Eric Morgan, CPA and Senior Manager, discusses the role of Quickbooks for middle-market businesses

One of the key components of a successful middle-market business is the maintenance of accurate financial records. Accounting is much more than a chore that must be attended to in order to file annual tax returns—if done correctly, it can provide information useful for evaluating performance and for making decisions that have day-to-day and long-term implications.

Although this article focuses on Intuit’s Quickbooks software, many of our clients use other products.  Most accounting products share similar feature sets, and so the information in this article can be easily applied to those products as well.

Some organizations find the class system in Quickbooks to be very helpful.  In a professional services business, the class system can be used to segregate revenues and expenses between partners.  This is done by setting up a class code for each partner and then assigning a code to each revenue and expense transaction.  You can then run a special Profit and Loss By Class report with columns that show the revenues and expenses that pertain to each provider. Other accounting solutions also provide a similar feature that might have a different name like “Categories” but work in the same way.  If your business has multiple locations or divisions, the class system can be used to separate the activity for each one.

Being able to compare your expectations for the performance of your business versus what actually happened is also essential.  Quickbooks has the ability for you to enter budget amounts for the accounts you have set up and then provides various reports that allow you to compare actual results against your budget.  This feature can be useful as a basis for determining rewards in employee incentive programs and for defining spending limits for administrative staff.

One of the most important things you can do to make sure you are capturing all transactions correctly is to make use of the Bank Reconciliation feature for each bank account active in the software.  Using the Bank Reconciliation feature is similar to balancing your personal checkbook in that it assists you with verifying that the transactions you have input into the bank accounts match the bank statements you receive. Performing monthly bank reconciliations will help ensure that the bank balances shown in the software are an accurate representation of the available cash on hand for operation of the practice.

If you find it burdensome to record each individual transaction, most accounting packages will allow you to download bank account and credit card activity from many financial institutions directly into the software.  However, if you choose to do this, it will still be necessary to classify the nature of each transaction that is downloaded.  For example, if you link your business bank account to your software and then download a debit card transaction in which you purchased office supplies, you will probably want to tell your software that the purchase was for “Office Supplies” expense.  In addition, you will be able to match transactions you have entered manually if they duplicate a transaction downloaded from the bank.

One of the primary reasons that business owners keep accounting records is to be able to produce the necessary information for the annual filing of tax returns.  Many of BiggsKofford’s clients submit a Quickbooks file or allow us to access their Quickbooks Online account so that we have the information we need to prepare the return.  Prior to providing this information to us, there are a number of things you can do that will help reduce the amount of time and fees for tax return preparation.  First, run the report that shows your Balance Sheet on the final day of the tax period (usually Dec. 31).  Examine the balances of each account.  Do the balances seem reasonable?  Do you see anything that is clearly wrong or that your CPA would question?  If so, take a look at the activity in the account for that year and correct any errors that you encounter.  Do the same for the Profit and Loss report for the period the tax return will cover.

Even though most consumer accounting products such as Quickbooks are designed for users without an accounting background, they can still seem overwhelming if you are not familiar with them.  Even experienced users often encounter situations in which they are not sure how to proceed. BiggsKofford’s goal is to effectively support our clients in the use of their accounting software so they have the financial information they need for their business to be successful.

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