Using QuickBooks®
Tips & Tricks for the CPA

Review the preferences: Before beginning a write-up take a few moments to review the set-up preferences within QuickBooks.  Knowing the set-up will explain some of the nuances you will encounter during the engagement, for example, why certain menu items may not be available; if the reports are being generated on a a cash or accrual basis; or if sales tax is paid on the cash or accrual basis.  It will become apparent if the client is using the software as intended - this may mean additional consulting revenue after tax season. Make any and all changes to the preferences that will speed your use of the software, none of your changes are permanent or irreversible. so don't be concerned about putting a monkey wrench in the works. Set-up preferences can be found under the edit menu. 
Suggested- but not necessary -Change the report default from cash to accrual.

Avoid the accountants backup copy with clients who are 'less than stellar' bookkeepers: This is a special backup selected by the client that will allow the client to import all the adjusting journal entries and reclassified transactions (2007 version).  The purpose  is to update the clients copy with all the changes made by the CPA.  QuickBooks 2007 is more robust and you may find that this version will not slow you down. Older editions will not permit the CPA  to modify the original transaction (in the accountants edition). Therefore all changes must be done by entering an adjusting  journal entry (AJE) transaction.  The write-up will be limited to AJE's  - an option that takes a  significantly longer time to complete; produces a general ledger that is not as informative; prohibits the CPA from modifying the transaction into a more acceptable presentation for the IRS; and requires using the same version of QuickBooks (newer versions have more functionality and therefore increase productivity-clients are slow to upgrade)  Ask the client for a standard backup to complete the write-up. The client's main concern is receiving an accurate opening balances to start the next year with, so satisfy their need with a JE (or two) adjusting their  1/1/new year balance sheet. Also from your write-up file,  print a final general ledger for the client's office. This provides a client with full disclosure of where all their transactions ended up within the financial statements & tax returns.

Before beginning the write-up, send the Balance Sheet report (1/1/new year) to an Excel file.  On all versions except QuickBooks Basic,  reports created within QuickBooks contain an Excel button at the top of the report. There is a seamless integration between the two software packages. Just click on the button, select new spreadsheet option, and you will have a  report available to easily calculate the AJE for the client  to bring their account balances up to speed.

Successful write-up procedures

To avoid confusion with dates, the discussion will refer to a tax write-up for the 2004 tax year, which makes 2003 tax  year -  the prior year. This section has been added May 2004. It is a "work in process". with suggestions for improvements the more comprehensive this list becomes, the more useful it will be to you and your staff.  

For steps a-g I suggest you access the clients QuickBooks data remotely.  Make the corrections on the original file while the client is watching. The client will consider it training time not tax prep time which makes it easier to collect your billable rate without write-downs. The client learns, makes less future mistakes, you get a clean file to 12/31/tax year (2004) which makes the tax work for future years so much easier. 

If you are not making these adjustments at the clients place of business I suggest starting a Word document of "to do's for your client" - you will e-mail this to the client to conduct the same voids and changes on their system.

A few comments before  beginning:

• If the client is on the accrual tax basis, the discussion below talks about deleting and voiding erroneous transactions that were entered into QuickBooks but remain uncleared or open over 12 months.  It may be that these transactions have been deducted  on prior tax returns or income was recognized on prior tax returns - so technically an amended tax return would need to  be prepared to remove these erroneous transactions. This discussion makes the assumption that the difference is immaterial and all adjustments are accounted for during the current tax year (2004).
• Keep in mind while you are removing old or outstanding transactions from prior years, that the prior year accountant may have already adjusted these items on his/her trial balance but the adjustments never found their way into the clients copy of QuickBooks. 
• By conducting your write up in the following order you can  permanently clean up all the erroneous data and make your future write-ups run much smoother. 

Write up steps using QuickBooks:

1. Print the 1/1/tax year Balance sheet.  If there is any balance in the net income account on the balance sheet, drill down and change the dates of each transaction to 1/2/tax year.
2. See if there are any outstanding checks still open in the bank reconciliation window from prior year ( 2003)
   If so, make a note of the check number, payee and account used to create the expense.
   Void these checks. If the check is a 'bill-payment' you will need to delete the bill transaction as well.
3. Check to see if there are any old (from prior year  2003) 'undeposited funds' (Banking Menu > Make Deposits> if you do not see a window pop up with old transactions, continue to the next step) that should be deleted. Before deleting or voiding, investigate the open transaction. Use the find window and filter on the dollar amount of the deposit in question. Has the deposit had been entered twice? Run a report on the checking account for the month surrounding the old transaction.  Has the deposit been combined with another deposit creating a duplicate? Double check with the client before voiding.  If voiding reopens an invoice to A/R, then the Invoice will  need to be deleted /voided.
4. Search for transactions that were sent to the wrong period. It is very common when the new year rolls around to enter the wrong year on a transaction. Newer versions of QuickBooks offers protection against this type of error by setting a password. From Edit menu > Preferences > Accounting > Set a closing date
   But, many clients do not do this timely and it is still a good idea to do a quick search.
   Determine the check number range for the tax year 2004 and the invoice number range for tax year 2004. Do an advanced find. Filter for the range of check numbers used in 2004 and add a 2nd filter for date range of 1/1/03 to 12/31/03. Click on Find. Investigate the results and make any changes in the dates as needed.
   Reset the find window, and filter for the range of invoice numbers used in 2004 but add a 2nd filter for date range of 1/1/03 to 12/31/03.  Click on Find. Investigate the results and make any changes in the dates as needed.
   Run an accounts payable summary report for the prior tax year (12/31/2003).  Drill down on any bills that are over 90 days old and click on the history button to see what date they were paid.  Investigate with the client, make any changes.
5. Reprint  the 1/1/tax year (2004)  Balance sheet and compare to the prior year tax return.
   Make AJE's (offset is retained earnings).  A/R and A/P adjustments require a customer/vendor name. I set up a name called "Adjustments AR" as a customer and "Adjustments AP".
   If you are working on the clients ongoing QB file, do not adjust A/R or A/P to zero for cash basis statements there is a step after step O below that will address cash to accrual.  So your retained earnings will be off by the difference between A/R and A/P
6. Enter a reversing JE 1/2/tax year (2004) for any changes made to accounts that are reconciled/or adjusted during the tax year by the client - examples of accounts will be:
   Reverse AJE's made to any bank accounts (if you are working on the clients ongoing data file it is a good idea to clear these adjustments. From the bank reconciliation window- enter a date equal to the date of the last reconciliation report - 31 days earlier than what is displayed - enter the bank ending balance which will be the same number as the bank beginning balance- continue- clear both the  AJE and reversing AJE )
   Reverse AJE's made to  accounts receivable and accounts payable, the offset should be to an income or expense account. Any adjustments made in steps B & C will provide you with a clue as to what account to offset.  Link the AJE's through the receive payment window or the pay bills window.
   Reversing AJE's may also be needed to Inventory if the client is tracking inventory in QuickBooks using inventory items.  
7. Reprint the 1/1/tax year (2004) Balance Sheet for your files
8. Run a Balance Sheet report 12/31/tax year (2004). Click on the modify button and change the date range to include 1/2/tax year - 12/31/tax year(2004).  Now you can drill down on any account and get 12 months of activity.
9. Search for future transactions belonging in the tax year write up period. Run a transaction detail report (found under Reports menu > Accountants Reports) using dates 1/1/2005 through 1/1/2025. Look for post-dated dates. Transactions that have a check mark in the cleared (clr) column of the report means the check has cleared the bank- look at the check numbers, is it out of sequence? It may mean the date was typed incorrectly. Investigate and change the date.
10. Now is the time to repeat steps b & c above for tax year (2004) transactions that should be voided or deleted.
11. Clients will do anything to correct a customer accounts receivable balance.
    Print a 12/31/tax year (2004) Accounts Receivable summary report. Drill down on the over 90 day and fax to the client for verification that the balances are still open. If the balances are erroneous, create credit memos dated in the tax year (2004). If you are working on the client's working file, link the credit memo to the invoice.
12. Repeat step j. for accounts payable.
13. Is there an account named "opening balance equity" in the equity section of the Balance Sheet? If so, it is   home to all the "plug entries" your clients created in order to balance the checking account or adjust inventory balances without assigning an account. If the customer started with QuickBooks during the tax year, this account is the account used by QuickBooks set-up wizard as the offset to starting balances.   Generate the AJE's needed to bring this account to zero. If you do not, your schedule M-1 on your tax return will not work!
14. Run a general ledger for the year. Filter to include all accounts except exclude accounts receivable, accounts payable, payroll tax liabilities, sales accounts, salaries & wage accounts, payroll tax expense accounts. You are left with a manageable report to review for classification mistakes.  I recommend starting at the bottom of the report and work your way up
    • You may find accounts that are set-up as the wrong type (Bank, AR, AP, Fixed Asset, Other Asset, Liability, Income, COGS, Expense ) to correct, go to the chart of accounts, edit the item and change the account type. If the account is a subaccount, first uncheck the subaccount, save, then re-edit to move to the correct account type.
    • You may find accounts that should be combined with other accounts. To correct, merge the two accounts from the chart of accounts, select and edit the account that you DO NOT want to be the surviving account and edit and rename the account to be the exact spelling of the surviving account.
    • You may find transactions coded to the wrong account.  Your can to drill down to the original transaction and change to the correct account or simply make a reclassification journal entry. 
15. Continue with your normal adjusting entries, all year end balances on the balance sheet should be compared to the original balance documentation.
16. Print and retain a copy of the final accrual Balance sheet. Ask the client to fax over a Balance sheet as of 1/1/2005 new year - and provide the AJE's needed to bring their new year in line with the tax return. They get the benefit of better management reporting and you can be assured of saving time next tax season. Possibly passing the file to a less senior staff member because the file has been cleaned up with good beginning balances.
17. Use the QuickBooks cash basis statements to prepare tax returns? .
    Not me, I find  the cash basis statements confusing. The totals may be accurate but I find myself scratching my head trying to determine if there are any miscodings or mistakes. So, I create journal entries on the QuickBooks File (the one in my office - not my clients copy)
    1. 1/1/tax year (2004) - JE date
       Bring QBooks opening A/R balance 1/1/2004 on the balance sheet in line with the 12/31/03 tax return cash basis A/R Balance which  is $-0-.
       Credit A/R
       Debit  Retained Earnings
       
       Bring QBooks opening A/P balance 1/1/2004 on the balance sheet in line with the 12/31/03 tax return cash basis A/P Balance which is $-0-
       Debit  A/P
       Credit - Retained Earnings
        
    2. Make the following reversals:
       1/2/tax year (2004) - JE date
       To incorporation prior year A/R and A/P balances(12/31/2003)  into tax year (2004) income statement
       so the client reports this income in the year collected/paid.
       a. A/R Balance (same amount used in i. above)
           Debit A/R
           Credit  Sales (or Income Account called 'Cash to accrual income adjustment')
       b.  A/P Balance (same amount used in i. above)
            Credit  A/P
            Debit  - Expense or COGS - see A/P summary report to determine appropriate accounts to debit
        
    3. Date these JEs 12/31/tax year (2004)
       To remove unpaid expenses and uncollected sales from the income statement
       A/R Balance 12/31/2004 on the 12/31/2004 Balance Sheet.
       Credit A/R - to bring it to a zero balance
       Debit  Sales - (or Income Account called 'Cash to accrual income adjustment')
       
       A/P Balance 12/31/2004 on the 12/31/2004 Balance Sheet
       Debit A/P - to bring it to a zero balance
       Credit - See A/P Summary report dated 12/31/2003 to determine appropriate accounts to credit

Other tips:

For each client that has a superb chart of accounts, export their list to an .iif file, and import into a generic QuickBooks Company file with a company name like "Retail Chart of Accounts" or "Architect Chart of accounts"
Then edit to remove all client-specific unique accounts.  Next time you have a new QuickBooks set-up, you have a file which can be copied saving you significant set-up time.

Remove the password: Avoid delays in accessing the client file on your computer, write the client password on the inside cover of your client file for safekeeping and then remove this password from the QuickBooks file. To access the password go to the company drop down menu, select change passwords, enter the existing password and leave the new password field blank.