As a QuickBooks Advanced ProAdvisor – I can help you with your QuickBooks Online setup process by logging in to your company and reviewing what you have accomplished so far. Or if you’ve not yet started the setup process, I can create your QuickBooks Online company file for you and get you started out with a correct setup process.
As a QuickBooks advisor who is advanced certified in QuickBooks Online, desktop, and Enterprise Solutions, I’ve been part of the Intuit network of QuickBooks advisors since 1999. Since that time, I’ve helped countless numbers of business owners get setup and running on QuickBooks and resolved for them probably many of the very same issues and questions that you have right now.
Also, as a Certified Public Accountant, I bring over 30 years of “best practices” experience in accounting and tax to your situation to make sure that everything is done correctly.
Chart of Accounts List – This is your core foundation in your company accounting system. Get this most fundamental piece of the setup process wrong, and many of your reports which draw data from your accounts list organizational structure such as your trial balance report, profit and loss report and balance sheet report will be wrong too.
During the initial setup process QuickBooks will help you to decide what chart of accounts structure is most suited for you based upon the type of business you are setting up. However, keep in mind, this is really just a starting place. While there are certainly common characteristics that can be found within the chart of accounts structure for all businesses within a certain industry, no two businesses are ever exactly alike, even within the same industry.
The other variable that impacts the chart of accounts to some extent is the type of entity in which the business operates. For example, an LLC or an S corporation will require a few specific accounts that would not be needed for example in a sole proprietorship business structure.
Many times it’s just a matter of my tweaking some account names and descriptions to more accurately define what that account is used for in terms of the transactions to be posted to it. But, accurate and organized account names are very important. This is because those same names will become the descriptive line items on your financial reports. Therefore, in order to generate reports such as a balance sheet or a profit and loss statement that look polished and professional in their presentation, it is important to get the account titling process correct upon which these financial reports are drawing the descriptive line items for those reports.
This much I can tell you: In all of my years that I have reviewed and cleaned up QuickBooks companies for clients, I will always find that improvements can be made to the existing chart of accounts structure.
Account types – are another part of the setup process which is important to get correct. Otherwise, your accounts will not organize and print correctly on financial reports. For example, you may have what should be a balance sheet account that is appearing on the profit and loss statement, or vice versa. This will happen when the wrong account type was assigned during the creation of the new account.
The concept to understand when assigning account types, is that you must first and foremost have a basic knowledge of how accounting structure is supposed to work so that you can recognize what should be an account that is balance sheet related versus an account that is profit and loss related.
For example, if in the process of setting up a new account title that you want to appear on your profit and loss statement, you do not choose an appropriate account type and instead choose a balance sheet type for that account, then both your profit and loss as well as your balance sheet reports will be wrong.
This is probably one of the most common mistakes I find when reviewing a client’s QuickBooks Online setup structure. Typically, what happens is that as time goes by, some new type of transaction is entered for the first time and there is not already an appropriate account to post the transactions to. So, the client adds a new account to their chart of accounts but in the process does not notice that the account type they have chosen was not the appropriate choice based upon the type of transaction they wish to account for.
The other issue I commonly see is that when a new account is setup, the client does not bother to change whatever the default “detail type” of the account is. So, for example, I might find a number of new expense accounts that were added, all for different purposes, but the detail type for all the accounts is listed as Advertising/Promotional simply because that was the default that came up when creating the new account.
Again, account types and detail types are one of those areas that whenever I review a new QuickBooks Online company setup for a client, I go down through their setup of accounts structure and make all the necessary corrections to those setup mistakes – and typically it involves many accounts which are wrongly assigned an incorrect account type and/or detail type.
Account numbering – of the accounts in the chart of accounts list is an optional feature that can be turned on from within the QuickBooks Online “Account and Settings” found under the gear icon. By default, this option will not be selected. Thus, almost universally I find that when a client sets up their QuickBooks Online company, they rarely ever select that option, not realizing what its benefit is.
Personally though, I prefer to use this optional account numbering preference. In the accounting profession, practitioners are well aware of the function and purpose of numbering the chart of accounts under a prescribed organized format that groups categories of accounts into certain number ranges depending upon what the account grouping represents. For example, assets, liabilities and equity for balance sheet accounts. Or income, cost of sales, expenses, other income and other expenses for the profit and loss statement accounts.
In the absence of account numbers being assigned, QuickBooks will simply organize the accounts in your chart alphabetically, within the various account type ranges. However, for various reasons, this may not always be the best way to present the accounts on the various financial statements. By assigning a number though to the accounts with the chart structure it is then easier to organize your accounts presentation of the reports exactly as you want to see them appear, and more probably within the presentation structure typically seen for that type of financial statement for your type of business industry.
So basically, turning on the account numbering feature, followed by the proper assigning of numbers to your accounts will give you much more exacting control over the presentation on your reports. Again, this is area I typically will setup and modify for a company QuickBooks Online setup as necessary to conform to my typical chart of accounts numbers sequence structure that I like to use.
Incorrect opening balances – are another problem area I see on a frequent basis with new QuickBooks Online company setups. This is especially problematic when clients are converting over to QBO from some other existing system, or a manual based system.
But what is important to understand about the mechanics of how accounting procedure works, is that no year of transaction information exists in isolation. There are always going to be certain accounts which need to have a roll-forward balance and unless that balance is properly reflected as an opening balance in QBO, then the current year balance, as well as all successive year balances will never actually be correct, and will never actually be reconcilable with the past years tax returns.
Typically, the most common accounts I see this happening in are bank accounts which came into QBO with an already established balance, or credit cards that have a prior balance due to as of yet unpaid charges from a previous time period. But other accounts too such as notes and loans payable often do not reflect the correct opening balance and have not been reconciled to the amortization schedules that tracks the remaining note payable principal.
Yet another common set of accounts which are often neglected in the setup process, or if present do not reflect the correct balances are accounts related to fixed assets. Most often this is the case because the fixed assets have only been tracked on a depreciation schedule for tax return reporting purposes and the small business owner does not know how to interpret and translate the data from the fixed asset depreciation schedule into what should be the correct opening balances in QuickBooks for the fixed asset cost and related accumulated depreciation.
The result of all these inaccurate opening balances is that the QuickBooks balance sheet reports will be incorrect, as will any accrual basis profit and loss statements. (and possible cash basis profit and loss statements as well, it just depends on the particular circumstances)
Set up bank feeds – for checking and savings accounts used in the business so that you are connecting the integration of transactions as they clear in your bank account with transactions to be posted in your QuickBooks Online company. This procedure works very well once it has been correctly setup. But again, this is often an area where I see clients having difficulty with QuickBooks Online when they are new to this process.
More often than not, this will be the first time they have ever had their online bank accounts connected directly with their accounting software. For example, even though with the QuickBooks desktop software it was also possible to link your bank accounts, I’ve often found that many times clients didn’t use that functionality.
The thing with using bank feeds in QBO though is that you need to make sure you are keeping up with the process and especially if you are doing a conversion at some point mid year, the bank feed data will only be available for 90 days. Some of the common issues I see are transactions that have been duplicate posted in QuickBooks Online when the client had already entered the transaction in QBO, but then accepts that transaction again as if it were a transaction not yet accounted for in QBO when it comes from the bank feed. So the key concepts to understand about the use of bank feeds is (1) when to accept a transaction from the bank into QBO that has not yet been recorded versus (2) simply “matching” a bank transaction with an already existing transaction that was already posted into QBO. This is probably the biggest area of confusion for new users of bank feeds and it does take a little getting used to as to how the process needs to work.
Another limitation I see frequently is that when bank feed transactions are pulled into QuickBooks, the user is only letting the information populate from the bank transaction record which is almost always not the complete information and so I’ll find vendor names and other descriptive information about the transaction that has not been entered by the user. The problem this limitation creates though is that in reviewing the account transaction reports there is often insufficient information to provide a full explanation of what the transaction was for. But again, it’s usually just a matter or my providing the explanation to the client as to what they need to do as part of bringing the bank feed transactions into their QuickBooks Online company and then possibly adding the additional information needed in the fields which contain no data.
The other problems that develop is during the process of importing the bank feed transactions they are not assigning those transactions to the correct combinations of general ledger accounts. So, it’s usually a matter of my going through all of the accounts and finding those mistakes and re-assigning the posting to the correct accounts. Over time though this process does become more efficient because QuickBooks “learns” how to properly suggest and post future transactions based upon how you posted those similar transactions in the past. There are also detailed rules based logic which can be setup to help facilitate this process.
Finally, on the topic of bank accounts and bank feeds, it is important to reconcile the bank statements on a monthly basis using the built-in account reconciliation process that is part of QuickBooks Online. Many times when I’ve reviewed the QuickBooks company setup for a new client that has been using QuickBooks for a while, I find that they have never used the bank reconciliation process. That’s a definite deficiency in terms of “best practices” because all the bank accounts should be reconciled monthly. Again though, once the bank feeds have been linked to QuickBooks and the process used correctly, usually the bank reconciliation process will be a very quick and efficient task to complete going forward
Bank feeds for credit card accounts – work in much the same way as the feeds for bank accounts. Once you have linked QuickBooks Online to your credit card accounts, the transaction purchases, credits and payments as posted to the credit card can also be directly imported into QuickBooks Online. Then, just as a with the bank statements, you should also be reconciling your credit card statements every month using the reconciliation function that is built into QuickBooks Online.
If there is one common mistake I’ve seen over and over again when clients are using the bank feed for credit cards is that sometimes the payments against the credit card balance get pulled into QuickBooks twice, duplicating the result and obviously distorting the affected account balances. This happens when the payments made on the credit card is getting pulled into QuickBooks both from the bank account feed and the credit card feed. The result is that some duplicate accounts get created with offsetting transfers, scattered across the accounts. However, this is a fixable situation once I’ve been able to log on to your company and correct these past posting errors, and make the necessary changes so that this situation does not recur in the future.