Module 3 – Financial Reports Reconciliation

assets

Cleanup Assets Account

• The Balances in the Balance sheet are cumulative.
• To cleanup the Balance sheet, accounts must be on accrual basis

Common Error - Assets

• When there are old transactions from Prior Years
  • Cleanup solution: Review these old transactions and reconcile and do cleanup
• When there are Miscategorized transactions or Uncategorized assets or additions to fixed asset accounts
  • Cleanup solution: Review and categorize to its proper accounts
• When transactions are entered as fixed assets below the required amount to capitalize
  • Cleanup solution: Review and identify which transactions to expense and which transactions to record asset (more than $2500)
• When Assets were unrecorded
  • Cleanup solution: Reconcile to tax return on Schedule L. Discuss this with the tax preparer
• Unrecorded depreciation
  • Cleanup solution: Record depreciation and Accumulated Depreciation
• Other errors
  • Cleanup solution: Review, reconcile and clean up as needed

Liabilities

Common Error - Liabilities

• When there are old transactions from Prior Years
  • Cleanup solution: Review these old transactions, reconcile and do cleanup
• When there are Miscategorized transactions or Uncategorized
  • Cleanup solution: Review and categorize to its proper accounts
• Wrong/old or accumulating payroll liability balances
  • Cleanup solution: Review, reconcile and cleanup
• Booking Notes Payable
  • Cleanup solution: Reconcile to period end loan statement and record interest expense.
• Multiple sales tax liability or having old or accumulating balances in sales tax liability
  • Cleanup solution: Know the client’s sales tax workflow and identify correct sales tax liability account. Do cleanup and merge as needed
• Entering transactions directly to Accounts Payable
  • Cleanup solution: Review and make assessment. Recategorize
• Entering credit card payments to credit card liability (not connecting CC to QBO)
  • Cleanup solution: Connect the Credit Card to QBO. Record transactions and Reconcile
• Other errors
  • Cleanup solution: Review, reconcile and clean up as needed

Equity

Common Error - Equity

• Owner contributions/draws or distribution
  • Cleanup solution: Corporate and tax entities

Common Error - Opening balance equity

• Prior years Opening Balance equity
  • Cleanup solution: Close out to Retained earnings
• When Opening balance equity amounts are incorrectly entered during Current Year
  • Cleanup solution: Review and identify the issues and adjust as necessary
• When bank feeds are connected to QBO, it automatically enters bank or credit card accounts  Beginning balances to Opening balance equity
  • Cleanup solution: Determine whether transaction should be deleted. Check if you have the correct starting bank reconciliation balance
• Inventory beginning balances and other accounts may be entered automatically by QBO using Opening balance equity
  • Cleanup solution: Cost of Goods Sold is used when there is Inventory adjustments. Check if adjustments pertain to current year or prior year.
• When deleting Balance Sheet account that has still a balance amount, QBO automatically makes adjustment to Opening balance equity for the amount
  • Cleanup solution: Make the deleted account active then delete the Journal entry made by QBO

Opening balance equity

There should be no balance in Opening Balance equity in a clean set of books. OBE is not really a real account. QBO only uses this account to balance itself to adjust balances

Opening balance equity

If you delete Balance Sheet account with balance.
QBO automatically creates an adjustment to Opening balance equity through Journal Entry 

Opening balance equity

How to correct deleting the Balance Sheet account with balance. 

Go to chart of accounts. Change settings to view inactive accounts

Make the account active

Click Account History - next to the account you have just activated

Delete the Journal Entry created by QBO

Click Yes to both

The balance is restored. The JE to Opening balance equity is deleted. Then you are ready to adjust this one and do your clean up.

Cleanup of accounts receivable

Accounts Receivable

• Source transactions are Invoice, Receive Payment, Sales Receipt and Bank deposit
• You can make adjustments through Credit Memo

Relationship of AR to Accounts in QBO

Common Error - Accounts Receivable

• Invalid Invoices or old uncollected invoices
  • Cleanup solution: Ask this from your client and get information. Use credit memo. Accountant Tools using Write off invoices
• When client did not enter Invoice or overpayments or invalid transactions
  • Cleanup solution: Enter an Invoice to clean that up
• Client does not apply transactions properly or bad workflow
  • Cleanup solution: Apply customer payments to Invoices (this is when you see Unapplied Cash payment income account in Profit and Loss)
• When client enters more than one customer account (referring to same customer account)
  • Cleanup solution: Merge customer accounts

Merging the same customer accounts

cleanup of accounts payable

Accounts Payable

• Source of transactions are Expense, Check, Bill, Pay bills
• You can make adjustments through Vendor Credit  and Credit Card credit

Relationship of AP to Accounts in QBO

Common Error - Accounts Payable

• Invalid vendor bills, vendor bill was paid but payment was not applied against the vendor Bill.
  • Cleanup solution: Use Credit Memo. Ask also information from the client
• Invalid transactions, vendor was overpaid or when vendor Bill was not entered
  • Cleanup solution: Enter vendor Bill to clear out
• The client does not apply transactions correctly. There is a Bad workflow
  • Cleanup solution: Apply Bill Payments to corresponding vendor Bills (you can see Unapplied Bill Payment Expense account in Profit and Loss Report using cash method)
• Client enters more than one vendor account ( referring to the same supplier or vendor)
  • Cleanup solution: Merge vendor accounts

Cleanup of inventory account

2 Ways to record and track your Inventory Account in QBO

• Track inventory items by using full QBO workflow
• Track inventory using balance only at the end of the period

Inventory setup on QBO

• Inventory setup in QBO has limited features
• This is suitable only for wholesale inventory items and not for ecommerce business

Inventory guide inside QBO

• Inventory items in the Products and Services list must be set up as Inventory Item types
• Beginning quantities and cost must be set up correctly
• The Inventory amount in the Balance Sheet should be equal to the total value in the Inventory Valuation Summary Report
• QBO uses FIFO for inventory costing

Purchases

Sales

Costing

Common Error - Inventory

• If beginning balance was wrongly set up
  • Cleanup solution: Adjust inventory quantities
• If inventory quantities are wrong or negative
  • Cleanup solution: Adjust inventory quantities
• Unfinished inventory set up
  • Cleanup solution: Adjust inventory quantities
• The inventory balance from the Balance Sheet does not equal to the balance or amount in the Inventory Valuation Summary Report
  • Cleanup solution: Check and delete journal entries used to adjust inventory 
• If tracking inventory but QBO is not right fit because of the kind of business industry
  • Cleanup solution: If using QBO in tracking inventory, adjust inventory quantities.
  • If not using QBO in tracking inventory (especially ecommerce having high volume of transactions) evaluate what is the best method to track inventory whether using spreadsheet or inventory app then do cleanup as necessary

Inventory adjustment

Inventory is adjusted :

• Every month: if client has physical inventory counts for every month
• Year end: if client has physical inventory counts at the end of the year
• Review and reconcile Inventory Valuation Summary report to Balance Sheet
• Delete JE entry entered to Inventory and adjust inventory quantity

Tracking Inventory balance

• If you use Spreadsheet or any Inventory App (ecommerce)
• Inventory Quantities x unit Cost
• Track Inventory Amount in QBO using Journal Entry
• Use COGS to adjust Inventory

cleanup of products and services list