Before You Start Quickbooks, Learn the Importance of the General Ledger
If You Are Having a Hard Time Learning Quickbooks, Read This
I my opinion the biggest mistake made by the creators of Quickbook was hiding the most important documents in the menu labeled "Accountant Taxes." Couple this with marketing Quickbook as a system that you do not have to be a bookkeeper to use, and you end up with thousands of frustrated users.
In the old day of paper and ink, the general ledger was often referred to as the bible. It contains the summary of all the transactions. The numbers in the balance sheet and profit and loss statement are the account totals from the general ledger. In order to get to the general ledger in Quickbooks, it is necessary to state with the "reports" menu and then the "accountant taxes" menu. This gives the person entering the data the impression that the general ledger something they should not concern themselves with. This would be like someone labeling the ten commandments "for preacher use only."
I am amazed how many Quickbook users do not know what the general ledger or trial balance is.
By not familiarizing themselves with the general ledger, it becomes almost impossible to understand the accounting system. It becomes a place where data is just entered without any concern for output. Since the general ledger summarizes all the financial activity of the enterprise, it can be several pages. An easier report to work with is the trial balance. It is just the account totals as of a certain date. The general ledger for the year through December 31 20XX would summarize every transaction for 20XX by account. By examining the general ledger it is possible to see:
(1.) The beginning balance in the account (for balance sheet accounts)
(2.) What went into the account
(3.) What went out of the account
(4.) The ending balance in the account.
The trail balance is just number 4 above.
It is important to understand that balance sheet accounts stay open from year to year. For example, the ending cash balance as of December 31, 20XX becomes the beginning balance on January 1 the following year. Income and expense accounts start at zero on the first day of the year. It would not be correct to include sale made in 20XX on the income tax return the following year.
In order to understand Quickbooks, it is necessary to print out a copy of the trial balance before entries are make. As entries are posted, the bookkeeper should look at the new trial balance. The bookkeeper should see if the accounts that changed were the accounts that should have changed. The bookkeeper will learn just what the job is really about.
For example, if a cash sale of $100 plus $8 sales tax is deposited into the bank account, it would be expected that cash increased by $108, sales increased by $100, and the sales tax liability by $8. By constantly looking to see where Quickbooks posts data, it will make more sense.
The second reason why it is so hard to learn Quickbooks is because we have developed a paperless goal. Never try to learn Quickbooks on a laptop that is not connected to a printer unless your time is of little value. It is next to impossible to understand what Quickbooks is accomplishing without being able to see what changed as entries were made. In the above example it would be impossible to realize which three accounts changed by that entry without first printing out the trail balance before the entry was made.
In a blog by another CPA, the author listed 10 common errors made by Quickbook users; number four was " Don’t reconcile accounts." The author points out the many small business owners do not reconcile the balance sheet accounts to detail every month; it is very important that they do this. By giving bookkeepers the impression that the trial balance is for the accountants only, bookkeepers do not realize the importance of reviewing it. Every balance sheet account should have detail behind it. Cash should reconcile to the bank; accounts receivable should agree with a detailed listing of accounts receivable; the same is true for accounts payable. Accounts like sales tax payable, which is a liability account, should agree with the amount of sales tax that was collected and not yet paid to the taxing authority.
Another example, if the sales tax liability included amounts that were remitted to the taxing authorities, that would indicate that the payment of the sales tax was not posted to the correct account; it most likely was posted to an expense account, not the liability account.
If you are having problems with Quickbooks or if you are about to start using Quickbooks for the first time, the above could be very helpful.