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QuickBooks E-News
 for Small Business     Volume 4

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In this Issue:


What to do when a customer overpays?

Determine if a refund check will be issued or will the funds be retained on account to be used against other outstanding invoices or future sales to the customer.

Here is an example to illustrate your options: 
Customer, Red Blooms, sends you a check (number 5689) for $48.00 to pay for two invoices #35 $18.00 and #42 $20.00. 

1. The receive payments window only shows invoice #42  $20.00 unpaid. 
2. By conducting a search on $18.00 (Edit menu > Advanced find > select the filter "amount" and click on the radial button "=" and enter $18.00 > click Find) it is apparent that Red Blooms has previously paid the $18.00 under their check number 5650.

Option One: Refund the overpayment:

3. Enter in the receive payment window the check number 5689 but enter an amount of  $20.00 and apply to invoice #42. In the lower left of this window click on "group with undeposited funds". Save and close.

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4.From the banking menu, click on Make deposits, select all the checks that apply to the deposit, click OK.  On the 2nd window, click on the next available line under "received from" and enter the customer name Red Blooms. Tab to the next column and type "Customer refunds" as the account name. You will be required to set up this account, select type = "income".  In the memo field, put a note to describe the transaction and enter the amount in the far right corner.  Save and Close

5. From the "write checks" window, create a check payable to "Red Blooms" (customer) and code to the account "Customer refunds". Enter description into memo field. Save and print the check. The customer refunds account now has a zero balance. The account's only purpose is to clear the overpayment deposit and return payment to the customer.


Option 2:
  Apply the overpayment "on account":

3. Enter in the receive payment window the check number 5689 in the amount of the payment received $48.00. Place a check next to the invoice #42 $20.00 and do not place a checkmark next to any other invoice. Clicking save and close will leave the $18.00 as a credit on the account.  A pop up window will remind you that this amount will be left open (as a credit) to be used against future invoices entered into the system. 
4. Consider mailing the customer a new statement (Customer menu > Create Statements) which will notify the customer of the new credit on his account. Doing so will alert the customer to send instructions with his next check as to which invoices to apply the overpayment.
5. When the customer has incurred additional invoice charges to his account and has instructed you to use the $18.00 credit, you can apply the credit as follows:
Open the receive payment window > select the customer > highlight the invoice to which the payment will be applied > click on set credits > click done . This procedure will link the credit (overpayment) to the invoice specified by the customer.

Its many months later and the credit overpayment placed on the account was never used:

6. It is now 12 months later and it does not look as if the customer who overpaid will be buying any additional services or products from your company.  You can choose to refund the overpayment or write off the credit.

Write off the credit balance:
Create a statement charge of $18.00 to write off the credit.
Customer menu > Statement Charge > Select the customer > Enter today's date, for a number type "adjust", for item, type "Adjustment or write offs", set up as an other charge item type and select an income account from your chart of accounts.  For amount charged, enter 18.00, under description, type a note as to the reason for the adjustment, click on Record. 

To remove both the credit balance and the new statement charge from current reports, you must link the charge write off to the credit overpayment:
Customers menu > Receive payments > Enter customer name Red Blooms > highlight the new invoice for $18.00 and click on Set Credits > place a checkmark next to the Credit > Done

Refund the overpayment
If after several months the customer has not utilized the credit you can refund his money by entering a journal entry and writing a check:

Create a journal entry to adjust the customer balance:
Debit Accounts Receivable   $18.00
memo= "refund credit balance" : type Red Blooms in customer name
Credit "Customer refunds" (new account type="income") 

Write a check payable to customer name for $18.00 and code to Customer refunds

Will your year end QuickBooks reports pass muster with your tax preparer?

You may not be graded by your tax preparer, but when you get their invoice to pay for services you may wonder if you could have prepared a little better before dropping off your QuickBooks company file.  For Tax  reports to be correct you must first begin January 1  with the same asset and liability balances reported on your prior year tax returns. You can find out what was reported by turning to page 4 of your Last year S Corporation or Partnership tax return. Compare these amounts to your QuickBooks balance sheet as of 12/31/tax year.

From the reports menu >
Company & Financial >
Balance Sheet Standard >
Set date to 12/31/tax year

Failure to make these adjustments each year will require your accountant to spend additional time fixing the same problems year after year. Having your QuickBooks file updated with accurate balances and swept clean of problem transactions will reduce the time your accountant must spend with your data plus provides you with an added bonus of identifying mistakes throughout the year.

Changing beginning balances
in QuickBooks to agree to the tax return can be tricky.  Use of journal entries will speed the process but some adjustments such as inventory may require an adjustment to the item's quantities and values. Changing a reconciled cash balance or the balance of the accounts receivable or accounts payable account, may correct your 12/31/prior year  balances but create havoc with  the balances currently in QuickBooks.  To avoid problems, adjust the 12/31/prior year balances (if necessary) to agree to the tax return,  then create a reversing journal entry as of  1/1/tax year to return order back to these accounts. Set up an income type of account called "balance adjustment" to use on the reversing entry rather than your regular one of your regular income accounts. Doing so will make it easy for you to find these transaction adjustments again. 

Have you "forced" any of the cash accounts to balance during reconciliation? Look at your chart of accounts for an equity account named "opening balance equity". QuickBooks applies all improperly recorded transactions to the opening balance equity account.  If there is a balance in this account, edit each transaction that is dated in during the Tax Year you are reviewing and change the account to an expense account  or income account. For example, consider using the account, bank service charge in lieu of "opening balance equity" for an automatic journal entry created during a bank reconciliation and consider using a "purchases" account in lieu of "opening balance equity" for an automatic journal entry created during an inventory adjustment.   Be sure to investigate why the person who is reconciling is not resolving problems prior to hitting the reconcile window.

For assistance making these changes, call 800-216-0763  to speak with our QuickBooks Advisors and CPAs.  We can walk through the adjustments that are needed as part of an annual QuickBooks support plan or per call service plan.

Don't stop, you are not quite done with your review.  Run a Profit & Loss report and double click net income.  In this report, look for inappropriate transactions found in the wrong accounts.  For example, the income accounts should hold invoices, sales receipts, deposit transaction types but not bills, checks or credit cards.  There should not be invoices or sales receipt transactions in your cost of goods sold accounts and expense accounts. If you do spot an inappropriate coding,  double click to open the original transaction select the correct account or if items were used, make a note of the item causing the problem. From the list menu, select item list and highlight the questionable item. Right click and edit this item to see what account has been recorded as the default for this item. Some items can be used in both a sale and a purchase. If this is one of those types, you need to expand the item to a two-account item by clicking on the square option box "this service is performed......" or "this item is purchased and sold...." Once expanded, enter the expense account on the left side and the income account on the right side.  Call us at 800-216-0763 for assistance cleaning up your list items and for more detailed explanations on the best way to handle transactions.

QuickBooks running too slow?


If you have recently upgraded QuickBooks, it may be running slow because your PC is more than 3 years old. As Intuit has added more features to its products and increased the sophistication of existing features, older PCs will lack the processing speed and memory to run the products at an acceptable speed.  And run QuickBooks with at least 1 gig of Memory.

If your computer is fairly new, a slow running QuickBooks may be due to the size of your QuickBooks file.  It is seldom necessary to keep more than a year or two of detailed historical accounting records in your file. Consider using the QuickBooks utility called  "Condense" (or clean up)  to eliminate the old data and speed up the transaction and reports response time. In a Condense,  QuickBooks will delete all the transactions you no longer need to keep your records current, replacing them with new transactions that summarize, by month, the deleted transactions. This procedure will enable you to clean up your lists by deleting old customer and vendor names that will no longer be used.

Still want the detail? In fact, we recommend keeping the detail, but in a different company file.  By creating a "clone" of your company file,  you may access old data in the slower file at any time  Here is how:

1. From the File menu > click Open a company file
2. Right click on your company file > click on Copy
3. Right click again > click on Paste -  A new company file appears called "copy of  your company"
4. Left click (only once) on the newly created "copy of your company" to highlight>  right click and select "rename"  and change the name to "OLD Do Not Use data Prior to (enter todays date).qbw"
5. Double click on this newly created copy to open up.  From the company menu > select Company information > Change the name of the company to "Old Company name Do Not Use" > click on OK. This will change the name on your reports and windows within QuickBooks to avoid erroneously entering new data into this "reference only" company file.

The above 5 steps take less than 5 minutes and create a comfort level for condensing old data on your regular QuickBooks company file.

To condense the data:
File > Utilities > Clean UP 
or older editions:
File menu> Archive and condense data > select Condense transactions as of a specified date.

> Enter a date to condense the file to that  will leave one year of comparative data open on your working company file)> click on Next

> Place a checkmark next to "remove transactions marked "to be printed"; remove invoices marked "to be sent"; and, remove transaction containing "unbilled (unreimbursed) costs.> click on Next

> Select those list items that you would like removed:  Removing unused accounts,  vendor & other names,  unused invoice items and done "to do" notes is generally a good idea. Removing customer names (and their addresses)  that are inactive before the condense date may not be wise.  First determine if there may be untapped marketing potential with these customers.
If you choose not to remove customer names, when the condense is complete, you may pick and choose unused names to delete from the list menu by highlighting the name/item and typing the "Ctrl key + D" at the same time. QuickBooks will not let you delete any account/name/item that has a transaction linked to it or is used elsewhere in the software. Read more about condense in the QuickBooks Help Index under "condensing data".  If you would like an experienced QuickBooks Pro Advisor overseeing this procedure call 800-216-0763  to speak with our QuickBooks Advisors. Get help with  the adjustments that are needed as part of an annual QuickBooks support plan or per call service plan.

Condensing is one of many tips available for reducing wait time. If you are using a multi-user QuickBooks and the performance appears to be slow,  cut your workload and speed up performance by turning off "auto refresh" feature on your reports.  From the Edit menu > Preferences > select Reports and graphs on the left icon bar > select the don't refresh option >click OK.  Each report has a refresh button on the top of the reports window. You will need to get into the habit of clicking the refresh each time you look at a report that is open on your desktop. 

We offer a new file start service where we take your company file and return a new one to you with one year of data !  Call 800-216-0763 for more information.

Do-it-yourself Cafeteria plans

Cafeteria plans (Code section 125) makes it possible for employers to offer their employees a choice between cash salary and a variety of nontaxable benefits (qualified benefits). A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages.  Contributions are not considered wages for federal income tax purposes, and those sums generally are not subject to FICA and FUTA taxes that save the employer up to 8% in payroll taxes on the value of the elected benefits.

Qualified benefits include: 

  • Premiums deducted from the employee's paycheck for accident and health benefits including health care, vision and dental care (but not medical savings accounts or long-term care insurance). Exempt from FICA/Medicare/FUTA/Federal Withholding.
  • Health flexible spending accounts for expenses not reimbursed under any other health plan. Exempt from FICA/Medicare/FUTA/Fed Withholding
  • Adoption assistance . Subject to FICA/Med/FUTA- but exempt from Fed withholding
  • Dependent care assistance. Exempt from Fica/Medicare/Fed withholding up to certain limits, $5,000 ($2,500 for married employee filing separate return). The exclusion cannot be more than the earned income of either the employee or the employee's spouse
  • Group-term life insurance coverage Premiums for $50,000 are exempt from Fica/Medicar/FUTA/Federal withholding.  Over $50,000 exempt from Fed withholding & Futa only).  Special rules apply to qualify for this benefit. Find out more in IRS publication 15B available in PDF format at

S Corp owners with more than 2% ownership do not qualify to participate in this plan. Plans that favor highly compensated or key employees require special attention -see your tax advisor.  Dependent care benefits include amounts placed into a flexible spending account under a salary reduction arrangement if the benefit provided was day care. 

Until recently implementing such a pre-tax benefit plan was costly. You had to hire out the administration to an outside service company. But we found a company that has put together a "do-it-yourself cafeteria plan kit".  Click here to read more about these services.  

What is the break even of implementing a Section 125 plan?  Employers pay social security taxes on wages, but convert those wages to benefits and save 7.65%. To set up such a plan is $97 (for the templates for the plan document) and $197 per year for the software to track what needs tracking and produce a year end information return 5500 for the government.   The annual break even is calculated by taking the annual cost of  $197 and dividing by 7.65% or  $2,600.  Bottom line, if your employees contribute as little as $2600 in after tax deductions of health insurance premiums, setting up this plan costs you nothing and saves the employee social security taxes and federal income taxes of an average of $575.00.  Now introduce a dependent care plan to the mix with flex medical spending and the employer begins to save thousands in payroll taxes and the employee's saves even more!  A win/win scenario for all

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