- Client Data ReviewImproved for 2010!
- Choosing a Reporting Basis
- Reviewing the Balance Sheet
- Additional Data Reviews
This chapter is from the book
This chapter is from the book
This chapter is from the book
Additional Data Reviews
You can review some additional reports that add value to those discussed already. I discuss them in the remainder of this chapter, in no particular order.
Payroll Summary Total and Payroll Expense Total
It is important to compare your Payroll Summary report (if you are using QuickBooks to produce your employee's paychecks) to the payroll expenses listed on your Profit & Loss Standard report. If you are using some outside payroll service, you also want to compare its total payroll expenses to your Profit & Loss reported payroll expenses (see Chapter 14).
Follow these steps to create the Payroll Summary and Profit & Loss Standard reports:
- Click Reports, Employees & Payroll and select the Payroll Summary report.
- On the report dialog that opens, select the Dates drop-down menu and choose This Calendar Year-to-Date (because payroll is reported by the calendar year).
- Click Reports, Company & Financial and select the Profit & Loss Standard report.
- On the report dialog that opens, select the Dates drop-down menu and choose This Fiscal Year-to-Date if your business is a calendar year company, or select Custom and create the report for the same dates as the Payroll Summary report (because payroll is reported by the calendar year).
Compare your Payroll Expense account(s) totals on your Profit & Loss report to your Payroll Summary report totals. Identify those items, such as gross wages, and company paid payroll taxes on the Payroll Summary report that are costs to your business; this total should be what you have reported on your Profit & Loss report for payroll expenses.
Sales by Item Summary Compared to Total Income
Chapter 3, "Reviewing the Items List," provides details on how the QuickBooks customer invoice requires the use of items. Therefore, another important review to perform is to generate a report showing Total Sales by Item and compare this total to the income that is recorded on your Profit & Loss report for the same report date range. Remember, you are reviewing these reports in accrual basis.
Follow these steps to create the Sales by Item Summary and Profit & Loss reports:
- Click Reports, Sales and choose the Sales by Item Summary report.
- On the Report dialog that opens, select the Dates drop-down menu and choose This Fiscal Year-to-Date. Compare the totals on this Sales by Item Summary report to the Profit & Loss report created in the next couple of steps.
- Click Reports, Company & Financial and choose the Profit & Loss Standard report.
- On the report dialog that opens, select the Dates drop-down menu and choose This Fiscal Year-to-Date.
The report totals from the Sales by Item Summary and Profit & Loss report total income should agree with each other. Note: If you report customer discounts as a negative income line item, you might need to add this total back in (see Chapter 3).
Net Income or (Loss) Agrees with Balance Sheet
QuickBooks automatically records Net Income or (Loss) to the Balance Sheet, but I still mention it because it is an important review to do, particularly at tax time.
- Click Reports, Company & Financial and select the Profit & Loss Standard report.
- On the Report dialog that opens, select the Date range of This Fiscal Year-to-Date.
Compare the Net Income (Loss) figure from the Profit & Loss report to the same figure in the equity section of the Balance Sheet report, making sure the reports are being prepared with the same accrual or cash basis. I've always seen these numbers match; however, if the numbers do not match, you want to verify data by clicking on File, Utilities and selecting Verify Data. If data integrity issues are reported, you can contact QuickBooks Technical Support for assistance at www.quickbooks.com/support.
Reconcile Discrepancies Account
More recent versions of QuickBooks now record any bank reconciliation discrepancies to an expense account automatically created by QuickBooks. (Earlier versions of QuickBooks used the Opening Bal Equity account for these adjustments.) If an account named "Reconcile Discrepancies" displays at all on your Profit & Loss report, this account should have a zero balance. If it does not, you need to review why the bank account was reconciled with an adjustment (see Chapter 6). To remove a balance in this account, create a journal entry reassigning the expense to another account.
Cash Basis Balance Sheet Has Accounts Receivable or Payable
The problem of a cash basis Balance Sheet report having an accounts receivable or payable balance is perhaps more for the accounting professional than the business owner to review. The nature of accounts receivable and payable means that these accounts should have no balance when you're creating a Balance Sheet in a cash basis. There are, however, some reasons why this can happen:
- A/R or A/P transactions posting to other Balance Sheet accounts
- Inventory items on an invoice or credit memo
- Transfers between Balance Sheet accounts
- Unapplied A/R customer receipts or vendor A/P payments
- Payments applied to future-dated A/R or A/P invoices
- Preferences that contradict each other; for example, if you selected Cash Basis as your Summary Reports basis preference but Accrual Basis as your Sales Tax preference
- Data corruption; verify your data by clicking File, Utilities and selecting Verify Data
Create a transaction detail report to help you find these transactions:
- Click Reports, Company & Financial and choose the Balance Sheet Standard report.
- If your report is not currently prepared in cash basis (see top left of the report), click the Modify Report button on the report dialog. The Display tab is opened automatically.
- Select Cash for the report basis.
- Click OK to return to the report.
- Double-click the Accounts Receivable or Accounts Payable amount in question. QuickBooks creates the Transaction by Account report.
- Click the Modify Report button on the top of the report.
- For the Report Date Range, remove the From date and leave the To date.
- Click the Advanced button on the lower right and select the radial button in the Open Balance/Aging pane for Report Date.
- Click the Filters tab.
- From the Choose Filters pane, scroll down to select Paid Status and choose the Open option for Paid Status.
- Click OK to create the modified Transaction by Account report.
This report now shows you the individual transactions that make up an unexpected balance in either Accounts Receivable or Payable on a Cash Basis Balance Sheet. Compare the transaction types listed on the report with the reasons they might appear as detailed earlier in this chapter. Knowing the transaction type will help you select the proper account(s) to correct.
Digging Deeper
Did you know that you can download a report template from the QuickBooks website that you can import into your data or your clients' data to provide this detail and other useful reports? See Chapter 16, "Reporting Tips and Tricks."
Go to www.quickbooksgroup.com. On the right, select Library. Then from the Reports pane, select from Customers, Payroll, Troubleshooting or All reports. QuickBooks provides a list of reports available for you to download and import into your file or your clients' QuickBooks data files.
If you are a business owner, having completed this review of your data, you are now prepared with specific questions, and you can go to the specific chapter where you will find more detailed information. You have also gathered specific questions for your accountant and can request her advice on the methods you should use to make changes to your data.
If you are an accounting professional, you have easily identified areas of a client's file that might need more review. Refer to the appropriate chapter to find many useful step-by-step guidelines for troubleshooting and correcting any problems.