Wow, 2023 is almost over! Now is the time to get your QuickBooks financial house in order. You want to make this happen before January (or worse, September) next year. NOW is the time!
 
If you’ve worked on your finances throughout the year, you shouldn't have much to do from the list below. If you've been procrastinating, contact us immediately.
 
I'd like to know what follows. There are some particular things you can do now to get ready. Of course, this only applies if you like having accurate financial information and saving money on your tax return.
 
NOTE:  As you read through the below list, if you find yourself becoming overwhelmed, it's okay. Please pick up the phone and call QuickTrainer  (910-338-0488)  or email us at info@quicktrainer.net. We are here to help YOU! 

1. Account Reconciliations – Make sure all bank and credit card accounts are reconciled to the penny as of month-end. Business bank statements typically end on the last day of the month. Credit card statements have varying closing dates. If you find, when reconciling, that your opening balance does not match the statement's opening balance, STOP and give us a call.
    
2. Regarding reconciling transactions, pay attention to transactions posted in prior months that still need to clear the bank. Ask yourself, "Is this transaction likely to remove, or is there some reason this transaction may never clear? For example, does a vendor have a check and they are just slow to deposit it but will eventually get around to depositing it? Or, Did you post a transaction twice by accident, and while one of them cleared in a prior month, the duplicate transaction will never clear? In this case, this subject transaction needs to be deleted or voided.
    
3. Make a Copy – Once January rolls around and you do the December reconciliations, take the time to copy the front page of each bank and credit card statement. Your CPA will want this to verify these accounts have been properly reconciled. Also, if you have made any major capital purchases, say greater than $1K, make a copy of the sales receipt or invoice for your CPA. This does not include purchases of products for resale.
    
4. Want to know one of the best things you can do for yourself, your CPA, and anyone you desire to review your books?  Pay attention to this advice!  It will save you thousands of dollars during the duration of your business. Are you ready? ALWAYS, always, always… put a brief and succinct memo in EVERY transaction you record. Checks, bills, deposits, etc., should always contain a short memo which describes, “What is this expense?”, “What is the source of this revenue?”. Do NOT cheat in this area. It will help you when looking at a transaction months from now. It helps your CPA (or us at QuickTrainer) when you have a memo to understand the purpose of the transaction. It tells us if the transaction has been recorded to the proper G/L account. If not, we can correct the transaction quickly. We can confidently proceed if the transaction is in the correct G/L account. When accountants encounter transactions we don't understand, we have to ask questions. Questions cost you money. MEMO, MEMO, MEMO.
    
5. As you review each General Ledger (G/L) account found on your Balance Sheet and Profit and Loss statement, look for accounts that have “ – Other” in them. This is a typical indicator that transactions have been recorded to a parent G/L account. The rule for QuickBooks is that whenever you have sub-accounts (a.k.a., child accounts), you never post ANY transaction to the parent account. The parent account serves as a means to SUM the transactions within the sub-accounts.
    
6. W-2/W-3 – If you have employees (personnel on which you withhold federal, state, social security, and Medicare taxes, a.k.a., payroll taxes), and you are responsible for providing them with a W-2, make sure you are prepared to do this sooner rather than later. Do you have a current Form W-4 and I-9 for each employee? Are all employees' social security numbers recorded in their QuickBooks employee profiles? Do you have current addresses for each employee? Are you confident your payroll items are set up correctly? Note we can help you prepare your W-2 and W-3 in time.
   
   When printing W-2s for your employees and your records, don’t forget to include a W-3. The W-3 is a summary of all W-2’s. It gets filed with Copy A of your W-2s and will be electronically filed with the Social Security Administration.
   
   You must e-file your W-2s on or before January 31, 2024. Encourage your employees to compare their final dated paycheck to their W-2. Correct any errors before January 31, 2024. The W-3 and Copy A of your W-2 must be e-filed by January 31, 2024.
    
7. 1099s/1096 – If you have subcontractors who performed work for you during the year, you must provide each subcontractor a 1099 reflecting their compensation. However, this need only applies to persons or businesses where you know they are not incorporated or doubt whether they are included. We can help you get these ready to send.
   
   To help with this decision and ensure you have the proper paperwork on hand, you should have (actually, should already have) a signed Form W-9 on file. The Form W-9 is a form whereby the subcontractor provides you with their proper name, address, and tax ID number and indicates they are exempt from your withholding any federal taxes. If subcontractors use their social security number, you know they are not incorporated. However, you can still be a sole proprietor with a national tax ID. Again, if you need clarification about the legitimacy of any legally incorporated subcontractor, please ignore the point of caution and send them a 1099.
   
   In QuickBooks, your subcontractors must be set up and paid as “Vendors” (NOT Employees). Additionally, you must have each subcontractor's address, tax ID, and the box checked in QuickBooks, which reads, “Vendor eligible for a 1099”. Also, you must tell QuickBooks the specific G/L accounts to look in for 1099 subcontractor vendors. The only accounts that should be considered relate to “Compensation” and not reimbursed expenses.
   
   Finally, if a subcontractor was paid over $600 or more in compensation, then QuickBooks knows to produce a 1099. If a subcontractor was paid less than $600, QuickBooks will not create a 1099. This is how it should be, as $600 is the threshold.
    
8. Regarding #6 and #7 above, be sure to make a copy of your employees ’W-2s, your W-3s, your subcontractor's 1099, and your 1096. Your CPA will want a copy to verify your numbers.
    
9. The following topics deal with reviewing your Balance Sheet for the year. You should ensure you are looking at the Balance Sheet on an accrual basis (yes, even if you file your return on a Cash basis).
    
10. Accounts Receivable (A/R) – If you create unpaid invoices, you will see “Accounts Receivable” on your Balance Sheet. Check this balance against the balance on an A/R Aging Report. Do they agree? If not, I will share with you that one of the most common reasons for these reports not to be decided is unapplied payments (i.e., payments received but not posted to an invoice). Call us for help with this issue.
     
11. Undeposited Funds – As of 12/31, there should be no ($0) undeposited funds on the Balance Sheet. If you have undeposited funds showing, it is typically the result of deposits made but post-dated for the following year. If you have checks you received in late December but have not gone to the bank yet to deposit these funds and do not plan on going to the bank until early January, you still need to record the deposit as of 12/31. The IRS assumes you had access to these funds in the current year. Just because you did not make it to the bank does not excuse you for not recognizing the revenue in the year the checks were received. Of course, this would only be an issue for Cash Basis accounting.
     
12. Fixed Assets – If you have made purchases this year more significant than “X” (where “X” is to be determined by your CPA, or otherwise use a guideline of $1.000) which have a durable life, then these purchases should be found in a Fixed Asset account. This includes, most commonly, purchases such as land, building, leasehold improvements, furniture, fixtures, equipment or tools, computer hardware, computer software, office equipment, and vehicles. You should NOT include a product for resale (as this would be found in an Inventory Asset account or a Cost of Goods Sold account), or if you purchased a large amount of a consumable (e.g., Office Depot had a great deal on paper, so you bought $700 worth).
    
    Finally, it would be best to record the depreciation of assets on, say, a monthly or quarterly basis to have something posted to Fixed Asset accounts utilized to reflect depreciation. e.g., 1900 - (< Less Accumulated Depreciation>).
     
13. Accounts Payable (A/P) – If you enter bills and have bills that are still unpaid, you will see “Accounts Payable” on your Balance Sheet. Check this balance against the balance on an A/P Aging Report. Do they agree? If not, much like the A/R notes mentioned, I will share with you that one of the most common reasons for these reports not agreeing is bill payment checks created to pay a bill. Still, the payment amount on the check does not match the original bill (because it was later changed for some unknown reason – don’t do this), or the bill was deleted (again, don’t do this) for some strange reason. Again, call us for help with this issue.
     
14. Credit Cards – We discussed reconciling credit card accounts in #1 above. While looking at your Balance Sheet, you should not have ANY credit card accounts reflecting a credit balance unless you overpay a credit card total balance.
     
15. Sales Tax – This is one of the areas most often abused by people who don’t know better. The bottom line is this… whenever a taxable item is used on an invoice or sales receipt, sales tax is accrued in the Sales Tax Payment liability account. When paying your sales tax, you should create a Sales Tax Payment check, not a regular one. Therefore, drill down into the Sales Tax Payment account. The only transactions you should find are invoices, sales receipts, credit memos, an occasional sales tax adjustment entry, and sales tax payment checks. Call us for help with this if you find other transaction types.
     
16. Payroll Taxes – Much like the sales tax above, this is another area frequently misunderstood. Paychecks create the payroll tax liability. Liability checks are used to pay these liabilities. Any other transactions amongst your payroll tax liability accounts, except an infrequent payroll liability adjustment, are unacceptable and will cause you issues with proper balances.
    
    I like separating the various payroll liabilities into their own G/L account. This allows me to look at a glance to see if: (a) Are the company's and employees' social security in balance with each other? (b) Are the company Medicare and employee Medicare balanced with each other? (c) are there any payroll liability accounts showing a credit balance? If so, do I understand why?
    
    Finally, your CPA will want copies of your payroll forms filed throughout the year.
     
17. Business Loans – This includes business loans from banks, car loans, mortgage loans, a line of credit, a loan from Uncle Jim, or a loan from a Shareholder (think S-Corp), Member (LLC), or Owner (Sole Proprietor). Most of these loans provide a monthly statement reflecting interest and principal balance. While these loans can be reconciled monthly, just like a bank or credit card account, conducting an annual reconciliation utilizing the last statement of the year is most often acceptable. Assuming your prior year's opening balance was correct, enter your year-ending principle balance, make sure the date reflects the statement date, and then continue by clearing all principal payments. Any remaining difference will likely result from principal and interest payments not being recorded properly. A simple journal entry can be made to correct this difference, whereby (most often) the loan account reflecting the principal balance is credited for the difference, and an interest expense account is debited. NOTE: Let me caution you that the above is a typical or common scenario. These could be other issues causing a discrepancy. Call us for help if you have any doubts about this topic.
    
    Regarding loans from a shareholder, member, or sole proprietor, could you ensure the balance outstanding is correct? I too frequently find these loans have a credit balance. This can be where payments have been made to repay a loan, but the original principal balance was never recorded.
    
    Finally, if you have made a personal loan of your funds to your business (which is very common), ensure you repay yourself for this loan before taking Profit Distributions or Draws. This way, you avoid any federal and state taxes being paid on these distributions or draws.
     
18. Equity – Within the equity section of your Balance Sheet, you will most commonly find balances for Capital Stock, Additional Paid Capital, Distributions or Draws, and Retained Earnings. These accounts seldom have transactions posted against them, except for distributions or draws. Capital Stock would only see a change if something happened to the business, such as a partner coming in or leaving. It would TRULY be an exception to have ANYTHING posted to Retained Earnings.
     
19. This concludes the Balance Sheet review. Next, we will review your Profit & Loss Statement for the year. You should ensure you are looking at the Profit & Loss Statement on an accrual basis (again, even if you file your return on a Cash basis).
     
20. Income – Within the income section of your P&L, you will typically find invoices, sales receipts, credit memos, and occasional Payments (perhaps reflecting where a discount was given through the Receive Payment functionality)—however, some bypass invoicing and sales receipts, etc., and record Deposits. You would undoubtedly have “Deposits” recorded within your income section if this is you. Checks would be more of an exception than a rule. The exception frequently occurs when the business writes a refund check to a customer or client. There are some other unique scenarios whereby checks might appear, but these are considered beyond the scope of this blog.
     
21. COGS (Cost of Goods Sold, a.k.a. Cost of Sales) – Within these accounts, you will find products you resell, subcontractors who generate revenue for your business, wages of employees who generate income, and perhaps Merchant Service Fees along with shipping, postage and materials related to shipping and postage. When reviewing the details of these numbers, if you spot transactions that don’t fall within the above, it likely means the transactions have been recorded to the wrong account and should be moved. In other words, you only wish to have those transactions directly associated with a direct expense relationship incurred to generate revenue for your business.
     
22. Expenses – Reviewing the details within your various expense accounts, you determine whether each transaction resides in the proper G/L account. Remember #3 regarding memos? These memos are going to go a long way toward helping you make this decision. If you see a check in Office Supplies for $777.77 and the memo says, “Sally’s new laptop,” you know this check has been recorded to the wrong G/L account. It should be recorded to a Fixed Asset account (e.g., 1840 - Computer H/W). If you find a bill to Progress Energy sitting in the G/L account, “6710 – Books & Publications,” you know this transaction is likely in the wrong account.
     
23. Last Year’s Tax Return – Another area often overlooked is ensuring your last year’s QuickBooks financials (in which a tax return has already been filed) are tied to the actual tax return. Your CPA sometimes does this. QuickTrainer frequently provides this service for our clients. Why is this important? Your CPA cannot conduct an accurate tax return if this is not done. Again, call us if you have questions regarding this matter.
    
    Setting a Closing Date and a Closing Date Password in QuickBooks is a GREAT way to ensure no prior year transactions change once your business data has been submitted for a tax return. This is imperative to your success and saving yourself money.