Introduction to QuickBooks Online Edition Course Manual

Introduction to QuickBooks Online Edition Course Manual Module 8 End of Period Activities and Financial Statements Copyright Notice. Each module of the Introduction To QuickBooks Course Manual may be viewed online, saved to disk, or printed (each is composed of 20 to 35 printed pages of text) by students enrolled in the author s accounting course for use in that course. Otherwise, no part of the Course Manual or its modules may be reproduced or copied in any form or by any means graphic, electronic, or mechanical, including photocopying, taping, or information storage and retrieval systems without the written permission of the author. Requests for permission to use or reproduce these materials must be mailed to the author. End of Period Activities The end of the accounting period is a busy time! Accounts must be brought up to date and balances must be verified, and then the financial statements must be prepared and printed for distribution. Making Adjusting Entries The transactions that we recorded in the previous modules were ones that primarily affected the First Bank Checking, Accounts Receivable, and Accounts Payable accounts. We recorded them because receipts, checks, invoices, or other documents had been created when the transaction occurred, and these source documents needed to be entered into the accounting system. Some of the period s transactions do not generate source documents, and so do not trigger entries in the system. Nevertheless, these events do cause changes in the accounts, and we must record them if we want the financial statements at the end of the period to be correct. One of the accounts that is affected this way is the Prepaid Expense: Insurance asset account. The account is increased when cash is paid to purchase a policy. At that time, a source document is produced and recorded. Over time, though, the coverage expires, and as the asset is consumed an expense is incurred, but no source document is produced and no entry is made. Therefore, at the

Introduction to QuickBooks, Module 8 2 end of the accounting period, before the statements are prepared, it will be necessary to reduce the Prepaid Expenses: Insurance asset account and record an expense. This is called making an adjusting entry. Many other accounts will also need to be adjusted at the end of the period. Supplies and other prepaid expense assets, along with equipment, vehicles, and buildings are all assets that will have lost some of their value during the period and will need to be adjusted. Adjusting entries are usually something that the small business owner/operator leaves for the accounting firm or the bookkeeper to do. Doing them correctly requires at least some training in Accounting. How Much Accounting Should I Know? Throughout the course, we have been recording business transactions without making journal entries or even using the words debit and credit. This is one of the often-touted benefits of using QuickBooks: It enables non-accountants to do accounting. How much Accounting should you know? Accounting students are taught to make journal entries to record business transactions, to post debits and credits from the journal to the general ledger accounts, and to record adjusting and closing entries. They also know about accounting theory as it relates to the identification, measurement and reporting of business assets, liabilities, and owner s equity. QuickBooks was designed for business people who do not have accounting backgrounds, and are not able to make debit-and-credit entries in their accounting systems. As we have seen, QuickBooks users are able to record transactions by completing simulated business forms, such as customer invoices or checks. When these documents are filled out on the computer screen and saved, the program then makes debit and credit entries in the appropriate general ledger accounts. Users don t see this happen it is all done invisibly, behind the scenes. Our conclusion? Some knowledge of debit-and-credit journal entries and accounting theory is necessary in order to be fully functional in QuickBooks. Even if the business has an accounting firm and is only entering the daily transactions into forms, the concepts that are taught in introductory bookkeeping or accounting courses are still valuable. Without them, it will difficult to correct errors, or even realize that they have been made; and it will be difficult to interpret the reports generated by the accounting system and use them to manage the business.

Introduction to QuickBooks, Module 8 3 Recording Adjusting Entries in the Journal QuickBooks provides three ways for users to record transactions: 1. Non-accountants can record transactions by filling out business forms ( Write Checks, Pay Bills, Make Deposits, etc.). 2. These users may also enter transactions directly in an account register (we did this when we opened First Bank Checking in the chart of accounts and recorded transactions directly in the account). 3. Trained bookkeepers and accountants may enter any (or all) of the transactions using a debit and credit journal entry format. Accountants appreciate QuickBooks because clients who do not have formal accounting training and cannot make debit and credit entries in the accounts are still able to use methods 1 and 2 to do much of the work. In fact, it is best, when recording invoices, bills, payments and collections, to use these approaches. Many valuable QuickBooks functions (invoice printing, check writing, report creation, and others) are lost when they are recorded as debit and credit entries in the journal. Some transactions, though, cannot be entered into a QuickBooks form. End-of-period adjusting entries, closing entries, and some error corrections will simply require the use of the QuickBooks journal (or, sometimes, the register). We will now briefly explore the use of the QuickBooks journal as the end-of-period adjustments are recorded. Adjustment #1: Recording the Expiration of Insurance Coverage Login to QuickBooks Online by going to https://qbo.intuit.com. Enter your username and password. When your Home Page appears, place your mouse pointer on the Banking tab. Select "Journal Entry" from the drop-down list under the "More" heading (see below).

Introduction to QuickBooks, Module 8 4 Tip: Remember that you can click the "Rearrange Menu" button at the bottom of this list and rearrange the menu items. Since we will not engage in online banking in our course but we will be using the journal quite a bit, you might want to put "Online Banking" under the "More" tab and move "Journal Entry" to the ribbon. The "Journal Entry" screen has now appeared on your screen. This form is similar to the general journal that introductory students see in their bookkeeping and accounting courses. Any transaction can be recorded here by making debit and credit entries to the accounts that are affected by the transaction. Remember, though, you are not expected to know about debit/credit journal entries in this course. In our case, we need to record the expiration of insurance coverage, so we will credit (decrease) the Prepaid Insurance account (a subaccount to the Prepaid Expenses parent account), and debit (increase) the Insurance Expense account. The credit reduces the balance in Prepaid Insurance and the debit increases the balance in Insurance Expense. If we determine that $100 of the insurance coverage has expired during November, we will record the debit and credit entries as shown below. Enter the information shown in the illustration into your journal page, and click Save to record the adjustment.

Introduction to QuickBooks, Module 8 5 The Name field in the journal can be used to enter a vendor or customer name. If an entry is made to either Accounts Receivable or Accounts Payable, a name must be entered in order to process the transaction. When we click the "Adjusting Journal Entry" box, we are identifying the entry as an adjustment. We are also using the code ADJ in the memo field to label this transaction as an adjusting entry. When we display reports in the future or view entries in the account register, this code will help us identify the entry as an adjustment. Debits and Credits Are debits and credits just Greek to you? If so, QuickBooks has given us a handy guide that can help. At the upper right corner of the journal entry form is a button labeled How do I? If you click it, you will see a section called How do I... If you click on Make a journal entry? you will see a link to the table shown opposite. This is a summary of the effects of debits and credits on various account types. This chart can be helpful for nonaccountants, but QuickBooks users who need to make debit and credit entries should have a sound understanding of basic accounting procedures before doing so. Anyone who will need to use the journal entry feature in QuickBooks should be advised to take a course in basic accounting or bookkeeping, or to do self-study in an accounting textbook. After all, as the saying goes, a little learning can be a dangerous thing!

Introduction to QuickBooks, Module 8 6 Adjustment #2: Recording Depreciation Equipment, vehicles, and buildings eventually wear out and must be replaced. The loss of value from wear and tear is call depreciation, and it is necessary to record Depreciation Expense for all the company s depreciable assets. In our case, the equipment and the automobile are our only two depreciable assets. Suppose it is determined that the office equipment has depreciated by $50 during the month. Select Depreciation Expense-Other Expenses from the drop-down list, and enter $50 as the amount of the debit. Enter a $50 credit to the accumulated depreciation, contra-asset account, Depreciation-Fixed Assets. Caution: It is easy to select the incorrect account in these depreciation entries, so refer to the illustration below and make sure you are doing things correctly. Enter ADJ in the memo field, and click Save to record the transaction. Note that the total debits and the total credits are shown at the bottom of the debit and credit columns. A basic accounting rule is that debits must equal credits. QuickBooks will not let us save the entry if they don t! Making Adjustments in the Account Register An alternative way to record adjusting entries would be to make them directly in the account register. This is actually more user-friendly for non-accountants, since the terms "debit" and credit" are not present in the account register!

Introduction to QuickBooks, Module 8 7 Let s say that we ve determined that $100 of depreciation expense has been incurred through wear and tear on the automobile. In order to record this depreciation we could make another entry in the Journal, but this time let s go to the Chart of Accounts and make the entry in the account register. Open the Chart of Accounts, and find the Depreciation account row under Automobile (see below). (Note that the Depreciation account under Office Equipment has increased by $50) Since we now want to record depreciation for the Automobile, double-click the Depreciation account row under Automobile. When the Depreciation register opens, click on the first blank line at the bottom of the register and enter the adjusting entry (see below). Enter a date of January 31, 2011, and then select Depreciation Expense as the Account. Enter ADJ in the Memo field, and then record a $100 decrease in the account. Why enter a decrease? Since the Depreciation account is a contra-asset account, its balance is subtracted from (i.e., it is contra to) the Automobile account. Therefore, the normal balance in the Depreciation account is a negative amount (note that the current balance is displayed as a negative $3,000). Since we want to make this negative balance greater by $100, we need to enter a negative $100 (a decrease of $100) in the account.

Introduction to QuickBooks, Module 8 8 Click Save to record the transaction and the screen refreshes. We now see that the balance in the Depreciation account has increased by $100 (see below). Adjustment #3: Recording Supplies Expense One other account in our company s chart of accounts requires adjustment, and we will now turn our attention to it. Some of our company s supplies have been sold to customers, and other supplies have been used in operating the business during the month. Therefore, it will be necessary to adjust the balance in the Prepaid Expenses: Supplies account. When products are sold to customers, the cost of the products that were sold (called the Cost of Goods Sold, or COGS ) must be recorded in a separate account (usually called Cost of Goods Sold or Cost of Sales). This way, the cost of the supplies we sell can be matched against the revenue earned through their sale, and the profit or loss from the sale can be determined. Why worry about this? Without good cost records, companies cannot determine appropriate selling prices for products and investors cannot tell how much profit has been earned from their sale. Our current Chart of Accounts has an operating expense account called Supplies Expense, and it can be used to record the cost of the supplies that we consumed in operating our business. There is also a "Cost of Goods Sold" account. To make our adjusting entry, we will need to reduce (credit) the Supplies sub-account by the amount of supplies consumed, and then increase (debit) both "Supplies Expense" and "Cost of Goods Sold." Since the account register only allows us to enter one account when a transaction is recorded, let's use the Journal to record the supplies adjusting entry. Open the "Journal Entry" page, and set the date to November 30, 2011. Select the "Cost of Goods Sold" account for the first row of the journal entry and enter a debit amount of $350. This amount would be determined through separate records kept of the supplies that were sold to each customer.

Introduction to QuickBooks, Module 8 9 On the next line, select Supplies Expense, and enter $520. This is the amount of supplies that were consumed in operating the business during the month. Finally, select "Prepaid Expenses:Supplies" and enter a credit amount of $870. Your entry should look like the one illustrated below. Note again that the total debits and total credits are displayed at the bottom of the form. In this case, two debits and one credit were recorded. A journal entry can consist of any number of debits and credits, as long as the total of the debit amounts equals the total of the credit amounts. Remember, QuickBooks will not allow us to save an unbalanced entry. Click Save to record the adjustment. Running the Transaction List and the Journal Reports. QuickBooks provides us with two reports that can help us verify the entries we just made, the Transaction List by Date report and the Journal report. Click the Reports tab and then click "Accountant & Taxes" in the report list on the left side of the screen. Select Transaction List by Date from the drop-down menu (see below).

Introduction to QuickBooks, Module 8 10 When the report appears, edit the date range on the report, making it October 1 November 30, 2011. Your report should appear as follows: (Top Portion of Report) (Bottom Portion of Report) This report lists all of the transactions we entered during the period October 1 through November 30 (only a portion of the report is illustrated above). Unfortunately, when journal entries are made, two account balances are affected, and QuickBooks will not display two lines for any of the transactions in this report. All of our adjusting entries and some of the others are listed as SPLIT transactions. We will only be able to see the details of the split transactions if we click on the transaction line and drill down to the original entry. There is another version of this report in QuickBooks that will eliminate the split transaction problem and give us a better way to verify our entries. Click the Reports tab and then click the Transaction List with Splits report in the "Accountant & Taxes" area (see below).

Introduction to QuickBooks, Module 8 11 When the report appears, set the date range to October 1 November 30, 2011 and click Run Report. Your report appears as follows (we see portions of the report below, not the entire report): The Transaction List with Splits report is similar to the Transaction List report, except that the details that were hidden are now displayed. However, the report is not organized by date, but rather by account, so to verify our adjusting entries we will have to search for the accounts that were affected and look for our entries in them. If you scroll down the report, for example, you will come to Prepaid Expenses: Prepaid Insurance and Prepaid Expenses: Supplies (see above). The entries we made to record the opening balances in the Prepaid Insurance and Supplies accounts are displayed here, but we do not see the adjustments we made to these accounts. Every accounting transaction affects at least two accounts, and QuickBooks has organized this report in such a way that each transaction is associated with just one of the affected accounts. This is an unfortunate characteristic of this report. Not all the entries made to the account are displayed with the account!

Introduction to QuickBooks, Module 8 12 In order to find our adjustments, we will have to look further down the report to find the expense account entries. If we scroll down to the bottom of the report, we will come to a section with the heading Not Specified. Here we will find all of our adjusting entries (see below). The transactions in this Not Specified area are those that were made to accounts that QuickBooks does not display individually in the report. Note that there is just a single column for the amount of the entry, instead of separate columns for increases and decreases. How can we tell whether the amount shown was recorded as an increase or a decrease in the account balance? Positive amounts represent increases, and negative amounts (shown in parentheses) represent decreases. Modifying the Transactions List With Splits Report Because of the way the transactions are associated with the accounts, the default format of the Transactions List with Splits report is confusing and not helpful to us in verifying our transactions. However, we can customize any of the reports, and this report is no exception. Go to the top of the report, and click the Customize button (see opposite). When the customization screen appears (see below), click the Group By box and select None from the drop-down list. Then click Sort By and select Date.

Introduction to QuickBooks, Module 8 13 Finally, click Run Report. We now see the following: (Continued on Following Page)

Introduction to QuickBooks, Module 8 14 (Bottom Portion of Report) Our modified report now lists all the transactions by date, and all the accounts that were affected by the transactions are displayed. At the bottom of the report, we see the adjusting entries. Compare your report and its adjusting entries to these in order to verify your work. If you need to correct errors, you may edit any of these transactions by clicking them and drilling down to the original transaction form. If you do edit your entries, be sure to click Save after making changes to the transaction. Do not close your report! Since we have created a version of this report that we will want to use later, we should save our report format by memorizing it. Click the Memorize button at the top of the report, and the Memorize Report popup box appears (see below). Fill in the information in the popup box. Name this report Modified Transaction List With Splits, check the Share this report with button, and then click OK. The report has been memorized and it will be available to us or to any of our users whenever we want to run it. To confirm this, click the Memorized Reports item in the menu ribbon under the Reports tab. You should see the modified report listed on your screen as shown

Introduction to QuickBooks, Module 8 15 below: The Journal Report There is one other QuickBooks report that will give us a complete summary view of all of our entries. Scroll down the Reports list, and in the Accountant & Taxes section click on the Journal report. Enter a date range of October 1 November 30, 2011 and run the report. You will see the following: (Top portion of report)

Introduction to QuickBooks, Module 8 16 (Bottom portion of report) This report gives us a summary of all the entries that were made during the report s date range, in chronological order. Each transaction, whether entered through a form or in an account register, is shown as a debit-and-credit journal entry. At the very bottom of the report (shown above) we will find the last set of entries we made, our adjusting entries. Instructor s Note: The complete Transaction List With Splits report and the complete Journal report are provided at the end of this module. We still have some transactions to record, so don t refer to them yet. You will, though, be able to use them to check your work before you begin your final assessment. Break Point! You have now recorded the adjusting entries and examined the transactions reports. We are about to begin a new topic, so this might be a good time for a break! When you are ready, continue on with the section below. Financial Statements and Closing Entries There are four major financial statements that considered standard and are usually prepared at the end of the accounting period: the balance sheet, the income statement, the statement of owner s equity, and the statement of cash flows. 1. The Balance Sheet reports the balances that exist in the various asset, liability, and owner equity accounts on the date the statement is prepared. The statement is called a "balance"

Introduction to QuickBooks, Module 8 17 sheet because the total assets must equal (or "balance" with) the sum of the total liabilities and owner's equity. 2. The Income Statement (called the profit and loss statement in QuickBooks) lists the revenues and expenses recorded during the accounting period, and reports the difference between them as the net income or net loss for the period. 3. The Statement of Cash Flows summarizes the cash inflows received by the company during the period and the cash outflows that occurred. It is useful in evaluating the company s cash flow and its short-term solvency. 4. The Statement of Changes in Owner's Equity reports the events that occurred during the accounting period that changed the balance of owner's equity. Since only contributions, withdrawals, revenues, and expenses can change owner's equity, the statement begins with the balance of owner's equity at the beginning of the period, adds contributions and net income (if any), then subtracts withdrawals and net loss (if any), to determine the balance of owner's equity at the end of the period. QuickBooks does not generate a separate Statement of Changes in Owner s Equity report. However, the information that would be reported on that statement is shown on the balance sheet. Let s now examine the QuickBooks balance sheet. The QuickBooks Balance Sheet QuickBooks makes the preparation of financial statements easy. Place the mouse pointer on the Reports tab and select Balance Sheet from the menu ribbon (see below). When the report appears, edit the date range on the report, setting it to October 1 November 30, 2011 (see below). Once the date range has been entered, click Run Report and the balance sheet will appear (see illustration on the following page).

Introduction to QuickBooks, Module 8 18 This balance sheet has been cut apart and rearranged so that it will fit the page. The balance sheet you see on your screen will be in one piece, but it should list the same accounts and balances. Verify your accounts and balances. If you notice errors, the account balances can be clicked to open the account s Transaction Report. All the account s entries will be displayed in the report, and they can be clicked in order to drill down to the original transaction. About the Balance Sheet Let s examine some of the sections of the balance sheet in depth. The assets are laid out in logical order, with the current assets listed first and the fixed assets placed below them.

Introduction to QuickBooks, Module 8 19 You may find that the fixed assets are presented in a rather confusing way (see opposite). When fixed asset purchases occur during the period, they are recorded in the Original Cost subaccount instead of the parent account ("Automobile" or "Office Equipment" in our illustration). The opening balance amount plus any additional purchases is labeled Original Cost and is kept separate from the parent account. We may well find that we want to alter this default format for the fixed assets, moving the balance that is in Original Cost directly into the parent account and recording new purchases in the parent account as well. This might make our statement more understandable. The equity section of the balance sheet is also somewhat confusing (see below). We see that there are several items listed beneath the heading Equity, and some of them ( Net Income and Retained Earnings ) are things that a student in an introductory Accounting course would not expect to see on the balance sheet of a sole proprietorship. At the top of the list are the two accounts we created earlier, Capital and Drawing. Since we recorded the investment and the withdrawal that occurred in November in these two accounts, their balances reflect only November ownership equity transactions. The $2,235 Net Income amount is the income that was earned during October and November, and that will be reported on the QuickBooks Profit and Loss statement. The $24,277 Opening Balance amount comes from the initial entries we made when the business was set up. At that time, we entered opening balances for the asset and liability accounts, and QuickBooks automatically made the offsetting entries to the Opening Balance, Equity account. At the end of Module 2, we edited this account and changed the name to Opening Balance, Capital. Retained Earnings represents the profit that was earned in prior years and has been carried forward as part of the owner s equity balance in the current year. In accounting textbooks, these earnings are not set out in a separate account, but are just incorporated as part of the Capital account balance. In QuickBooks, they are recorded in the separate Retained Earnings account

Introduction to QuickBooks, Module 8 20 and they accumulate from year to year. They do represent the profits earned in prior periods, though, so they will not be listed on the current period s income statement. Owner s equity can only be affected by four things: investments, withdrawals, net income and net loss. These are the items that would be reported on a statement of owner s equity. The statement of owner s equity, if prepared for our business, would appear as shown opposite. <Your Name> Service Company Statement of Owner's Equity for October and November, 2011 Balance, Owner's Equity, October 1 $24,277 Investments $500 Net Income 2,235 Total increases 2,735 $27,012 Withdrawals (200) Balance, Owner's Equity, November 30 $26,812 The similarities between the statement of owner's equity shown above and the owner's equity section of the QuickBooks balance sheet are obvious. In effect, the owner s equity section of the QuickBooks balance sheet is a miniature statement of owner s equity, since it reports this same information! Modifying the Owner Equity Accounts We will not make any more changes than we already have to our owner equity accounts, but there are some we might consider. For instance, instead of keeping the Opening Balance, Equity account as it is, we might rename it to <Your Name>, Capital. We would then not need to have a separate Capital account for investments made during the year. Or we might want to change the name of the <Your Name>, Capital account to something like <Your Name>, Investments, and use it along with the Opening Balance account, or with a renamed Opening Balance account. The choice is ours. As you can see, we do have flexibility in the design of the QuickBooks accounting system, and, with a little accounting training or guidance from an accountant, we should be able to create a set of accounts and reports that will be of real value to us in running the business. The Income Statement The income statements has many names, including "Profit and Loss Statement" and "P&L Statement." In QuickBooks, the statement is referred to as the "Profit & Loss" statement. To view the QuickBooks income statement, select Profit and Loss from the drop-down list under the Reports tab (see below). When the statement appears, set the date range to October 1 through November 30, and click Run Report. Your income statement should appear as shown on the following page.

Introduction to QuickBooks, Module 8 21 Use the illustration above to verify your accounts and balances. If corrections need to be made, you may click the account or its balance in order to open the account s transaction record. You will then be able to click on any of the transactions and drill down to the original form in order to make corrections.

Introduction to QuickBooks, Module 8 22 Income Statement Classifications Gross Profit is the profit the seller makes directly from the sale of the goods, and it is a relevant performance measure for the owner and investors to see when evaluating the business. In the QuickBooks income statement, the Cost of Goods Sold is presented in a separate section of the statement, directly beneath the revenue section. Theoretically, though, the Cost of Goods Sold (or COGS) should be subtracted directly from Supplies Sales Revenue so that a true Gross Profit figure can be reported. Additional revenues from services should be added to Gross Profit and the expenses incurred in operating the business should be subtracted, to determine Net Operating Income. The operating expenses are those incurred in the normal operations of the business. They are classified as Selling Expenses (such as advertising, store rent, and other costs incurred in making sales of the inventory) or as General and Administrative Expenses (the "back room" costs incurred in running the business such as insurance, bookkeeping, and other costs). Finally, any other revenues or expenses that are not considered to come from operations are reported at the bottom of the statement as "Other Income and Expenses. All this is done in order to organize the information on the statement in a way that lends itself to analysis and evaluation. QuickBooks does not provide us with many formatting options for our income statement, but we can make the statements look any way we want if we simply export them to Excel and then use the spreadsheet to modify them. We can do this by clicking the "Excel" button at the top of the report and then saving the file as a spreadsheet. Clicking the "Excel" button produces the popup box shown opposite. We should also mention that if you open the Report page you will find that there is a profit & loss detail statement in the report list along with the regular profit & loss statement (see opposite). This report lists all the transactions that produced revenues or expenses on the face of the income statement. It does provide the detail behind the amounts reported, but often results in a very lengthy report that is too detailed to be of much practical use.

Introduction to QuickBooks, Module 8 23 The Statement of Cash Flows To view the QuickBooks statement of cash flows, click the "Reports" tab and select Statement of Cash Flows from the "Company Reports" section (see opposite). When the statement appears (see below), set the date range to October 1 - November 30, and click Run Report. We see the following: The purpose of the Statement of Cash Flows is to (1) show where the company's cash inflows came from during the period and (2) where the cash outflows went. Information about cash flows is useful to managers and to creditors in assessing the company's liquidity position and short-term

Introduction to QuickBooks, Module 8 24 future solvency (its ability to raise cash from various sources to make expenditures for various purposes. The report reveals that the cash balance increased by $4,760 during the month of January, and that this cash increase came almost equally from operating activities and financing activities. A small amount of cash outflow occurred due to investing activities. This sort of information can help the manager better understand where the business gets the cash flow it needs in order to continue to operate, and how its valuable cash is being used. A thorough understanding of the statement cash flows requires advanced training in accounting. The Bank Reconciliation In addition to financial statements, the bank reconciliation and the reconciliation report are also completed periodically. The bank sends us a statement for each of our accounts each month. The bank statement summarizes all the activity in the account since the previous statement and reports an ending balance amount. The information reported in the statement includes: The opening balance for the bank account (amount in the account as of the previous statement) The ending balance for the bank account (amount in the account as of the closing date for the statement) The amount of interest, if any, earned on the account balance during this statement period Any service charges assessed by the bank for this statement period Checks that have cleared the bank Deposits made to the account Any other transactions that affect the balance of the account (for example, automatic payments or deposits or ATM withdrawals or deposits) When we receive a statement from the bank or from a credit card company, we should reconcile the statement with our QuickBooks checking account records. We can reconcile any QuickBooks bank account, including savings accounts and money market funds. The goal of reconciling is to bring our QuickBooks account balance into agreement with the bank statement balance. Since this requires us to compare our records with the amounts reported on the bank statement, we will be able to find and correct errors in our accounts, and we may even find errors in the bank s records. This enhances our internal control over the cash that we have in the bank. Suppose that the bank statement (see below) for November arrived on December 3.

Introduction to QuickBooks, Module 8 25 In order to begin the bank reconciliation, click on Reconcile from the dropdown list beneath the "Banking" tab (it is located under "More" on the menu ribbon, as shown opposite). A dialog box appears, asking us to select an account (see opposite). First Bank Checking already appears in the window. Click OK and the Reconcile screen and web dialog box appears (see opposite). Enter November 30, 2011 in the Statement Ending Date window, and $3,175 in the Ending Balance field (see above). Note that the $5,000 opening balance amount has already been entered for us. First Bank does not pay interest on commercial accounts and there are no bank service charges reported on the statement, so leave the other boxes empty and click on OK. The Reconcile form opens (see below).

Introduction to QuickBooks, Module 8 26 The Reconcile form lists all the deposits and payments that were recorded in the First Bank checking account. However, not all of them appear on the bank statement. The deposits that were made on January 31 were not processed by the bank until the following day, so they do not appear on the January statement. They are referred to as "deposits in transit." Likewise, the checks written to The Daily Standard and Ellen's Cleaning had not cleared the bank as of the statement date, and they are still "outstanding." Click and place a check mark in each of the deposits and checks that have cleared the bank (that is, those that are listed on the bank statement): As we check off the cleared checks and deposits, the Difference amount displayed at the bottom of the screen changes. When all the checks and deposits that have cleared the bank are checked, the Difference amount should be zero. If it is, then we have successfully reconciled the bank statement. If (and only if!) you do have a zero difference, click the Finished button and the Reconcile Report appears:

Introduction to QuickBooks, Module 8 27

Introduction to QuickBooks, Module 8 28 Caution! If you are unable to get to a difference of zero, do NOT click the "Finished Button." Review the information carefully, and if you made a mistake with the opening balance or cleared items, click "Edit" at the bottom of the screen to correct them. If you need to correct a check or deposit amount, click the Finish Later button and then return to the account register and edit the incorrect transaction. Why use caution when clicking Finished on the reconciliation screen? Clicking Finished when the difference amount is not zero will prompt QuickBooks to make an automatic entry, recording the difference amount directly in the "Opening Balance, Capital" account. We will then have errors in our accounting records, and to correct them later on may require us to un-reconcile last period's deposits and checks and start over again. This is not an easy process! The bank reconciliation is a formal report that should be printed and filed (or saved electronically) for audit and internal control purposes. To print the report, just click the Print button at the top of the report. To save the report electronically, click on Print and then check the print to file box. You will then be able to name the file and save it in a directory of your choosing (see opposite). QuickBooks overwrites the reconciliation report each time a new reconciliation is run, so your report will be lost when the next bank statement is reconciled. Until then, the report can be accessed in the Reports area under the Banking heading (see opposite). Remember, though, that it will only be available until the next reconciliation report is run. Let's confirm that the account was properly reconciled. Return to the chart of accounts now, and open the First Bank Checking account register. Your screen should look like the one illustrated on the following page.

Introduction to QuickBooks, Module 8 29 Note that the letter R appears opposite several transactions. The R represents a reconciled amount. The amounts without R s (they are circled in the illustration above) represent the outstanding checks and the deposits that were in transit as of the last bank statement. Getting Help in QuickBooks Subscribers to QuickBooks Online Edition are able to use QuickBooks call-in technical support and can ask questions of the technical support representatives in real time. However, there are other sources of help available in QuickBooks that can be even more useful than a telephone conversation with a technical support representative.

Introduction to QuickBooks, Module 8 30 The How Do I? Button and the "Help" Link The How Do I? button appears on the title bar of most windows in QuickBooks (see the illustration on the right). Clicking the button opens a short list of help topics that relate to that page. For example, click How Do I? on the Customer Center page, and you will see the Help Topics popup box shown here on the left. You may click one of the blue-colored links and read the answer to the question, but there certainly aren't many topics to choose from! Fortunately, there is a way to "drill down" and find more detailed information. Clicking the Index button brings up the detailed help search page shown here on the right. For example, clicking the Index button, and typing the keyword Print produces a list of articles related to printing. Just click on any of them in order to read that particular article. Information can also be accessed by clicking the Help link on the title bar of any of the pages. This will open a new page that gives us several ways to find answers to questions regarding Quickbooks (see below). The help program identifies the program version automatically, and gives us several categories to choose from. General information about recording transactions, etc., in QuickBooks can be accessed by clicking the "Using QuickBooks Online" button.

Introduction to QuickBooks, Module 8 31 At the bottom of the screen you will find another link titled Learn & Network, which will take you to the QuickBooks Small Business Community web page. This site houses information articles, how-to guides, and a discussion board that users may use to communicate with one another. You may post questions here, reply to questions left by others, or use a search function to find previous questions and answers that relate to your particular problem. You may either follow the link, or access the community page directly by going to http://community.intuit.com. You may want to add this address to your favorites list. Congratulations! You have now completed Part I of the course. You should compare your balance sheet, income statement, and statement of cash flows with the illustrations above to ensure that all the transactions have been entered correctly. For your convenience, January s detailed transaction list and journal report are presented as supplements to this module. When you are certain that your transaction list matches this one, and that your financial statements agree with the ones presented above, contact your instructor. Your instructor will login to QuickBooks and verify your work online. When you are given the go-ahead, it will be time for you to complete Part II of the course, the performance assessment. Part II is an assessment practice set that you must complete on your own in order to receive a letter grade in the course. You will find it in Module 9. When you have finished it, your instructor will again check your work online. You will receive detailed feedback and a letter grade based upon your performance. See Module 9 for details. If you prefer, you may end the course without completing the practice set. Your instructor will check your work and confirm that you have entered all the transactions from modules 1 through 8 correctly. If you have, and if you choose to not complete Part II, you will be given a grade of S (Satisfactory). This grade means that you have completed the course satisfactorily, and that you have earned credit in it, but you should consult with your academic advisor before deciding to do this. The S grade does not affect your GPA, and you may have difficulty transferring the course to another institution if your grade is S instead of a standard grade of A, B or C. -End-

Introduction to QuickBooks, Module 8 32 Module 8 Supplement A: Transaction List with Splits (for verification of your work) (Continued on following page)

Introduction to QuickBooks, Module 8 33 (Continued on following page)

Introduction to QuickBooks, Module 8 34 -End of Transaction List-

Introduction to QuickBooks, Module 8 35 Module 8 Supplement B: Journal Report (for verification of your work)

Introduction to QuickBooks, Module 8 36

Introduction to QuickBooks, Module 8 37

Introduction to QuickBooks, Module 8 38 -End of Journal Report -