Beware the Ides of March and April, QuickBooks Users!
Tax time is here for S Corps, Limited Liability Companies, Sole Proprietorships, and many C Corps. And many rely on QuickBooks as their accounting software. And every year starting about now, we certified public accountants receive these companies’ QuickBooks files in various states of condition: a few pretty clean; some OK; most a mess. Why are so many of these files a total wreck when QuickBooks has been hailed as the miracle worker of small business accounting?
The majority of these QuickBooks’ messes result from users who are not formal accountants. It would be fair to say that most users wouldn’t know a debit from a credit even if their lives depended on such. Somehow small business owners have acquired this mind set that if they merely purchase and install QuickBooks, that virtually anyone can become an accountant and process their accounting records. Not necessarily so. It is true that QuickBooks can be a powerful accounting tool for many small businesses. But this is dependent upon the following conditions:
- QuickBooks having been set up correctly;
- The user understanding the intricacies of the software;
- And the user understanding at least basic bookkeeping.
Satisfying all three of these conditions in a small business is as likely as Senator Joe Lieberman advocating the public option of the health care bill next week. I have witnessed many business owners delegating the bookkeeping function to their spouse, to an individual passing themselves off as a QuickBooks guru without an understanding of bookkeeping, and even to themselves, after working out in the field all day in their trade or profession. Money is always tight for small businesses—now more than ever—and owners of small businesses inevitably scrimp on the bookkeeping function, relegating it to the bottom of their list of priorities. They feel that if QuickBooks is the do-it-all accounting software, then they can hire anyone at $10 to $20 per hour to input their company data, and that all of their financial information will just fall into place. Again: not necessarily so. In fact, quite the contrary may ensue, and herein lies the irony: these non-accountants can, and often do, make a total mess of one’s accounting records. Perhaps you know from first hand experience from having been lulled by one of those major home improvement stores into believing that you could undertake a home improvement project yourself, such as tearing down walls, ripping out plumbing, rewiring rooms, only to end up making a mess, leaving it half done or hiring a professional to salvage your house, and ultimately costing you five times more than it would have cost you if you had hired a professional to do it in the first place. And so with small businesses and their bookkeeping. QuickBooks with its focus on visual features and mouse clicking as opposed to text fields, unattractive tables, and spreadsheets, lulls its user into feeling competent in its use. But allowing someone who does not have a solid knowledge of bookkeeping to process your business transactions in QuickBooks could end up ultimately costing you many times more in “repair” bills than if you had a qualified professional handling your bookkeeping or accounting function. However, if you insist on being chintzy and having a lowly paid employee without solid bookkeeping skills enter your company’s data into QuickBooks, here are a few suggestions:
- Have that employee only enter cash receipts and cash disbursements. Don’t overburden him or her with any complicated accounting entries involving RESPAs, WIP accounts, prepaids, overhead application, etc.
- Have the individual enter the transactions utilizing QuickBooks “forms” rather than using general journal entries. If your data entry person only took a bookkeeping course years ago in high school, restrict him or her from making journal entries in your QuickBooks company's file.
- When engaging a certified public accountant, hire one who knows QuickBooks inside out. Unfortunately, many do not. It’s not difficult to assess your outside accountant’s knowledge of QuickBooks: ask him or her some technical questions about QuickBooks and listen carefully to the answers given. For instance, ask him or her the meaning and significance of the terms "source" and "target" as used in QuickBooks. If he or she does not know, it would be advisable to find someone who does know. At the very least, your CPA should also be a Certified QuickBooks ProAdvisor.
Your accounting records are too valuable of an asset to entrust to just anyone. Most small business owners forget the investment of time and money required in the set up of the software, the data entry processed over the years, as well as the intermittent clean up work provided by outside consultants. Protect this investment from damage by restricting its access to only those qualified in its use. Otherwise, your QuickBooks accounting mess may cost you thousands and thousands of dollars of clean up in the end, if not every year.
This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant.
Have a tax or an accounting question? Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants. For information and assistance on any tax and accounting issue, please visit our website, Accountants CPA Hartford, and our blog, Accounting and Taxes Simplified.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein. The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor.
The Barefoot Accountant—is a Certified Public Accountant, Certified QuickBooks ProAdvisor, operating an accounting, tax, and QuickBooks consulting firm in Berlin, Connecticut, Accountants CPA Hartford, Connecticut, LLC. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. Bill is a crazed animal lover, feeding birds, squirrels, chipmunks, skunks, possums, stray cats, and any two-legged or four-legged critter traversing through his yard. His backyard in Berlin, Connecticut has been certified as a habitat suitable for wildlife by the National Wildlife Federation.
Bill also writes an Accounting, QuickBooks, and Tax blog: Accounting, QuickBooks, and Taxes by the Barefoot Accountant. For entertaining articles, please see his listing at The Amazing Brighenti.