Five Best Practices for Accounting Using QuickBooks

QuickBooks is a leading accounting software application among small business owners. It is offered in both an Online version and a Desktop version for PC or Mac. Users must understand the various functions to take full advantage of the software. This article offers the best accounting practices small businesses can implement using QuickBooks.

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1) Internal Controls

One thing that limits growth and expansion is fraud. To prevent it, businesses need to set up internal controls. There should be a system of checks and balances ensuring a business's financial processes are not left in the hands of a single person. QuickBooks has many embedded features that allow users to set up internal controls easily. Here are some of those features:

Optimize Advanced Company Setting

When you first purchase QuickBooks software, set up a company file for your business using the detailed start option under create a new company. There are different preferences you can select, including:

• Accounting: Set up the financial year you are reporting for and the closing date. You may also include the preferred accounting method.
• Chart Accounts: Enable the use of account numbers.
• Categories: Add location and class fields
• Projects: With this feature enabled, you can see all sales and expenses for each project.
• Currency: Lets clients know accepted currencies for all business transactions.
• Security: Set a password for the administrator user of QuickBooks

Set a Closing Date

With QuickBooks, you can set closing dates for transactions and add a password, making it difficult for unauthorized personnel to change the date. Only the administrator user(s) of QuickBooks can close the books and set a closing password. The closing date prevents unauthorized users from inputting transactions earlier than the stipulated dates or changing figures entered.

Set Specific Users/Permission

QuickBooks makes it possible for the administrator to add multiple users and restrict the activities of users to specific activities on the software. While the administrator can access all files, permissions for additional users can be restricted. Restricting users' activities to specific functions helps ensure errors are minimized, and company data remains confidential.

Review Audit Trail Report

The audit trail report feature is invaluable, especially where more than one person can access the data file. It helps to keep a record of the individual that changes the information in QuickBooks.

Add 'Last Modified' Fields to Report

You can add the last modified fields to reports to show when a user last changed the data. QuickBooks makes it possible to customize your data, add or remove the information and personalize the data to suit your preference.

Review Bank Reconciliation Reports for Changes/Auto Adjustments

Just as you balance your checkbook to ensure it aligns with your bank statement, you also must reconcile your bank account in QuickBooks with your bank statement. This reconciliation helps ensure QuickBooks balances correspond with your bank account and credit card statement balances. It's best to reconcile QuickBooks with your credit card, checking, and savings account monthly.

Attach Documents to Transactions

With QuickBooks, you can attach documents to different transactions. Some of the documents that can be attached include the following:

• Invoices
• Sales receipts
• Credit memo
• Refund receipts
• Bills
• Vendor credit
• Estimates
• Deposits

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2) Optimize Chart Account

A QuickBooks chart account shows a company's different accounts and balances. Business transactions can be grouped into categories, with each category showing the minute details of each transaction. To optimize chart accounts, businesses should take note of the following:

Don't Stay with the Default Setting

A chart account addresses five broad categories, namely:

• Assets
• Liabilities
• Equity
• Revenues
• Expenses

However, go beyond default settings to make the most out of QuickBooks. Businesses can decide to add other categories of transactions that will be useful in monitoring the performance of the business. Categories that would help monitor digital marketing and channel marketing could be added. The catch is to go beyond the default setting and add categories that would improve your accounting methods.

Using Parents and Sub-Accounts

QuickBooks allows you to set up a multi-level accounting model. With this model, you can create subsidiary accounts under a parent account. For instance, you can have a parent account on marketing and subsidiary accounts for the different kinds of marketing you are trying to track.

Using Classes

Classes allow you to track transactions by departments, locations, offices, units, and even projects. For example, suppose you have business locations in three cities. In that case, you can create three different classes for each business location, making it easy to track transactions without mixing up the accounts.

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3) Understand Business Cycles

Every business goes through business cycles, which are usually captured in accounting cycles. A series of steps are taken in each business cycle that ends with various financial reporting and statements. Areas that businesses should take note of in business cycles are as follows:

Recurring Transactions and Reminders

Setting up reminders for recurring transactions is a QuickBooks feature that has made an accountant's work easier. Transactions such as bills, checks, deposits, expenses, invoices, and journal entries can be memorized or set up as recurring. They can be set up as simple reminders to enter the transactions or set up to automatically enter them on a scheduled date.

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4) Reconciliations

The QuickBooks software makes it possible to reconcile software records with your bank records to ensure accurate accounting. These accounts should be linked to your QuickBooks to make the reconciliation process seamless. Every QuickBooks transaction should reflect what is recorded on the business' bank account. In a situation where proper reconciliation is not completed, transactions may be missed. How do you go about this reconciliation?

Reconcile Early and Often

Ideally, you want to prevent transactions from piling up before reconciling to help make the task easier. Businesses reconcile their accounts monthly. Some of the accounts that need to be reconciled include the following:

• Checking and Savings Account: Connect your savings and checking accounts to QuickBooks, making it possible to download your bank transactions and compare them with the records on QuickBooks.
• Credit Card Account: The reconcile utility on QuickBooks makes reconciliation of your Business's credit card simple. You can find it in the Banking menu. Regular reconciliation of your credit card will help identify discrepancies that may lead to inaccurate financial reporting at the end of the business cycle.
• Loan Balances: If a loan produces a statement on each payment made, it should be reconciled with QuickBooks records. Ensure that your business correctly documents loans on QuickBooks. Regularly doing this will help show the actual standing of the business.
• Payroll Liabilities: While aligning your payroll with your bank statement is essential, it is not the only payroll reconciliation task you can do with QuickBooks. Reconcile payroll taxes and outstanding debts, as well as benefits. Start by making a list of your payroll Liabilities.

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5) Reviewing Financial Reports

QuickBooks makes it possible for users to have up-to-date financial business reports at their fingertips. You can review financial statements like balance sheets, cash flows, and profit and loss statements on the software. Access these statements in the reports center.

Profit and Loss Statement

The profit and loss statement, also known as the income statement, summarizes the performance of a business over time. It is a powerful statement in accounting. Businesses should ensure they review this account regularly, especially before filing taxes. QuickBooks offers both a standard income statement and a detail of the general transactions done throughout the year.

Balance Sheet

A business's balance sheet shows the value of a business at a particular time. The balance is obtained by subtracting what a business owes from what the business owns. The balance sheet is so important that it helps determine whether a bank will grant business loans.

Budgets and Comparison Monitoring Cash

Using the QuickBooks budget and forecast feature, businesses can compare the business's current performance with that of previous periods. Using these reports, you can make future projections and easily detect errors.

Cash Flow Projections

A cash flow statement shows the volume of cash that is circulating in the business within a period. This statement is necessary to determine a business's cash position at every given period. Through this report, future cash flow projections can be made for the business. By specifying the accounting method on QuickBooks, it becomes easy to track and make projections for cash flow. The accounts tracked under cash flow include:

• Accounts Receivables: This account is created for transactions that are not paid for immediately. With QuickBooks, businesses can manage account receivables by tracking payments and invoices. You can also send reminders to customers who are running late on payments.
• Accounts Payable: This records the purchases not paid for up front made by the business. Using QuickBooks, businesses can track the amount of money going out. This helps to ensure accurate reporting.
• Review Regularly: It is vital to review reports and statements frequently. This helps prevent fraud and ensures early detection of discrepancies and entry errors.