Archives for November 2013

QuickBooks is easy to use, intuitive and flexible. But it is not an accounting manual or class or tutorial. If your business is exceptionally uncomplicated, you might get by without knowing a lot about the principles of bookkeeping.  Still, it helps to understand the basics. Here’s a look at some terms and phrases you should understand.Account. You’ll set up financial accounts like checking and savings in QuickBooks, but in accounting terms, this refers to the accounts in your Chart of Accounts: asset, liability, owners’ equity, income and expense.

Figure 1: A QuickBooks Chart of Accounts

Accounts Payable (A/P). Everything that you owe to vendors, contractors, consultants, etc. is tracked in this account.

Accounts Receivable (A/R). This account tracks income that hasn’t been realized yet, like outstanding invoices.

Accrual Basis. This is one of two basic accounting methods. Using it, you record income as it is invoiced, not when it’s actually received, and you records expenses like bills when you receive them. Using the other method, Cash Basis, you would report income when you receive it and expenses when you pay the bills.

Asset. What physical items do you own that have value? This could be cash, office equipment and real estate. In QuickBooks you’ll be managing two types. Current Assetsare generally used within 12 months (or you could convert them to cash in that length of time). Fixed Assets refers to belongings like vehicles, furniture and land, property that you probably won’t use up in a year and which usually depreciates in value. Depreciation is very complex; you may need our help with that.

Average Cost. This is the inventory costing method that programs like QuickBooks Pro and Premier use to calculate the value of your stock.

Figure 2: QuickBooks provides a Statement of Cash Flows report.

Cash Flow. This refers to the relationship between incoming and outgoing funds during a specific time period.

Double-Entry Accounting. This is the system that QuickBooks uses – that all legitimate small business accounting software uses. Every transaction must show where the funds came from and where they went. Each has a Credit (decreases asset and expense accounts) and Debit (decreases liability and income accounts) which must balance out (other types of accounts can be affected).

Equity. This refers to your company’s net worth. It’s the difference between your assets and liabilities.

General Journal. QuickBooks handles this in the background, so it’s unlikely you’ll ever be exposed to it. We sometimes have to create General Journal Entries, transactions required for various reasons (errors, depreciation, etc.) that contain debits and credits. Please leave that to us.

Item Receipt. You’ll create these when you receive inventory from a vendor without a bill.

Job. QuickBooks often associates customers with multi-part projects that you’ve taken on, like a kitchen remodel.

Net income. This is your revenue minus expenses.

Non-Inventory Part. When you purchase an item but don’t sell it or you buy something and resell it immediately to a customer, this is what it’s called. It’s merchandise that isn’t stored by you for future sales.

Payroll Liabilities Account. QuickBooks tracks federal, state and local withholding taxes, as well as Social Security and Medicare obligations, that you’ve deducted from employees’ paychecks and will remit to the appropriate agencies.

Figure 3: QuickBooks helps you track and remit Payroll Liabilities.

Post. You won’t run into this term in QuickBooks. It simply refers to recording a transaction within one of your accounts.

Reconcile. QuickBooks helps you with this. It’s the process of making sure your records and those of your financial institutions agree.

Sales Receipt. This is how you record a sale when payment is made in full during the transaction.

Statement. You’ll generally use invoices to bill customers in QuickBooks, but you can also send statements, which contain transaction information for a given date range.

Trial Balance. This standard financial report tells you whether your debits and credits are in balance. Should you run this report and find a problem, let us know right away.

Vendor. With the exception of employees, QuickBooks uses this term to refer to anyone who you pay as a part of your business operations.

These are just a few of the terms you should recognize and understand. We hope you’ll contact us when you need help understanding how the accounting process fits into your workflow.

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Small businesses often capitalize on their less formal, more personal, approach to their customers and clients. While there is nothing wrong with this approach in general, it should not extend to business agreements and legal matters. On the contrary, a small business should insist on reducing all agreements to writing just like their larger counterparts do.

Regardless of what type of small business you own, chances are your customers or clients are drawn to the fact that you are able to provide more personalized attention without the need for them follow inflexible procedures or goes through three different people before they can speak to someone who can help them. The informality of your business, however, should stop there.

Unfortunately, disputes occur in all businesses. Whether it is a dispute with a supplier, an advertiser, a customer, or a landlord, it can-and most likely will-happen at some point in time. When a dispute arises, documentation is the key to settling the dispute. If your dispute ends up in court the law always favors a written agreement over a verbal agreement. Having the agreement in writing to begin with, however, creates an excellent chance that you will be able to resolve the dispute outside of the courtroom.

Many disputes are the result of honest misunderstandings. A smaller percentage of disputes are the result of unscrupulous individuals trying to take advantage of new, potentially naïve, small business owners. Either way, having a written agreement that clearly outlines the terms and conditions of your business with an individual or company ensures that you are prepared to defend yourself should a dispute arise for any reason.

As a small business owner you are likely working with a very tight budget and are therefore hesitant to spend money on legal fees charged to draft agreements. While this is certainly understandable, you should look at written agreements as a type of insurance. A relatively small outlay of funds now will protect you from a much greater expense down the road. If a dispute arises and you have no written agreement to back up your position there is a much higher probability that the dispute will turn into a lawsuit. A lawsuit, in turn, will require you to hire an attorney. Your attorney fees to defend a lawsuit will be substantially higher than they would have been to draft a written agreement that could have prevented the lawsuit.

You have undoubtedly worked hard to get your business off the ground. By insisting on written agreements in all of your transactions you are helping to protect your investment and ensuring the future success of your business.

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