as a What do I do with this transaction account. Some banks give you the ability to download your bank or credit card statement directly into QuickBooks using a file with the extension QBO. Once you import a QBO file, it is very difficult to undo, so I always, always back up my books before importing a QBO file! What to do when you are missing a receipt? You should still enter the transaction. I add a "missing receipt" to the memo fields so that I know the receipt is missing when I look back at the record in the future (make sure to type "missing receipt" into both memo fields, as some reports use one memo field, while other reports use the other, silly, I know!) If you know what accounts Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.20

21 to use (because it's a purchase from a regular vendor), then enter it like previous entries for the vendor. If it's a new vendor and you don't know what account to use, use the ask my accountant account. Reconciliation Reports - Help you correct errors and forecast cash flow Reconciliation reports help to show you some potential mistakes in your bookkeeping records for the account you reconciled. The biggest thing to look out for in a reconciliation report is uncleared transactions that occur before the end of the statement date. Ask yourself, why haven t these transactions cleared? Is it a cheque that will clear later? Does the transaction really belong to that account (maybe it was supposed to be posted to a different account). If you find transactions that don t belong correct them. Looking at your reconciliation report also helps you to manage your cash flow as you ll know how many transactions have to still go through your bank account. 10. Step 5 - reports and filings With your reconciliation and correction done, you can now properly file and pay for government taxes and print out accurate financial reports. Why file taxes after you reconcile? If you filed your taxes before you cleaned up your bookkeeping records, you d be giving the government inaccurate reports and will have to re-file corrections, creating twice the work and causing headaches. It s a lot easier to do it right the first time. If you are going to face fines for filing late, it is better to file and correct later, but as a general rule it is better to file only when your records are complete. Why generate your reports after you reconcile? If you generate reports before your books are clean, then you will be making decisions on bad information. Do you really want to be in the position of calling a customer of yours to collect a payment that you ve already received? Not only is that embarrassing, but it makes you look unorganized, unprofessional, and untrustworthy. Sales Taxes You use the Manage Sales Tax window in QuickBooks to file and pay any sales taxes you owe to the government. **For Canadian sales taxes, QuickBooks will automatically correct adjustments in your next filing period for you, so you don t have to sweat. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.21

22 Of course, the reason you file after you reconcile, is that all your records should be accurate at this point. However, perhaps you forgot to mark that an expense had sales tax and you didn t claim the credit. If you go back to the transaction and add the sales tax to it, the next report you file will be accurate. WARNING. It is a very different thing to do modify a transaction after you ve filed your income taxes for your year end. Once you file your income taxes you should close your books (this doesn t mean close your QuickBooks file, but rather use the close books feature in preference to close your books so that you can t modify transactions before a certain date). If you re-open your books, you should change transactions with extreme caution. Something as simple as changing the sales tax on an expense will throw off your expense and net income figures that you have filed with the government. Profit and Loss Shows you how much you made. As long as you re making money, this is always a fun report to see. The profit and loss is only one piece of your financial puzzle. While your books may show you are profitable, you may not have cash in your bank. So make sure to look at your other reports. Accounts receivable (A/R) How much your customers owe you. Keeping good track of your accounts receivable and following up with customers who are taking their time to pay, will ensure that your cash flow is healthy and that you can continue to operate the business. Accounts payable (A/P) How much you owe your vendors. This makes sure you are making your payments on time. If you don t pay on time, you can suffer various consequences: late fees (interest and penalties), freezing of credit, cancellation of account. Some vendors also offer discounts for paying fast, so you can actually save money by paying on time. Other reports Depending on your business needs, you may want a variety of reports not shown here. The great thing about bookkeeping software is that you can easily create a variety of reports with the click of a button. With hundreds of reports and millions of customizations available, you can most likely get your report how you want it. And if you can t get your report exactly how you like it, you have the ability to export the report to a spreadsheet to modify the report and play with the numbers. Notes / owner to look at Custom report made by adding notes to both the memo fields as well as the ask my accountant account. You will most likely come across some items you have questions about, some documents that may be of interest to the owner, or things you want to remember the next time you reconcile your books. This report gives you a place to view all these transactions. To create the report: Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.22

23 1. You go to Reports > Accountants & Taxes > General Ledger. 2. Click on Customize Report, Sort by Memo, and Sort in Descending Order 3. Click on Advanced, and under Include choose In Use 4. Click on the Filters tab, then under Account choose Multiple Accounts. Select all your bank and credit card accounts PLUS your ask my accountant account 5. I change the date filter to All, but you can choose whatever date you like 6. Memorize the report by clicking on Memorize. I call the report Owner to Look At 11. Step 6 - store and backup Store You have to store your documents. Filing documents away in an organized way will help you in two ways. 1. It lets you know you ve processed a document. This prevents double entries. 2. It makes it easy to find the document again. A big thing to keep in mind when filing, and bookkeeping in general, is to be consistent. Always do things the same way, using the same rules. Here are guidelines for paper based and digital filing systems. Paper based filing There are many ways to file and organize your documents. Since we are using QuickBooks to record your bookkeeping transactions, how you organize your paper records, once entered into QuickBooks, is less important than if you used other bookkeeping systems. This is because a lot of the information you want to get access to can easily be found within QuickBooks, such as if you needed to look up something you purchased at a store or a customer invoice. So, although there are different ways to file things, I ll recommend this one system, based off of how the documents were collected. Have a folder for each type of bank account, credit card account, etc... Ex: 1. bank accounts - chequing, petty cash, PayPal, etc... (one folder per account) 2. credit card accounts - Visa, Mastercard, Amex, paid personally etc... (one folder per account) 3. loan / lines of credits 4. payroll 5. vendor bills 6. invoices / sales receipts I find the difficult thing with any paper based system is that you can only file documents into one folder, although they may technically fall into two. For example, you may have paid for a bill with both a credit card and a debit card. Which folder do you put it in? For this system, priority is given to making sure the records of the bank and credit card statements are Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.23

24 complete. So, for every transaction on your bank statement, you d want a supporting document (meaning receipt, payment slip, or deposit slip) bills - goes to the vendor bills folder 02 - statements (and the accompanying payment) - goes to the folder of the bank / credit card that you used to pay for the statement bank account - goes to the bank account folder (if you have multiple bank accounts, you have multiple folders) credit card - goes to the credit card folder (if you have multiple credit cards or a personally paid account, you have multiple folders) receive payments - if deposited straight to a bank account, file it in that bank account s folder, otherwise the paperwork goes to the invoices / sales receipts folder record deposits - put the deposit slip in the appropriate bank account folder pay empoyees - Anything that has money going out of your account for paychecks should go into the appropriate bank account folder. Anything that does not have payments attached to it, such as time sheets, goes into an employees folder payroll liabilities - Anything that has money going out of your account for government taxes should go into the appropriate bank account folder. Anything that does not have payments attached to it, can go to a payroll liabilities folder don t know / other - Once you figure out the transaction, put this into the appropriate folder. Sometimes you ll have an item that can fit into multiple folders, such as a bill that you paid for with both a debit card and a credit card. I d put the bill into the vendor bills folder and then put each payment receipt into the appropriate bank account and credit card folders statements - goes to the appropriate bank account folder already entered - This is the folder for items that you have already entered into your bookkeeping system. File away the document in the appropriate folder non-bookkeeping documents - File this away using whatever filing system you like for these types of documents. Extra Info If you are interested in other paper-based filing systems, you can visit which lists various ways in which you can file your bookkeeping documents. Digital filing I love digital filing. There are a few reasons for this: 1. Finding the document you want can be ultra-fast. 2. You can tag a digital document in multiple ways, meaning a document can be categorized in multiple ways at once. 3. Since searching is so easy, you can actually get away with putting all your bookkeeping documents into one folder and using search to locate what you need. Here s the digital filing system I use: Name each file in the same format of date-name-amount, here s an example: homedepot pdf for something that I bought for $27.35 from Home Depot on January 24th, Date: I use the yyyy-mm-dd format. Computers sort from big to small, meaning from year to month to date. Use numbers, not the name of the month. The computer understands numbers really well, names of months not so well. So, the format is If you want to sort by date to find a document, it ll be very fast to do so. Name: This is the name of the vendor, customer, employee, bank account you're depositing an item into, etc... If you name things properly and in the same way, than you can search for a particular name of a vendor and easily find all the documents associated with the vendor. Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.24

25 Amount: This is the dollar amount associated with the bookkeeping transaction. If you are looking for a particular receipt or bill, searching by the exact dollar amount can usually be a fast and easy way to find something. Other: If there are other attributes that you want to add to the file name, such as the name of the bank or credit card account that the transaction went through, you can do that as well. Since the files are digital and so easy to search and sort, I have a one-folder storage solution for all my bookkeeping documents. I also digitally attach my documents into QuickBooks, which makes digital folders less necessary, since I can pull up my supporting document fore each QuickBooks transaction from within QuickBooks. What to do with documents that don t have a dollar amount associated with them? Some documents don t have $ amounts associated with them. These are items such as: bank or credit card statements time sheets inventory etc... How you file these are up to you. For my one folder storing solution where I don t create subfolders for each and every type of document, I use the name of the type of document as the first part of the file name. For example: For bank statements, I would name the file statement-nameofbank-date. So, for a statement from the Royal Bank with a date of January 31, 2012, I would name the file statementroyalbank pdf. For time sheets, I would name the file timesheet-date-to-date-employeename. So, for a time sheet for an employee named Joe Blow for the time period from January 2nd to January 15th, 2012 I would name the file timesheet to joe-blow.pdf. You notice how I switched around the position of the date from being at the start of the file name to the end? That s because that s how I d like to sort the documents, first by document type, then by bank, then by date. If I had wanted to do it another way, such as date, statement, then bank, I could have done that as well. With the ever powerful search box, it is easier than ever to filter documents, making it possible to name documents in a variety of ways. Ultimately, how you name files is up to you, but the system does have to make sense both to you and whoever will be touching your files. The very important thing is to be consistent with your naming conventions. Backup Backing up is a must! With digital files, backing up can be an automated feature as well. There are several backup options that you can choose from. Whether you are backing up on your computer or on an external drive, I d highly recommend backing up online. You can backup online through several methods. Here are a few of them: QuickBooks Online Backup QuickBooks Intuit Data Protect Crashplan Dropbox Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.25

26 Sugarsync Apple icloud The reason you want to backup online is that if your computer and gear were ever stolen, in a flood, a fire, or some other natural disaster, storing the files online will ensure your records are still safe. The services mentioned above are but a few of the services available. Some are free (for a limited amount of storage), others have a monthly fee. The key is to back up your files AND make sure they are continuously being backed up. 12. Making and using a Checklist Statements for accounts are issued by banks and credit cards once a month, so the checklist I will show and give you is based on reconciling your books once a month. If you download digital statements, you can reconcile more often if you so desire. The checklist and important dates spreadsheet contains all the bookkeeping tasks that I need to do and in what order. Because this checklist will change based on your business needs, I can only give a sample checklist and guidelines on how to modify it. The checklist matches the flow chart, in that it has all 6 steps. There s a column for done (y/n) so that you can mark the task with a Y as you complete each one. For items that have dates attached, like when you can download a statement, there s a date column. There s a how to column. This is how to notes for yourself in case you forget how to do things, like the address of the website of where to download a statement. There s a notes column. Use this to add any special notes that might have occurred while completing the checklist. In addition to a checklist, I ve made a spreadsheet that you can use to keep track of important dates. These can be dates such as when to file taxes (sales, payroll, income) and when to pay re-occurring bills by (rent, phone, supplier). Organizing, Entering, and Filing your Bookkeeping Documents in Quickbooks p.26

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