Accounting professionals are often considered to be the “trusted adviser”, working in the best interests of their client and helping overcome obstacles to business success. At the very minimum, business owners recognize that they need their accountant to get their taxes done, and that relationship alone requires a level of trust that no typical vendor can boast.
Accounting professionals are also often advocates for certain computer technology and/or software solutions, largely because they are viewed as tools which facilitate a better working relationship between the client and their accountant, and which may improve the quality of information available to both. Recommendations regarding the selection of accounting software packages and solutions to record and report on business activities may be made by the accountant, and those recommendations are often accepted by the business owner based on the belief that the accountant has the necessary understanding of the client business requirements.
Making software and other technology-related recommendations to clients allows the accounting professional to potentially influence the decision of the business owner, the result of which is often that the client ends up using a solution that the accountant is familiar with and can therefore assist with setup, training, and support services. Because the accounting professional simply made a recommendation to the client, there is some safety in the event that the recommendation ends up not working out. If the client purchases the wrong software or equipment, the professional retains a level of distance from the issue because they were not the vendor of the product. Recommendations are made based on the information available, and the accountant’s defense may be that they did not have all the necessary information to make a better recommendation.
But what happens when the accounting professional BECOMES the technology provider to their client? Accounting professionals should strongly consider whether it makes sense for them to be the technology provider to their client, or simply collaborate with the client on a recommended solution. The areas of concern may include operational impacts to the client business and cost, but one main area of concern should be in the client’s perception of their service provider.
As the accountant, the trusted adviser, you benefit from a high level of respect from your client. The client recognizes that you have knowledge that they need and that can help them. You have a high status level with the client.
When the accounting professional becomes the technology provider, however, changes begin to happen with the client’s perception of their once-trusted adviser. Rather than viewing their accountant as the provider of a valuable service, the client may now view their accountant as a technology provider, responsible for the performance and functionality of IT systems. Now relegated to the position of “technician”, the accounting professional must overcome a variety of obstacles, including those specifically and only related to the technology. Difficulties with technology may overshadow the other areas where the professional is involved, and will often become the focus of ongoing discussions. While the accountant may have been trying to improve their overall value proposition with the client, the actual result may be a reduction of confidence and trust. Where once the accountant was a trusted adviser, they are now simply an IT vendor (and a replaceable vendor, at that).
With accountants and their clients now embracing cloud computing models, many accounting professionals are recognizing the potential benefits of private-labeling and reselling cloud-based solutions to their clients. Particularly if a service becomes a key element to the workflow, or is an enabling feature of the accounting service, there are compelling arguments for incorporating the solution into the “package” offered by the accounting professional. Cloud solutions are, however, just another “flavor” of technology, and the same issues regarding reselling should be strongly considered.
Accountants provide a valuable professional service to their clients. While technology and information systems facilitate and enable this relationship, the relationship itself is not fundamentally IT-based. For this reason, professionals should use caution when considering how to involve IT solutions in their service offerings. Delivering a service under the accountant business brand communicates to the client who their service provider is, but it also communicates a level of responsibility that the firm may not be prepared to take on. When the systems are working well, the private-label model may work very well for the firm. But when systems fail, the risk to the professional is not only lost productivity, but a potential loss of faith and trust – and business – from the client.
Freebie Friday’s are all about valuable Free eBooks and eGuides, sometimes they are eBooks that we’ve created and other times they are eBooks that we’ve found on the web that we feel are valuable and could be of interest to you.
Back in the “old days”, when you purchased QuickBooks it came with a manual – yup, that’s right I said a manual – an actual honest to goodness manual bound as a softcover book. I have a bunch of old ones hanging around.
QuickBooks doesn’t come with a printed manual anymore, but there are manuals available in eBook form – downloadable pdf’s, you just have to know where to look for them.
You can find manuals for QuickBooks Premier, Enterprise, and Mac versions straight from Intuit’s support area at http://support.quickbooks.intuit.com/support/Articles/INF12758, once this page loads click on the plus sign next to QuickBooks 2011 Guides – and you’ll find them.
You can also get eGuides for older versions of QuickBooks from this same link for QuickBooks 2007, 2008, 2009, and 2010.
Unfortunately, there aren’t any eBooks or eGuides for QuickBooks Pro users, but you can download the Premier version eGuide or use the built-in Help.
Premier users can also find the link for this eBook directly within the QuickBooks software, by going to the Help menu -> choosing Learning Center Tutorials -> and clicking on the What’s New tab.
Have a great weekend and check back next week to see what is being offered on Freebie Friday!
If you are using QuickBooks to manage your inventory, you need to understand how QuickBooks deals with the cost of inventory items. Unfortunately, the term “cost” is used in several different ways, and it can get confusing. Here is a quick rundown of how QuickBooks handles things.
I’ll focus on Inventory Part items, which are the true “inventory” items in QuickBooks, with a little detour to talk about Inventory Assembly items.
Cost Fields in QuickBooks
If you look at an Inventory Part item, you will see that there are two cost fields.
Cost, on the left, is a “reference” field. That is, it doesn’t have any direct bearing on the valuation of your inventory, the cost of your inventory in your inventory asset account. I wish they had another name, because it is confusing to talk about it. I refer to this as the “last purchased cost”, although that isn’t always exactly right.
If you purchase an item and receive a bill for it, the cost that you receive the item at will usually be stored here (but not always, that depends on how your company file is set up). You can edit this cost directly in this window. This does not have a direct effect on your inventory valuation.
The avg cost field, bottom center, is the field that is used in the calculation of the value of your inventory. This is calculated by QuickBooks based on the cost of receipt (and adjustment) transactions. You cannot directly edit this in this window.
If you look at the edit item window for an Inventory Assembly item you will see a third cost, the total bill of materials cost, which is another “reference” cost (not directly affecting inventory valuation). I’ll discuss that in more detail later.
Inventory Valuation
QuickBooks values your inventory using an average costing calculation, as opposed to other types you may be familiar with, such as LIFO, FIFO, or specific costing. This can be a complicated subject – I am only going to go into this lightly. Let’s look at a simple example.
- If start with an item with no quantity, no value, and receive a quantity of 10 at $1.00 each
- 10 items and a value of $10.00, we added another 10 items at a value of $20.00, so, you will see that the cost is $1.00, and the avg cost is also $1.00. You have $10.00 of inventory in your inventory asset account.
- If I then receive another 10 items, but at a unit cost of $2.00, you will usually see the cost value set to be $2.00. However, the avg cost of your inventory will show as $1.50. We started with we have 20 items with a value of $30.00. That gives us an average cost of $1.50.
If you sell one of these items in an invoice, the Cost of Goods Sold (COGS) account is incremented by the average cost of the item at the time of the sale.
One thing that I will note, briefly – if you sell all of your inventory, and then continue to sell the item so that you go to a negative quantity, the costing calculation runs into problems. QuickBooks can’t accurately account for a negative balance, and you can see some very odd figures show up in the average cost field, and your inventory valuation reports. Once you bring the balances back to positive these figures should resolve themselves, but it is always a good idea to not allow inventory balances to go negative.
Editing the cost field in an inventory record will have no bearing on the avg cost, or your inventory valuation. The only way to directly change the avg cost or valuation is to use the inventory adjustment function and do a “value” adjustment.
Manufacturing Cost
Let’s take a look at an inventory assembly item. The WHAS wheel assembly has two components, a screw (two of them) and a roller. Note that there are three costs shown in this window.
The Cost field (15.00) has no real bearing on valuation of this item as I have discussed above.
The Avg Cost field (32.00) is the cost that QuickBooks uses to calculate the value of this item.
The Total Bill of Materials Cost field (32.00) is not directly tied to the cost or avg cost values. This is the sum of the cost values of the components in the BOM. In our starting example it matches the avg cost, but they are not connected.
If I build this assembly item, the avg cost of the assembly will NOT be adjusted by this total bill of materials cost. Instead, QuickBooks will take the avg cost of the component items and roll that into the received cost of the assembly. You can’t look at this screen and tell what the exact cost of the build will be. Remember, the total bill of materials cost shown here is based on the cost field of the components, not the avg cost value. But avg cost is what is used in valuation.
For a more detailed explanation of costs in inventory assembly items, see my article on Understanding Total Bill of Materials Cost in QuickBooks.
There are two possible ways to track retainage (retention) that you owe to your subcontractors; one method utilizes a Sub-Account of Accounts Payable, called Retainage Payable, and the other method utilizes an Other Liability Account, called Retainage Due to Subcontractors. Please review the setup and use of both methods, and choose whichever one seems more appropriate for your use.
You will need to inform your accountant of this at year end, so he or she, may make the necessary Journal Entries.
Method 1: Retainage as an Accounts Payable Sub-Account
Accountants tend to really like this method, but, it is a two-part process for the person actually doing the billing, which means that it’s error prone, simply due to normal day-to-day distractions.
From the Lists menu, choose Chart of Accounts
- From the Chart of Accounts window, click the Accounts button (lower left), and choose New
- Choose Accounts Payable as the Account type
- Enter an Account Number
- In the Name Box, enter Retainage/Retention Payable
- Click on the Subaccount of box, and choose Accounts Payable
- In the Description box, enter Retainage/Retention Payable on Contracts
- Click OK
Deducting Retainage/Retention Payable on a Vendor/Subcontractor Bill
If you have created a Purchase Order for this subcontractor and are now receiving his first progress billing, choose Vendors, and Receive Items with Bill, and if you have not created a Purchase Order, simply choose Enter Bill.
Select the Subcontractor from the drop down list; change the date, enter a Reference Number, the total amount of the bill, select terms, due date, and enter a memo if applicable – select either the Expenses or Item tab, and pull in the appropriate Item Code or Expense account associated with the vendor bill, and select the Customer: job. In the next blank line, again, pull in either the Item Code or Expense Account, enter the retention as a negative amount, in the memo field type in less retainage held, choose the Customer: job from the dropdown list.
Sample 1 below shows a sample bill created from a Purchase Order using the Item tab:
Sample 2 below shows a sample bill created using Enter Bills and the Expenses tab:
Recording Retainage Payable
Select Enter Bills; change A/P Account from Accounts Payable to Retainage/Retention Payable. Select your subcontractor; enter date of original subcontractor invoice, in the Ref. No., input the invoice number followed by, –R to indicate Retainage/Retention, enter amount due, change your terms to reflect when you will pay the retainage, select either the Item Code or the Expense account, and select the job.
Sample 1 shows a bill for retainage entered using the Items tab:
Sample 2 shows a bill for retainage entered using the Expenses tab:
Method 2: Retainage Payable as an Other Liability Account
This is a simple one-step process for the person actually doing the billing, and at the end of the year, the accountant will need to do a Journal entry to move the dollars for tax return purposes.
From the Lists menu, choose Chart of Accounts
- From the Chart of Accounts window, click the Accounts button (lower left), and choose New
- Choose Other Liability as the Account type
- Enter an Account Number
- In the Name Box, enter Subcontractor Retainage/Retention Payable
- In the Description box, enter Retainage Payable on Contracts
- Click OK
Setting up Items to Deduct Retainage Payable
- From the Lists menu, choose Item List
- From within the items List window, click the Item button (lower left), choose New
- In Type box, select Other Charge
- In the Item Name/Number box, type in 92 Less Sub Ret
- In the Description box, type in Less Subcontractor Retainage/Retention
- In the rate box, leave the amount set to 0 (you cannot use percentages in the detail of the bill) in the
- Account box, select the account used for Retainage Payable on Contracts
- Click OK to create the new item
NOTE: If you have different flat rates of retainage (retention) that you use, a separate item can be created for each of them using the rate in the Item Name|Number.
Deducting Retainage Payable on a Vendor/Subcontractor Bill
If you have created a Purchase Order for this subcontractor and are now receiving his first progress billing, choose Vendors and Receive Items with Bill, and if you have not created a Purchase Order, simply choose Enter Bill.
Select the Subcontractor from the drop down list; change the date, enter a Reference Number, the total amount of the bill, select terms, due date, and enter a memo if applicable – select either the Expenses or Item tab, and pull in the appropriate Item Code or Expense account associated with the vendor bill, and select the Customer: job.
Sample 1 shows a deduction for retainage using the Items tab:
Sample 2 shows a deduction for retainage using the Expenses tab:
While this is a much more simple process than Method 1, it will not reduce total expenses or Cost of Goods Sold, on a Profit and Loss Report. You will need to inform your accountant of this at year end, so he or she, may make the necessary Journal entries.
Recommendations:
Create a copy of your actual QuickBooks company data file and experiment with each of these methods to determine which is the right method for your company –and discuss this with your accountant so that they are aware of what you are doing!
Did you find this article helpful? If so please take the time to leave a comment – or share it with your friends.
The end of the year always adds even more tasks to your already busy schedule, and sometimes it is simply overwhelming and I’ve often been asked – “What do I need to do?”
Intuit has built a very good “QuickBooks Year-End Guide/Checklist” and it’s included right in your QuickBooks program by going to the Help Menu and choosing Year-End Guide. Over the next few days, we’ll cover each topic listed in the Year-End Guide, and offer some additional tips on each of the three sections: Tasks to prepare for filing taxes, Tasks to do if you use subcontractors, Tasks to do if you have employees and some Tips for the upcoming year.
Tasks to prepare for filing taxes:
Reconcile all bank and credit card accounts – now really you should have been doing this every month…but if for some reason it’s been several months since these accounts were reconciled here’s a quick way to reconcile multiple months all at once – accurately.
- Determine which month was the last month that was reconciled.
- Gather all of your bank or credit card statements and put them in order; oldest on top and most recent on the bottom. If you don’t have all the statements, please don’t be tempted to just “skip” that month, contact the bank and ask for a copy, or if you have on-line banking capabilities get a copy off the internet.
- In QuickBooks go to the Banking Menu and choose Reconcile.
- In the Begin Reconciliation window
- Choose the Account you wish to reconcile (you can choose either your bank account or your credit card account) from the drop down Account List.
- The Statement Date should be the ending date of your most recent statement.
- The Beginning Balance should be the same as the Beginning Balance of your oldest statement. If for some reason the amounts are not the same, click the link that says “What if my beginning balance doesn’t match my statement?” and follow the instructions in the QuickBooks Help file to determine what is wrong and how to correct the problem.
- The Ending Balance should be the amount shown as the ending balance on your most recent bank statement.
- Enter any Service Charge for the most current statement only – (we’ll put the rest in manually), please don’t be tempted to “add them all up” and put that amount here.
- Enter any Interest Earned for the most current statement only – (we’ll put the rest in manually), please don’t be tempted to “add them all up” and put that amount here.
- Click the Continue button which will bring you to the Reconciliation window.
- To enter Service Charges and/or Interest Earned for additional months, leaving the reconciliation window open, from the Banking Menu – choose Use Register and enter the transactions individually using the closing date of the statement as the date of the entry. Additionally you might want to create “Other Names” called Bank Service Charge and Interest to use in the Payee Field when recording these transactions, just to make reconciling easier.
- Working from the statements, oldest one first, just go through and check off each deposit and check until you are finished.
- If you find checks or deposits on the statements that are not in your QuickBooks file, go to the Banking Menu and choose Use Register, record the transaction with its original date, assigning the amount to either Ucategorized Income or Uncategorized Expenses – so that later you can run a Year to Date Profit and Loss Report, zoom in on those accounts and find the hard copy of the original transaction and correct the entry or entries.
Verify petty cash entries for the tax year – again, this is something that you should be doing every month, but if you have several months that you need to reconcile, it can be accomplished following the instructions above.
Make year-end accrual adjustments and corrections – I usually suggest that you work with your accountant on these matters.
Close your books – I usually suggest that you close your books for the fiscal year with a password – only the QuickBooks Administrator can do this, but it does prevent accidental changes to already reconciled transactions by others. Of course, the QuickBooks Administrator can make changes to transactions as required and a closing date exception report can be generated by going to the Reports Menu, choosing Accountant & Taxes, and then selecting the Closing Date Exception Report. With QuickBooks 2011 you don’t need to worry about this effecting Non-Posting transactions such as Estimates & Purchase Orders.
Adjust Retained Earning – QuickBooks does this automatically, so there should be no need for you to have to do this manually.
Review details of all new equipment purchased during the year – if you are using QuickBooks Premier (including Premier Contractor, Manufacturing, etc.) you should and can enter details about your fixed asset purchases by going to the Lists Menu and choosing Fixed Asset Item List – otherwise you will have to track these items on an Excel Worksheet, a Word Document, or in QuickBooks itself by adding Sub-Accounts to your main Fixed Asset account for each piece of Equipment that was purchased and adding as much detail as possible in the Name, Description, and Notes boxes.
Make all asset depreciation entries and adjustments – I usually suggest that you work with your accountant on these matters.
Review fringe benefits that need to be reported on Form W-2 – Fringe benefits can include Health and Life insurance, public transportation subsidies, moving expense reimbursements, employer provided vehicles, educational reimbursements plans, group-term life insurance, employee loans that are forgiven, and Union Fringe Benefits. If you aren’t sure if any of the benefits that you offer your employees should be included on their W-2’s consult your accountant.
Take a physical inventory and reconcile with book inventory – it is important that you take a year end physical inventory; I usually suggest that you include a copy of that physical inventory sheet for your accountant and let them give you the appropriate adjusting entries to record in QuickBooks.
Print financial reports – from the QuickBooks Year-End Guide/Checklist click on this topic for reports to print. Keep in mind that these reports will not have adjusting entries from your accountant and that amounts will change. I would recommend that when you create the suggested reports that you modify them and add a report subtitle called “Prior to Adjusting Entries”. After you have entered the adjusting entries from your accountant, rerun these same reports adding a new subtitle called “After Adjusting Entries”.
Print income tax reports to verify tax tracking – from the QuickBooks Year-End Guide/Checklist click on this topic for an explanation of what is involved for this action item. You should ask your accountant for help in setting up the correct tax tracking for each item on your Chart of Accounts.
Import your tax-related data to Turbo Tax or ProSeries – from the QuickBooks Year-End Guide/Checklist click on this topic for an explanation. If you do not prepare your own tax returns you can definitely skip this section.
Print and mail forms W-2, W-3, 1099, 940, 941, and 1096 – remember you no longer need to buy pre-printed W-2 and W-3 forms as QuickBooks will print these forms on plain paper; you will still need to purchase preprinted 1099 and 1096 forms.
Archive and back up your data – backing up your data is something that you should be doing on a very regular basis as part of a disaster recovery plan in the event of computer virus, computer failure, etc.
Archiving your data is something that you should do if your file is large – contains more than 3 years of data – although some businesses will have extremely large files after only 2 years. Creating a new company file each year is not necessary and not recommended for contractors; you probably have jobs that span over the course of 2 calendar years or more and you will want access to complete details relating to those jobs for job costing reports. There are, however, times when creating a new file is appropriate, such as you have several years of data with early years containing lots of data entry errors, or your data file has become damaged and cannot be repaired.
