QuickBooks is one of the most popular tools for small business accounting. It is a wonderful tool but it must be used properly. Unfortunately we have too often seen mistakes or omission in books that were DIYed by our clients.
Even little mistakes can have large, expensive consequences. The ugliest example, if your tax return contains discrepancies or errors you will likely get hit with penalties from the IRS. We have provided 6 quick tips to help you avoid these costly errors.
1. Create your own chart of accounts.
QuickBooks enables you to set up a system for organizing transactions into categories, such as income, assets, liabilities, receivables, and your operating expenses. QuickBooks can and will default to include a long list of sub-categories that will only cause confusion. Keep it simple and straightforward; a good guide are the categories on your tax return. As a reference look at (IRS Form 1040 Schedule C). This will decrease your chance of coding items incorrectly and possibly making errors on your tax return.
2. Switch to cash basis accounting.
QuickBooks by default selects the other most common method of accounting, called accrual accounting. With accrual, you enter money owed to you at the time of the sale; with cash basis, you enter it when you actually get paid. For some of our clients that timing can be weeks or even months, especially during Covid when people are delaying payments longer than usual. For small businesses, it’s typically more useful to see how much cash you really have at the moment, rather than a theoretical number.
3. Entering the same transaction multiple times.
A very common example that we come across with our clients is that they go and purchase an office supply with their credit card and enter it as a business expense on the day of the purchase. When they receive their credit card bill they accidentally enter that expense again.
4. Forgetting to record transactions.
As you are focused on running your business, its all too common and easy to put off data entry to another time. Unfortunately, that time may not come for a while and by then you may have completely forgotten about it or can’t locate the receipt.
Build in 10-20 minutes into your daily routine to keep up with the books, rather than having to spend hours tackling a huge pile at the end of the month. There are other advantages to keeping up with your books such as a clear and accurate view of your current cash flow. This also allows you quick insight to have the ability to tackle potential problems much quicker.
5. Incorrectly performing adjustments.
With some of our recent new clients we are also finding that DIY bookkeepers skip the necessary steps to separately identify gross income, net income, and expenses. A perfect example, you’re are an e-commerce business and you utilize a payment processing service. Your customer purchases a $200 item, and your payment processing service takes a $20 fee. You cannot just enter your net revenue as $180. You must enter the gross revenue of $200 and an expense of $20 separately.
Another very common DIY mistake occurs in adjusting for interest paid towards a business loan. You should be utilizing an amortization schedule to get the numbers correct.
6. Not saving old records.
If you make the decision to leave QuickBooks for any reason, you will get a read-only access to your most recent year of bookkeeping. Anything older will likely be lost unless you export and save them.
Even if your business is closed, keep these records. The old records have other potential such as securing a loan or investor to start a new business, or be an essential requirement in an IRS audit.
The last thing that you should be doing is worrying over whether you’re doing Quickbooks properly. MCDA CCG accounting experts are here to help you clean up any problems and provide helpful guidance for getting the absolute most out of your accounting software.
Contact us today for a free consultation! Also please mention the coupon on our website for a great savings!