A QuickBooks for contractors tip about issuing joint checks to a subcontractor and a lower tier subcontractor or material supplier for payment for work completed on a construction project.
Quite frequently, in the construction industry, a contractor needs to issue a joint or two-party check to a subcontractor and a lower-tier subcontractor or material supplier for work completed and/or materials delivered to the construction project’s job site.
Unlike many high-end construction accounting packages, QuickBooks doesn’t have a way to handle this automatically — or easily.
This QuickBooks for contractors tip provides what we consider to be a best practice when a situation like this arises.
Problem:
Joe’s General Contracting, Inc. needs to issue a $10,000.00 joint check to Sam Subcontractor AND O’Fallon’s Gravel for sand, gravel, and crushed rock which was delivered to a jobsite. Sam Subcontractor is one of Joe’s regular subcontractors and is already in the QuickBooks Vendor List; O’Fallon’s Gravel is not a normal supplier and is not setup in the Vendor list. Sarah, Joe’s bookkeeper isn’t sure how she should handle a joint check.
Solution:
When Sarah is ready to write the joint or two-party check, she should follow these steps:
- Edit Sam Subcontractors Vendor record in QuickBooks and in the Print on Check as field, she should add AND O’Fallon Gravel. She should also edit the Billed From Address so that it to displays Sam Subcontractor AND O’Fallon Gravel. Clicking the OK button to save her changes.
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- From the Write Checks window, select Sam Subcontractor, enter the dollar amount. In the Memo field type in Joint Check issued to Sam Subcontractor AND O’Fallon Gravel and then job cost as usual.
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- Print just this check.
- Immediately go back to Sam Subcontractors Vendor record and delete all references to O’Fallon Gravel, click OK to save the changes.
- Customize the columns to display in the Vendor Center to include the memo field.
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Make sure that you also have the proper Lien Waive and Release forms.
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Contractors switching to QuickBooks from another accounting program are often concerned about how to enter Job to Date Costs and Billing Data when converting, so they don’t loose this vital information.
Below is a procedure that I found several years ago, unfortunately I don’t remember where I found it or who wrote it (otherwise I would be happy to give them credit for it), but I do want to share it with you; as it is one way to handle this task.
Use this procedure to enter Job-to-date (“JTD”) costs and JTD billing so the Job Profitability Summary is accurate after converting your existing accounting software to QuickBooks, when you convert your existing QuickBooks file to a new database file, or after archiving old QuickBooks transactions.
Run your Job Profitability Summary Report to obtain the JTD figures as of the conversion date. In the date fields, leave the first field blank, enter the conversion date in the second date field. You will use the figures on this report for your data entry. If your cut-off date is 12/31/08, for example, use the next day (1/1/09) as the date for all the transactions below.
- Create a fake Vendor called “Opening Balance”. You will make this inactive after completing this procedure.
- Create an Other Expense account in the chart of accounts called “9999 • Conversion – JTD Costs”. You will make this inactive after completing this procedure.
- Create an Other Income account in the chart of accounts called “9998 • Conversion – JTD billing”. You will make this inactive after completing this procedure.
- Create a service Item called “Opening Balance JTD Billing” and link it to “9998 • Conversion – JTD billing”. You will make this inactive after completing this procedure.
To enter the JTD Costs for each job:
Enter a Bill to the “Opening Balance” vendor for the JTD cost. On the expenses tab select the appropriate Customer/Job, and select “9999 • Conversion – JTD Costs” for the account.
Enter an AP Bill Credit to the “Opening Balance” vendor for the same amount, but do not select the Customer/Job. On the expenses tab, select 9999 • Conversion – JTD Costs.
In Pay Bills, select the bill, click Set Credits, and apply the credit against the bill.
This effectively removes any AP balance, leaves no effect on GL, but leaves the cost in Job Cost.
Create a new Bill and AP Bill Credit for each active job as of the conversion date.
To enter the JTD Billing for each job:
Enter an Invoice for the Customer:Job for the total Billing-to-date on the job. Use the new service Item called “Opening Balance JTD Billing”.
Enter a Journal Entry for the total amount, the debit is to the “9998 • Conversion – JTD billing” account, leave the Name field blank. The credit is to Accounts Receivable. Select the Customer/Job name in the Name field.
In Receive Payments, enter the Customer/Job, and you will see the above Journal Entry is available as a credit against the Invoice you created above.
The net effect on GL is zero, the invoice is paid, and the correct Job To Date Billing as of the conversion date will be reflected in your Job Cost reports.
Create a new Invoice and Journal Entry for each active job as of the conversion date.
Run your Job Profitability Summary Report on the new data file and compare with the same report on the old data file. They should agree. If not, you’ll need to double check your data entry.
Top 10 Tuesday is a new feature here on the QuickBooks for Contractors blog and will feature our top 10 favorite QuickBooks tips and articles from around the web. We hope that you will find them useful too.
This weeks favorites are from:
Scott Gregory, QuickBooks Expert:
QuickBooks and Beyond
Nerd’s Blog
QuickSource for QuickBooks blog
- Upgrade Bug: COGS convert to “billable” after upgrade to v2011. Very Messy
- Do these 2 Easy Steps to Maintain a Healthy, Lean, and Fast QuickBooks file
QuickBooks and Your Business
Long for Success, LLC
The One Hour Bookkeeper
Do you have a favorite article that you would like to share?
A contractor’s work is tangible; it’s seen, touched, heard, smelled, and judged good or bad. Bookkeeping is intangible. Paperwork given to The “Keeper of the Books” is input into the “Black Box” and reports come out, eventually, someday.
Ideally, these reports tell contractors how much money they made or lost and where it all went. If the reports from Black Box match the bank’s records, the suppliers unpaid bills, and money their customers owe them then the Black Box has value.
However, in most cases Black Box reports do not agree with everyone else’s records the contractor becomes angry and distrustful because he is not in control of the Black Box.
The Keeper of the Books is in control of the Black Box and the reports it can generate which means they have the power to provide them or withhold them depending on a variety of circumstances, including their mood at that moment.
The Keeper of the Books also has the power to decide what reports are “needed” and therefore “possible” and which ones they have decided are not “needed” and are therefore “impossible” to generate.
Sometimes they tend to guard the reports and not provide them to the contractor because they know they are not accurate.
Eventually the contractor realizes his finances are in chaos so fear, masked in false bravado and manifesting as anger begins to take hold as the primeval “Fight or Flight” response kicks in and the blame game starts.
The contractor verbally attacks the Keeper of the Books saying, “Bookkeeping is only a few keystrokes, how hard can it be? I should be able to push a button and get the reports I need and they should be accurate. What is wrong with you?”
The Keeper of the Books will commonly reply with something to the effect of “When you start bringing me ALL the paperwork you will have your reports!”
After a while, the discussion ends with everyone losing faith and trust in each other and the Black Box accounting system.
The answer is to setup the accounting system similar to the dashboard on their truck or van. The dashboard has Five Key Performance Indicators:
- Speedometer
- Tachometer
- Fuel Gauge
- Oil Temperature
- Water Temperature
The contractor surveys these Five Key Performance Indicators, reflects on past decisions and the outcomes that occurred; the effect that preceded the cause; running out of fuel meant wasting time. Based on the reports (gauges) the contractor makes decisions and takes action.
Setup the accounting system to make the Black Box operate like a dashboard by putting the reports where the contractor can easily and quickly access them with a few mouse clicks to display the Five Key Performance Indicators for their company:
- Cash on Hand (Cash is a fact & Profit is an opinion)
- Accounts Receivable (Cash coming in)
- Accounts Payable (Cash going out)
- Balance Sheet (The 3 “0’s” “Owned” - “Owed” = left “Over”)
- Profit & Loss (The opinion and accuracy depends on Bookkeeper)
A tremendous amount of the STD’s (Stress, Terror, Drama) in construction accounting can be resolved with a properly setup and maintained accounting system.
Thousands of accounting software programs for construction accounting exist and none of them work well out of the box. Every one of them have to be setup and customized to each individual business for the contractor to get good value from it.
Well it’s Freebie Friday again here on the QuickBooks for Contractors blog. With the new year, we have a whole bunch of NEW ebook lined up to offer you. We hope you enjoy them and that you’ll take the time to leave us a brief comment as to what you think about them.
And now, with no further delay………….this week’s ebook is………..
Lesson 1 – Getting Started; Introducing QuickBooks Premier Contractor Edition.
Lesson 1 – Getting Started is intended for new QuickBooks users or users who feel that they would like a “refresher” course and will:
- Discuss why you need to keep books for your business.
- Discuss why you need to keep books from the IRS’s point of view.
- Using Forms and Registers to record transactions.
- Teach you how to navigate the program.
- Introduce and discuss the various “Lists” that QuickBooks has available and what their purpose is.
- Discuss how much “bookkeeping and accounting” knowledge you must have.
- Moving between QuickBooks Company data files.
- Exiting the program and backing up your data.
This eBook is an introduction on how to use QuickBooks in the commercial/government construction industry. Its main objective is to introduce you to the basic features in QuickBooks. You’ll learn about the types of information you need to track in your business, and you’ll see how to enter that information and track it in QuickBooks. By the time you complete the eBook, you’ll have a good idea of all that QuickBooks offers, you’ll be familiar with the most common tasks, and you’ll know where to find information about more advanced features.
Sound interesting? If so, request your own copy by clicking here.
