What You’ll Do
Anything your company owns that has value is considered an asset. Assets can be used in the production of income, and they are available to pay your company’s debts. They include cash, investments, receivables, inventory, prepaid amounts, and fixed assets.
Fixed assets are belongings of yours that are expected to last for more than a year and that are used for the production of goods and services, including such items as buildings, furniture, farm animals, vehicles, machinery, land, and mineral resources. The management of fixed assets in your QuickBooks company file includes recording the cost of the assets and monitoring their use and deterioration through regular deductions of depreciation.
Rather than taking an expense deduction for the entire cost of the asset in the year in which it is acquired, accounting and tax rules require us to spread the cost of the asset over the asset’s useful life, associating the cost of the asset with the income it produces over a period of years. Use a depreciation expense account to record the current year’s expense associated with the use of your fixed assets.
QuickBooks provides a reconciliation screen that enables you to quickly match your cash transactions with those that appear on your monthly bank account statement. You sort your transactions in the same order in which they appear on the bank statement, going down the list, checking off each transaction that agrees with the bank statement, and correcting errors if necessary:
Select Banking, Reconcile.
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You can also click the Reconcile button in the Banking area of the Home page to begin the reconciliation process.
Select the account for which you received a bank statement.
Verify the statement date and change if necessary.
Verify that the beginning balance matches the beginning balance on your bank statement.
Enter the ending balance from your bank statement.
Enter the amount, date, account, and class (if you’re tracking by class) for the service charge.
Enter the amount, date, account, and class (if you’re tracking by class) for the interest earned.
Click Continue.
Click to check off all the items that appear on your bank statement.
Click the column header title to sort transactions in that column.
Select Highlight Marked, and all transactions marked in the Reconcile - <account name> window are highlighted
Click Reconcile Now.
The reconciliation beginning balance should match the bank statement beginning balance. If a difference exists, you can ignore the difference (if it is minimal) or find the discrepancy. Click Locate Discrepancies to view the previous reconciliation report and determine why your balance was not reconciled the previous month. Use this report to view previously reconciled transactions that have been changed since the last reconciliation. It is best to clear up beginning balance errors before proceeding.
If you did not reconcile to the penny, the Reconcile Adjustment window displays. Click Enter Adjustment to have QuickBooks enter a reconciling adjustment in your register. The amount of the reconcile adjustment is sent to an expense account on the general ledger named Reconciliation Discrepancies.
Choose Summary, Detail, or Both to choose the type of reconciliation report.
Click Display to view the report onscreen.
Click Print if you want to print a copy of this report (recommended).
Did You Know?
You can see reconciliation reports from previous periods. QuickBooks Premier and higher enable you to look at your reconciliation reports from previous months. (QuickBooks Pro only allows you to see one previous reconciliation report for the most recent reconciliation.) This is helpful in case you need to resolve a discrepancy. Choose Banking and then Previous Reconciliation from the Reports menu. Choose whether you want to display the detailed report or a summary, and then click Display.
Many businesses have more than one bank account at the same financial institution. If your bank allows you to transfer money online or over the phone, you need to record this information in QuickBooks.
Select Banking, Transfer Funds.
Enter the date of the transfer.
Click the drop-down list to select the account to Transfer Funds From.
Click the drop-down list to select the account to Transfer Funds To.
Enter the Transfer Amount.
Enter an optional memo.
Click a Save option.
Did You Know?
PayPal should be treated like a traditional bank account in QuickBooks. Set up PayPal as a bank account, record transactions, and reconcile it like other bank accounts.
If your company keeps cash on the premises, be it a petty cash fund for incidental expenses or money for the cash register, you need to account for that money and for the way in which it is spent. By keeping track of the way in which this money is spent, you gain tighter control of how your company uses all its resources. One way to track petty cash is to keep a notebook or notepad with your petty cash fund and record all your expenditures. As the fund is depleted, reimburse it with cash transfers from an existing bank account, as described in the previous example.
Press Ctrl+A to open the Chart of Accounts.
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Clicking the Chart of Accounts icon on the Home page also takes you directly to the Chart of Accounts window.
Double-click the Petty Cash account (or whatever the account name is that you use) to open the account register.
Enter the date of a transaction.
Enter the name of the person or company who was paid in the Payee column.
Enter the amount of the expense in the Payment column.
Enter the account that should be charged.
Enter optional descriptive information.
Click Record.
Repeat Steps 3–8 for each transaction you need to record.
Important
Be sure to have a procedure for authorizing petty cash expenditures. Cash is the easiest thing to lose track of in a business. You need to have controls in place to protect your cash. Don’t allow employees to access cash without authorization.
Did You Know?
It’s easy to reconcile your petty cash account. When you use a petty cash account in QuickBooks, you can reconcile the account at any time by counting the cash and comparing it to the running balance in your QuickBooks register. Set up a reminder (see Chapter 7, “Using Time-Saving Features”) to reconcile on a regular basis.
If your customers pay you with credit cards, the credit card amount is deposited directly into your bank, much like a check. Later, you might have to reconcile to record fees deducted by the credit card company. At the time you receive the credit card payment, you need to open the Receive Payments window and record the payment, using the credit card information supplied by your customer.
Select Customers, Receive Payments. If presented with the Get More From QuickBooks Payment Interview, complete the survey or click the red X in the top right to close the box.
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Click the Receive Payments icon on the Home page to quickly jump to the Receive Payments window.
Enter the customer name in the Received From field.
Enter the amount of the payment.
Verify the date of the transaction.
Select the type of credit card used from the Pmt. Method drop-down list.
Click to check the invoices to which this payment applies, adjusting the amounts if necessary. (Note: QuickBooks assumes that the oldest invoice is paid first. You can override the check marks that are inserted by QuickBooks.)
Check to Process Master Card payment when saving.
Click a Save option.
Important
Get paid more quickly by processing your customer payments by credit card directly in QuickBooks. For more information, click Add Credit Card Processing to enable Credit Card Processing (separate fees apply).
Did You Know?
You can set a default account for recording credit card payments. Select Preferences from the Edit menu, and then choose Payments and Company Preferences. Check the box to Use Undeposited Funds as a Default Deposit to Account if this is the account you prefer to use for the initial recording of your deposits. Leave the box unchecked if you prefer to have your credit card payments recorded directly in your bank account. Using the Undeposited Funds account enables you to record the related credit card fee when entering the actual deposit. When you place the credit card amount on your deposit form, you can add another line, select the Credit Card Expense account, and enter a negative amount representing the amount the credit card vendor takes out for its fee. This way, the deposit you record in QuickBooks matches your actual bank deposit.
You might need to pay a deposit or retainer to establish credit or as an advance or a reserve against future services you will receive. This type of payment held by the vendor is considered to be an asset of yours and should be recorded as such. Deposits of this nature technically belong to you and increase the value of the company. The first time you write a check to pay for a deposit, you might need to set up a new account to track your company’s deposits.
Press Ctrl+W to open the Write Checks window.
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You can click the Write Checks icon on the Home page to open the Write Checks window.
Verify the bank account from which the money will be drawn.
Enter the Payee information.
Verify the date.
Enter the amount of the deposit.
Type Deposits as the account name (or whatever name you choose for this asset).
If this is a new account, an Account Not Found window displays. Click Set Up.
Select Other Account Types as the account type.
Click Continue.
On the Add New Account screen that displays, enter the name of the new account, subaccount information (if applicable), an optional account description, the account number (optional), and a tax line reference if required; then click Save & Close (not shown).
Complete the check by clicking a Save option.
When you purchase a fixed asset, you need to set up an account to keep track of the asset. You can create this fixed asset account by entering a new account in the Chart of Accounts or by adding to the Fixed Asset Item List.
Press Ctrl+A to open the Chart of Accounts; then press Ctrl+N to open the Add New Account: Choose Account Type window.
Select Fixed Asset for the account type.
Click Continue.
Enter a name for this asset.
Check the Subaccount Of box and enter a subaccount name if this asset is to be categorized as a subaccount of another account.
Enter optional information in the Description and Note fields to provide additional information about the asset.
If you plan to use QuickBooks to assist in your tax preparation, you might want to assign a tax line to this asset at this time. Depending on your type of business, the tax line might not be necessary for a fixed asset.
If you’re entering an asset you owned prior to creating your QuickBooks file, you can click the Enter Opening Balance button and enter the beginning balance and date acquired. If you plan to enter the purchase of this asset separately, skip this step.
Click Save & Close.
Did You Know?
You’ll be happy that you used the Fixed Asset Item List at tax time. When you purchase a fixed asset and record the asset as a Fixed Asset Item, QuickBooks tracks the necessary information for your tax preparation, in addition to tracking useful warranty information.
Select Lists, Fixed Asset Item List and then press Ctrl+N to open the New Item window.
Enter a name for this asset.
Indicate whether the asset was new or used when you acquired it.
Enter the asset description that displays on the bill you received from your vendor.
Enter the date you acquired this asset.
Enter the cost of the asset.
Enter the vendor from whom you purchased the asset.
Enter the account where you will record the cost of the asset.
Enter an optional description for the asset.
Enter optional information about the asset, including location, numbers, and warranty expiration date, as well as optional notes.
Click OK.
Did You Know?
The Fixed Asset Item List is not accessible from the Chart of Accounts. If you prefer to enter your fixed assets in the Fixed Asset Item List, you need to open the Item List and choose New instead of entering the asset from the Chart of Accounts list.
Did You Know?
It’s wise to give fixed assets unique names. Although it’s not a requirement that you assign unique names to your assets, you can more easily distinguish one from another when you give each asset a different name. Even if the names are simple—such as Desk 1, Desk 2, and Desk 3—when you look at a report of your assets, you know at a glance that you are looking at different assets and not a duplicate entry of the same asset.
Depreciation expense is the current deduction for the allocation of the cost of a fixed asset, spread over the useful life of the asset. Use the general journal entry feature to enter depreciation in your accounting records. You might want to confer with your accountant before making this entry because accountants often provide their clients with the entries needed for recording depreciation. You can enter depreciation monthly, quarterly, or annually; typically, the frequency of the depreciation entry coincides with the frequency with which you issue financial statements for your company.
Select Company, Make General Journal Entries.
Verify that the date and journal entry number are correct, and make any necessary changes.
Check the Adjusting Entry check box if it is not already checked.
Enter the account you use for recording depreciation expense.
Enter the amount of the depreciation expense in the Debit column.
Enter a brief, descriptive memo.
Enter the asset account you use to record accumulated depreciation.
Verify the accuracy of the credit amount that automatically displays, or enter the correct amount.
Click a Save option.
See Also
See “Making Journal Entries” on page 278 for information on using the general journal entry feature.
Did You Know?
You probably won’t use the Name column. The Name column is used for assigning journal entry amounts to specific customers. Unless you are charging this depreciation to a customer, you can leave the Name column of the journal entry blank.
When you sell a fixed asset, you need to record the income from the sale, and remove the asset and the associated accumulated depreciation from your company’s financial records. You can use an invoice form to record the sale of a fixed asset, or you can enter the entire sales event in a general journal entry. If you use the Fixed Asset Manager, you should enter the asset sale in an invoice because that process ensures that the specific asset is removed from your accounting records.
Press Ctrl+I to open an invoice form.
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Clicking the Invoices icon on the Home page also opens an invoice form.
Verify the date and invoice number, and make any necessary changes.
Enter the name of the customer who is purchasing the asset.
Click in the Item column; then scroll down the Item list and click the asset you want to sell.
Enter the sales price of the asset in the Amount column. Note: You might see a window informing you that the sales price in the fixed asset item differs from the sales price you entered here. Click Yes to close that window and continue with your transaction.
Verify the tax status of this customer, and make any necessary changes to the name of the sales tax authority that displays.
Click a Save option. You might see a window informing you that the fixed asset item has not been updated to reflect the sale. Click Yes to update the item in your records.
Verify that the date and journal entry number are correct, and make any necessary changes.
Enter the account you use for recording the deposit of cash, or enter your undeposited funds account.
Enter the amount of money you received in the Debit column.
Enter a brief, descriptive memo.
Enter the asset account you used to record the cost of this asset.
Enter the original cost of the asset in the Credit column.
Enter the asset account you used to record the accumulated depreciation for this asset.
Enter the amount of depreciation you previously recorded for this asset as a debit. This might or might not be as much as the cost you entered in Step 7.
Enter the account you use to record the income or loss from the sale of fixed assets. If you have not yet created such an account, click the Add New option at the top of the account list and set up a new account.
QuickBooks automatically computes the income or loss from the sale of this asset. Verify that this amount is correct.
Click a Save option.
See Also
See “Setting Up Income and Expense Accounts” on page 20 for information on creating a new account.
Did You Know?
When you save a journal entry recording depreciation expense, you might see a message from QuickBooks with information about the Fixed Asset Item List. Click OK to close the message.