Inaugurating your books with QuickBooks is a breeze if you ve just started a business:

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1 Setting Up Existing Records in a New Company File APPENDIX I Inaugurating your books with QuickBooks is a breeze if you ve just started a business: your opening account balances are zero and you build your financial records from scratch simply by recording transactions. If, on the other hand, you have existing records for your business, you have several tasks to complete to start your new QuickBooks company file where your old records left off. Whether your existing books are paper ledgers or electronic files in another program, gather your company information before you open QuickBooks. That way, you can hunker down in front of your computer and crank out a company file in record time. This appendix begins by telling you were to get the information you need. Next, you ll learn how to get opening balances into QuickBooks for many of the accounts in your chart of accounts. Because some accounts need more detail than a journal entry can provide like open invoices for Accounts Receivable or unpaid bills for Accounts Payable this appendix shows you how to get all your accounts balances up to date with the info you need to use QuickBooks features going forward: recording open transactions like uncleared bank transactions, unpaid bills, and open invoices. You ll also learn how to adjust the balances for sales tax liabilities, payroll liabilities, and inventory. Once you finish setting up your accounts, you re ready to close the balance in your opening-balance equity account to retained earnings (or the corresponding equity account depending on the business type you use). Finally, you wrap up the new company setup by closing your books in QuickBooks and backing up your company file. I-1

2 GATHERING ACCOUNT OPENING- BALANCE INFORMATION Gathering Account Opening-Balance Information You can get much of the account-balance information you need from your accountant, reports generated in your previous accounting program, or financial statements you include with your tax returns. However, some accounts need more detail than reports provide, such as bank accounts, Accounts Payable (AP), Accounts Receivable (AR), Inventory, Sales Tax Payable, and Retained Earnings. This section describes where to find the information you need to establish account opening balances. NOTE If your company is a sole proprietorship, you keep your retained earnings in an account called Owner s Equity. For a partnership, earnings are allocated to partners profit accounts. Retrieving Opening Balance Info from Reports The reports that show the account opening balances you need depend on the start date you choose. Here are your options: When your start date is the end of your fiscal year, you only have to record balances for balance sheet accounts. (That s because your income and expense account balances restart at zero at the beginning of each fiscal year.) To obtain account balances for your accounts, start by running a trial balance report as of the last day of your fiscal year. Subtract your total expenses from your total income to calculate your profit, and then add that profit to the value of your retained earnings. By doing that, you create what s called an after-closing trial balance. When your report resembles the one in Figure I-1, you re ready to set up opening account balances. For any other start date, you can obtain your account opening balances from a balance sheet report as of your start date and a year-to-date profit and loss report from the beginning of the year through your start date. The box on page I-6 describes the order to enter transactions if you want to record all transactions from the beginning of the current fiscal year. I-2 QUICKBOOKS 2016: THE MISSING MANUAL

3 GATHERING ACCOUNT OPENING- BALANCE INFORMATION FIGURE I-1 A trial balance report shows balances for every account in your chart of accounts. If you choose the last day of your fiscal year as your start date, after you close income and expenses to retained earnings, your trial balance report shows the opening balances you need to record for most of your accounts. The advantage to using the after-closing trial balance report is that income and expense account balances are zero, which makes your openingbalance journal entry much shorter. Finding Additional Account Details For accounts that require more detail than you get from reports, here s where you get the info you need: Bank statements. For each bank account you use in your business (checking, savings, credit card, money market, and so on), find the bank statements with statement dates as close to but earlier than the start date of your QuickBooks company file. If you have petty cash lying around, count it and use that number to set up your petty cash account (page 47). Outstanding checks and deposits. You need a list of outstanding checks, deposits, and bank charges that haven t cleared your bank between your bank statement s ending date and your company file s start date. Vendor balances (Accounts Payable). If your company thinks handing out cash before you have to is more painful than data entry, then find the bills you haven t yet paid and get ready to enter them in QuickBooks so you can generate your Accounts Payable balance. For each unpaid bill, you need to know the bill s date, due date, amount due, and the expenses or items you purchased. Customer balances (Accounts Receivable). If customers owe you money, pull the paper copy of every unpaid invoice or statement out of your filing cabinet (or find the electronic versions you saved on your computer) so you can give Appendix I: Setting Up Existing Records in a New Company File I-3

4 DEFINING ACCOUNT OPENING BALANCES QuickBooks what it needs to calculate your Accounts Receivable balance: customer, invoice date, due date, amount due, and items sold. Asset values. A balance sheet or trial balance report shows asset values and accumulated depreciation. Liability balances. If your trial balance or balance sheet reports don t include the current balances you owe on any business loans or mortgages, dig out your latest loan statements. Inventory. If you track products that you sell as inventory (page 95), you need to know how many items you had in stock as of the start date, how much you paid for them, and what you expect to sell them for. Payroll. If you want to track payroll in QuickBooks and your company file s start date is in the middle of a calendar year, you need to record payroll info and payroll liabilities as of your start date. For example, you have to tell QuickBooks how much you owe for each payroll liability (federal withholding, employer Social Security, employee Social Security, and so on). The program also needs your year-to-date gross earnings, withholdings, employer taxes, and other deductions for each employee. And you need to know any payroll tax deposits you ve made during the year. You also need to know who receives withholdings, such as tax agencies or the company handling your 401(k) plan. Oh, yeah you also need payroll details (full name, address, Social Security number, and withholding information) for each employee. Chapter 15 explains the payroll options available inside and outside of QuickBooks, and online Appendix D describes how to set up and run payroll using Intuit Payroll. Defining Account Opening Balances A journal entry is a quick and easy way to initiate many of your account balances in QuickBooks. Say the after-closing trial balance report you have looks like the one in Figure I-1. Here s how you use that info in a journal entry to establish your account opening balances in QuickBooks: 1. Choose Company Make General Journal Entries. 2. In the Make General Journal Entries window s Date field, fill in your company file s start date. For example, if you use the calendar year as your fiscal year and your start date is the end of your fiscal year, use December 31 of the most recent calendar year. 3. In the journal entry s table, add a line for each account, as shown in Figure I-2. When you enter opening balances for bank accounts and credit cards, use the ending balance from the bank statement dated prior to your start date. For checking accounts and other asset accounts, record the opening balance in I-4 QUICKBOOKS 2016: THE MISSING MANUAL

5 the Debit cell. For credit card and other liability accounts, record the opening balance in the Credit cell. Page I-6 explains how to update bank and credit card account balances to reflect transactions that occur between the last statement date and your company file s start date. DEFINING ACCOUNT OPENING BALANCES NOTE Don t include the Accounts Payable (AP), Accounts Receivable (AR), Inventory, and Sales Tax Payable, and Retained Earnings accounts in the opening-balance journal entry. Other sections in this appendix show you how to record those opening balances. FIGURE I-2 Each row in an openingbalance journal entry s table allocates funds to accounts in your chart of accounts. Asset account balances go in Debit cells, whereas liability account balances go in Credit cells. (If you chose a mid-year start date, enter income account balances in Credit cells and expense account balances in Debit cells.) In the Account cell of the row where QuickBooks adds the amount to make debits and credits match, choose the Opening Balance Equity account. 4. If you chose a start date other than the last day of your fiscal year, in the journal entry s table, add a line for each income and expense account. Enter values for income accounts in the Credit column and values for expense accounts in the Debit column. 5. In the Account cell for the row where QuickBooks adds the amount to make debits and credits match, choose Opening Balance Equity. At the end of the setup process, you ll transfer the amount in the Opening Balance Equity account into Retained Earnings, as you ll learn on page I Click Save & Close. Depending on the account balances you define, various messages may appear. For example, if you included opening balances for fixed assets, a message appears telling you about setting up fixed assets with Fixed Asset items in the Fixed Asset Item List (page 147). Click OK to dismiss that message. If you Appendix I: Setting Up Existing Records in a New Company File I-5

6 RECORDING OPEN TRANSACTIONS turned classes on, the Items not assigned classes dialog box appears; click the Save Anyway button to close the dialog box without adding classes to the journal entry. POWER USERS CLINIC Entering History in the Right Order If you enter transactions from the beginning of your fiscal year, it s important to add them in the right order so the information you need is available when you need it. Here s the order to use: 1. Add purchase transactions, such as purchase orders, bills, bill payments, checks, and credit card charges. By entering these transactions first, you ll have inventory information and reimbursable expenses ready to go when you start entering invoices and other sales transactions. 2. If you charge customers for hours worked or pay employees by the hour, then enter timesheet information next. By doing so, you can create invoices or generate paychecks for hours worked. 3. Enter sales transactions, such as sales receipts, invoices, and credit memos. You need these transactions in place before you can record customer payments or process sales tax. 4. Record customer payments and other deposits. 5. Record sales tax payments for the goods and services you sold. 6. If you use QuickBooks for payroll, add payroll transactions. 7. Enter other bank transactions, such as transfers and bank fees. Recording Open Transactions After you record your opening-balance journal entry, it s time to add more detail to some of your accounts. To do that, you have to record every open transaction that s happened since the start date you chose uncleared bank transactions, vendor bills you ve received but not yet paid, and invoices your customers haven t paid. Here s how: Recording open bank transactions. In your opening-balance journal entry, you filled in your bank statements ending balances dated on or just before your start date. By recording uncleared bank transactions (checks [page 198], deposits [371], credit card charges [page 208], and bank charges [page 387]) that occur between the statement s end date and your company file s start date, you get your QuickBooks bank account balances in line with your real-world bank account balances as of your company start date. That way, it s easy to reconcile your bank accounts (page 393) when you receive your next statements. Recording unpaid bills. Recording unpaid vendor bills (page 182) builds your Accounts Payable opening balance, as shown in Figure I-3. Doing so lets you use QuickBooks Pay Bills feature when it s time to pay those bills. Recording open invoices. Record all unpaid customer invoices to establish your Accounts Receivable opening balance. I-6 QUICKBOOKS 2016: THE MISSING MANUAL

7 RECORDING OPEN TRANSACTIONS FIGURE I-3 Top: In QuickBooks, you need to record all vendor bills that you ve received but not yet paid. Bottom: When you record unpaid bills, they contribute to your company s Accounts Payable balance. NOTE In addition to transactions that affect account balances, you also need to record open non-posting transactions, such as purchase orders (page 528), estimates (page 277), and if you use QuickBooks Premier or Enterprise sales orders (page 260). Appendix I: Setting Up Existing Records in a New Company File I-7

8 ADJUSTING SALES TAX PAYABLE BALANCE Adjusting Sales Tax Payable Balance If you followed the instructions in the previous section to record open invoices that include sales tax, then those invoices add uncollected sales tax to your Sales Tax Payable account balance, as shown in Figure I-4. However, the sales tax liability in your trial balance report (Figure I-1) represents your total sales tax liability: both collected and uncollected sales tax. So you need to adjust the Sales Tax Payable account balance to reflect the taxes you ve already collected, but haven t paid to tax agencies. This section shows you how. FIGURE I-4 If open invoices you record include sales tax, QuickBooks adds that uncollected sales tax to your Sales Tax Payable account. You have to adjust the balance in that account to include sales tax that you collected before your start date but haven t yet remitted to tax agencies. To figure out the sales tax adjustment you need to make, subtract the uncollected tax (the amount in the Sales Tax Payable account) from the Sales Tax Payable account listed on your trial balance or balance sheet report. In Figure I-4, the uncollected sales tax in the Sales Tax Payable account is $ The Sales Tax Payable opening balance in Figure I-1 is $200. That means the collected sales tax amount is $200 $76.50, or, $ Here s how you record a sales tax adjustment so the QuickBooks Sales Tax Payable account balance matches your total sales tax liability opening balance: 1. Choose Vendors Sales Tax Adjust Sales Tax Due. The Sales Tax Adjustment dialog box opens. 2. In the Adjustment Date box, fill in your start date. A sales tax adjustment is actually a journal entry, which is why QuickBooks fills in the Entry No. box with the next journal entry number in your current sequence. 3. In the Sales Tax Vendor box, choose the vendor you owe sales tax to. In the Adjustment Account box, choose the Opening Balance Equity account. I-8 QUICKBOOKS 2016: THE MISSING MANUAL

9 NOTE If you owe taxes to more than one tax agency, repeat the steps in this list to create a sales tax adjustment for each one. ADJUSTING INVENTORY 4. In the Amount box, fill in the adjustment amount. Select the Increase Sales Tax By option (see Figure I-5). Because you re adding the collected tax to the Sales Tax Payable account balance, you want to increase the sales tax balance. 5. Click OK. If the Items not assigned classes dialog box appears, click the Save Anyway button. That s it! If you look at the Sales Tax Payable balance in the Chart of Accounts window, it should match the Sales Tax Payable opening balance from your trial balance or balance sheet report. FIGURE I-5 An opening balance sales tax adjustment is actually a journal entry that increases the balance in your Sales Tax Payable account. It tracks who you owe sales taxes to so you can use QuickBooks Pay Sales Tax feature to remit taxes to the appropriate sales tax agency (page 559). Adjusting Inventory If you have inventory in stock, you need to create a QuickBooks inventory adjustment so your inventory quantity and value on hand (as of your start date in your company file) matches what s in stock. You record this adjustment after you enter unpaid bills and open invoices, so your inventory quantities and values will be correct, even if those open bills and invoices include inventory items. Here s how to adjust inventory to match the inventory opening balance (on your trial balance or balance sheet report) and the quantities from your physical count: Appendix I: Setting Up Existing Records in a New Company File I-9

10 ADJUSTING INVENTORY 1. If necessary, create inventory items (page 523) in your company file You can also create inventory items in the Adjust Quantity/Value on Hand window by choosing <Add New> in an Item drop-down list. 2. Choose Vendors Inventory Activities Adjust Quantity on Hand. The Adjust Quantity/Value on Hand window opens. 3. In the Adjustment Type drop-down list, choose Quantity and Total Value. In the Adjustment Date field, type your start date; for example, 12/31/2017. You adjust both quantity and total value to establish the value and quantity of inventory you have on hand. 4. In the Adjustment Account drop-down list, choose Opening Balance Equity. The Income or Expense expected message box appears because QuickBooks expects you to use an income or expense account for the adjustment. For opening balances, you want to record the adjustment to Opening Balance Equity, so go ahead and click OK to close the message box. 5. In the Item table, fill in the Item cells with your inventory items (page 548). Fill in the New Quantity and New Value cells for each inventory item with the quantities and values as of your start date, as shown in Figure I-6. QuickBooks calculates the Qty Difference values. 6. Click Save & Close. When you save the inventory adjustment, QuickBooks updates the value of your Inventory Asset account with the adjustment amount. FIGURE I-6 An inventory adjustment adds the value of your inventory items to your Inventory Asset account. It also increases the value of your Opening Balance Equity account. I-10 QUICKBOOKS 2016: THE MISSING MANUAL

11 Setting Up Fixed Assets and Loans If you own fixed assets, such as buildings, vehicles, and equipment, you can create Fixed Asset items (page 147) to track their details. Creating Fixed Asset items doesn t change your QuickBooks Fixed Asset account balances, which means you don t have to change the Fixed Asset account balances you defined with your opening-balance journal entry. If your company has loans, you can use Loan Manager (page 405) to track loan information. Similar to fixed assets, setting up loans doesn t affect your loan account balances, so the opening balance journal entry is all you need to define your loan balances. SETTING UP PAYROLL AND YEAR-TO- DATE PAYROLL INFORMATION Setting Up Payroll and Year-to-date Payroll Information If you use Intuit Payroll, your next step is to set up payroll, create employee records, and, if your start date is mid-year, fill in year-to-date payroll information. (Online Appendix D describes how to perform all those tasks.) In addition to payroll setup, you have one additional payroll-related task to complete. The opening balance journal entry you created on page I-4 includes a balance for Payroll Liabilities. Because you created that balance outside of Intuit Payroll, that service doesn t know anything about those liabilities. To get Intuit Payroll in the loop with those liabilities, you have to make a payroll liability adjustment. That way, later on, you can use the Pay Liabilities window to pay them. To open the Liability Adjustment window, choose Employees Payroll Taxes and Liabilities Adjust Payroll Liabilities. Fill in the Date and Effective Date boxes with your start date. In the Taxes and Liabilities table, fill in the Payroll items and amounts that contribute to your Payroll Liability account balance. Click the Accounts Affected button; in the Affect Accounts? dialog box, select the Do not affect accounts option; and then, click OK. When you do that, QuickBooks changes the year-to-date amounts for those Payroll items in your payroll reports without changing the balances in your Payroll Liability account. Back in the Liability Adjustment window, click OK to save the adjustment. TIP If you don t have time to set up Intuit Payroll and a payroll-liability deadline is looming, don t panic. You can simply write a regular check to pay the payroll liabilities you created in the opening-balance journal entry. Once you set up Intuit Payroll, you can create and pay future payroll liabilities using the service. Appendix I: Setting Up Existing Records in a New Company File I-11

12 CLOSING OPENING BALANCE EQUITY Closing Opening Balance Equity As you entered transactions and adjustments in the previous sections, QuickBooks automatically updated the Opening Balance Equity account to keep your debits and credits balanced. Once your company file is set up, though, you want that account s balance to remain zero. To zero out that account, you have to close its balance into your Retained Earnings (or corresponding equity) account. NOTE If your company is a sole proprietorship, you close Opening Balance Equity into an account called Owner s Equity. If your company is a partnership, the money in the Opening Balance Equity account is distributed to the partners profit accounts. Here s what to do: 1. Choose Reports Accountant & Taxes Trial Balance. In both the From and To date fields, fill in your start date. The Trial Balance report shows the current Open Balance Equity account balance, which is the amount you need to close to Retained Earnings (or corresponding equity account). NOTE The Trial Balance report you generate may not match the trial balance you generated from your previous accounting system. The transactions you recorded for unpaid bills, open invoices, and so on are one source of discrepancies. The trial balances may also differ if one report uses cash accounting while the other uses accrual (see page xxii to learn about cash versus accrual accounting). 2. Jot down the Opening Balance Equity account balance, and then click the X at the report window s top right. If the Memorize Report dialog box appears, click No to close the report window without memorizing the report. 3. Choose Company Make General Journal Entries. In the Date field, fill in your start date (for example, 12/31/2017). 4. In the first Account cell, choose the Opening Balance Equity account. In that row s Debit cell, fill in the value you wrote down in step 2. In the Memo cell, type a note, such as Close opening balance equity. This entry will reduce the Opening Balance Equity account s balance to zero. 5. In the second Account cell, choose the Retained Earnings (or corresponding equity) account. In the Memo cell, fill in the same note you added in the first row. QuickBooks automatically fills in the Credit cell with the amount you entered in the first row, as shown in Figure I-7. I-12 QUICKBOOKS 2016: THE MISSING MANUAL

13 6. Click Save & Close. The Retained Earnings message box appears, warning you that you are posting to that account. Because that s exactly what you want to do, go ahead and click OK. If the Items not assigned classes dialog box appears, click Save Anyway. SETTING YOUR COMPANY FILE S CLOSING DATE FIGURE I-7 To close the Opening Balance Equity account balance to retained earnings or corresponding equity account, you debit the Opening Balance Equity account and credit the Retained Earnings (or corresponding equity account). You have to fill in only the Debit cell in the first row, since QuickBooks automatically fills in the Credit cell in the second row. 7. To make sure your account balances are correct, run a Balance Sheet report (Reports Company & Financial Balance Sheet Standard). In the Date field, choose the day after your start date (in this example, that s 1/1/2018). If your start date is mid-year, run a Profit & Loss Standard report (page 448) from the beginning of your fiscal year to your start date. That way, you can check your income and expense account balances. Setting Your Company File s Closing Date At long last, your company file setup is complete. Before you begin recording transactions, here are a couple of additional tasks to perform to keep your financial records safe: Set a closing date and closing date password for the company file (see page 476). Back up the file (page 495). Now, you re ready to keep your books in QuickBooks. Appendix I: Setting Up Existing Records in a New Company File I-13