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Welcome back to the Accounting and Business School of the Rockies QuickBook Tips Video
Blog. On our previous session we discussed a common error that new users of QuickBooks
make when paying a bill that they had previously entered into QuickBooks.
Let me go to QuickBooks and lets look at this real quick. So what happens here is that new
user will enter a bill properly into the "enter bills" icon from the home page. What is supposed
to happen then is that they would go across to the "pay bills" icon to actually pay that
bill. That is the proper way. What happens at times is that when it is time to pay the
bill they go down to the "write checks" icon and they write a check for that bill. The
problem with that is behind the scenes - One, you are not going to be releasing the liability
so your accounts payable is going to increase in size and you actually are doubling your
expenses. So let's look at that in a PowerPoint slide to see what is happening.
So entering the bill using the "enter bills" icon. I go to enter a bill for my telephone
expense of $182.00. I debit a $182.00 to my expense account and I am going to credit a
$182.00 to accounts payable- to a specific vender. My debits equal my credits and that
is exactly what we want to happen. Now when we properly pay the bill using the "pay bills"
icon, I am going to debit accounts payable and I am going to credit my checking account.
I have released by liability of $182.00 so that is going to be zeroed out and my checking
account will be decreased by $182.00. That's what is supposed to happen. Let me flip to
the next slide and let's see what happens behind the scenes when we use the "write checks"
icon in QuickBooks. Remember, I entered it in as a bill - debit my expense and credit
my accounts payable. But when I use the write checks icon, yes I am going to get a credit
to my checking account, that's correct but notice over here, what happens over here when
I write a check, QuickBooks ask me what account I am going to expense. I have to tell it Telephone
expense again and when I do I have just doubled my expense and also notice it never hit accounts
payable so I did not release my liability. So this is wrong. I doubled my expense but
didn't release my liability. Let's pop back into QuickBooks and let's talk
a little bit more about that. So, entering a bill and then instead of using the pay bills
icon I went down here and I wrote a check. So I am going to show you a little background
that I did before you guys got logged onto this video. The first thing that I am going
to do is go to my pay bills icon, you are going to see I put I three different vendors.
I entered the bills properly, but now I want to go to my checking account and I want to
show you that I paid those three bills. There they are again, but instead of using the pay
bills feature I used the write checks feature. One, I can tell that I used the write checks
is because here on each one of them it says "check" if I had properly paid them using
the pay bills icon I would have I would have "BILL PAYMENT" and I would have accounts payable
in my offsetting line and in these I have the actual expense account. The other way
that I know that I did this incorrectly is that I go to my Profit and Loss and I put
in the month that I am working with and notice that I am using a fake year of 2018 just so
we won't have a lot on the screen. Under Repairs and Maintenance, I've got $6400, I know that
isn't what I had for expenses that month - it should have been $3200. I am going to double
click on that and when I do you will notice there is the bill that I entered for $3200.
But there is the check that I wrote for $3200. The other way that I could look at this is
by going to the vendor center and if I find East Bayshore, it still shows that I owe $3200
to them even though I wrote a check - but because I had PREVIOUSLY entered it as a bill
and never released the liability, QuickBooks still thinks that I owe them $3200.
So that how you catch your error. A lot of times people simply because their accounts
payable keeps increasing and they know they are paying the bills.
The first thing that you need to ask yourself is if you are on the cash or the accrual basis
of accounting and this is important. So first we are going to start with the cash basis
because it is the easiest to fix. Two things I want you to be aware of. One, make sure
that even though you are on the cash basis of accounting that there aren't certain reports
that are needed on the accrual basis. Because if you produce reports on the accrual basis
and now the fix you are going to throw off all those prior reports and somebody might
question why. Number two is this, I always suggest that
you do a backup of your file before you make any changes. That way if you get confused
or you get lost in the process you can revert back to the old file and there is no harm.
Ok, let's pretend that we are on the cash basis of accounting and I am going to go in
and show you that I have the three vendors here. So what I am going to do, go back to
pay bills and I am just going to pick one and I know that I paid her using the write
checks icon. I am going to say "go to bill" and there is the bill. All I have to do from
here is say "delete" and it is going to say "are you sure" and I say "yes." Remember that
is Maureen Fay for $2500 and I am going to say "ok." Now I am going to go back into my
checking account and I am going to show you that it did nothing to that check that I wrote
- they weren't related in any way. Now I am going to go to my vendor center and
I am going to find her account and you will see that now it shows that owe her zero dollars.
Ok, that's cash basis - its very simple, all I have to do is void the actual bill. The
check stays as it is. If I go to my Profit and Loss now and I go under accounting expenses
for that month are $2500 and that is correct. Prior to this, when I still had the bill entered
in there, it showed $5000. Now, the next thing is if you are accrual
basis of accounting, its a little more difficult. The first thing is because you are accrual
basis of accounting you can't go in and delete items out. It is going to throw out the history
and the financials. The second item is - let me go back to my checking account - you will
see that these have been reconciled because of the checkmarks next to each one. QuickBooks
uses the reconciliation balance from one reconciliation, the next month that is your starting balance.
So if I was to start going through and voiding things that have already been reconciled I
am going to throw off all my reconciliations and I am going to have to go as far back as
my first void was. That's not going to work for me, I don't want to do all that work plus
you really start to then make some bigger errors. So it easier to do it a different
way. So again, if you are accrual basis of accounting
and you have completed your reconciliations, what we are going to do is use the check.
We are going to change the account code and then we are going to apply a credit to it.
Again, make sure that you back up your file so if you need back to the original one its
easy. So here is how we do that. We are going to
go back to our checking account, we are going to find one of our vendors. So we will use
East Bayshore Auto Mall, and I am going to double click on the check to open it up. Now,
down here, under "account", I am going to change this to say "accounts payable" so I
removing the expense and changing it to accounts payable and where it says "Customers/Job",
I am going to type East Bayshore Auto Mall, which is identical to who the check is written
to. Make sure those two items match. Once I do that, I am going to say "save and close"
and I am going to say "yes" to am I sure. The next thing I have to do is link that check
to the open bill, so I am going to my "pay bills" window and I am going to find East
Bayshore Auto Mall - put a checkmark in the box and notice down here now it says "number
of credits one" and available credits $3200. That matches exactly the amount of this bill.
I say "set credits," I make sure that there is a checkmark in front of the credits and
then say done, then "pay selected bill." Now notice if I go to the vendor center and
I type in East Bayshore Auto Mall - it shows that I owe them zero. If I go back to my Profit
and Loss, under Repairs and Maintenance, I only show an expense of $3200 for that month.
Prior it had been $6400 and I knew that was doubled and incorrect.
Then, go back to our checking account, I am going to find Jenn Rand, double click on it.
Again, I am going to go under accounts and change it to "accounts payable" and in my
customer/job, I am going to put exactly what is up here. So I am going to start typing
Rand, till I find it. I say "save and close" - yes, I am sure. I am going to go back to
my "pay bills" - I am going to find Jenn Rand, put a check mark in front of it and I am going
to go down to "set my credits" - verify $986 to 986 - so they are the same. I select set
credits here, make sure the checkmark is there, and I say "done" and I say "save and close"
Now let's go back to our Profit and Loss, and now my Dues and Subscriptions for the
month of January are $986.00 and that is correct. If I go back to my vendor center and I find
Jenn Rand - it shows that I owe her zero dollars. So that is how I go back and forth and make
sure that I open up the checks, I correct the checks and then I go to my pay bills and
I set the credits - It is as simple as that. Alright, now I want to thank you for watching
our video blog. For more tips you can go to the website on the slide and if you have any
comments or questions, you can email me at Melissa@AbsrSchool.com
Thanks and I hope you have a great day.
To view more of our video blogs: http://www.absrschool.com/category/quickbooks-tips/#sthash.49BnTL4x.dpbs