Since the majority of my clients use QuickBooks, I thought I'd summarize the top 15 QuickBooks® mistakes that I have seen, not in any particular order.
1. Not reconciling accounts (bank, loans, credit cards,…) in QuickBooks. Ideally, you should be reconciling monthly.
2. Deleting or editing a transaction that has already been reconciled.
3. Not using the Credit Card feature in QuickBooks (or, worse yet, using it inconsistently). The Credit Card feature is a very easy way to track your transactions. You may want to consider downloading the transactions directly from your credit card company if you have a lot of activity.
4. Not using the Pay Bills feature (instead, using the check register) after entering bills.
5. Entering bills with a date AFTER the check date, which creates a credit in Accounts Payable if the report date is before the bill date. Also, make sure you enter the invoice number and the date of the invoice when you enter a bill. This makes it much easier to reconcile your data with your vendor(s).
6. Not using the Receive Payments feature after you have invoiced a customer/client.
7. If you prepare your payroll on QuickBooks, not paying the taxes through the Pay Liabilities feature.
8. Not separating deposits for easier bank account reconciliation. Remember, the entries in QuickBooks should tie to each deposit that has cleared in the bank statement. Thus, there should be separate entries for credit cards. You only need to try and reconcile one month of "lumped" deposits to cure you of this mistake!
9. Not tying out (reconciling) all accounts before sending the file to the accountant at year-end, especially the bank account, accounts receivable, accounts payable, payroll liabilities, credit cards and loans.
10. Not recording the accountant's prior year Adjusting Journal Entries and not verifying the balances on the Balance Sheet after the tax returns are finished.
11. Not setting a Closing Date (for the previous year) and password. This feature makes sure you do not change transactions that have already been reconciled and included in the prior year tax returns. Making this mistake can cost you greatly when your accountant gets the file and has to figure out what changed and then fix the mistake.
12. Keeping different QuickBooks data files on your computer. QuickBooks users get into trouble by saving and copying date files, taking them home, working on them, and then copying the file back to the computer. Or, giving the file to the accountant who makes adjustments to the file and gives it back. Be consistent about where you keep your data file and make sure you delete old copies.
13. Not backing up the data file. Ideally, you should be backing up your file every time you make a change to the file. The best option is to keep a backup file offsite, either on a CD or a tape backup. Or, try using an online backup service.
14. Not reviewing the QuickBooks reports periodically. Remember, you are not only using QuickBooks to satisfy your accountant or to help the accountant prepare your tax returns. You should be using the reports to help you make decisions in your business. Here are the top 5 reports you should be reviewing monthly:
a. Balance Sheet. This financial statement summarizes your company's resources (cash, inventory, accounts receivable,…), obligations (accounts payable, payroll tax liabilities, credit card liabilities, loans,…) and equity (capital contributions, distributions,…) on a particular date.
b. Profit & Loss. This financial statement summarizes your company's operations (revenues and expenses) for a particular time period.
c. Statement of Cash Flows. This financial statement reconciles your net income (loss) to your ending cash. There are cash transactions that do not affect your Profit & Loss, such as loan principal payments, payroll taxes payable, and capital contributions or distributions.
d. A/R aging summary (if applicable)
e. A/P aging summary (if applicable)
15. And finally, not making the decision to outsource your bookkeeping when you have become too busy to keep up on it or have lost interest in it. Small businesses often neglect bookkeeping because of the time and effort it takes to set up and tend to a bookkeeping system. Most business owners would rather be out generating sales than sitting in the office making journal entries or entering debits and credits.
But bookkeeping is one thing that you cannot afford to ignore! Although bookkeeping does not contribute directly to your profits, there are several good reasons to maintain balanced books:
a. Lenders and investors want to see accurate and complete books before granting loans or raising capital for a company. If you rely on outside financing, this is the most important reason to invest time and money in bookkeeping.
b. Bookkeeping generates the information you need to manage your company. For example, up-to-date accounts receivable information shows which customers are past due on their accounts. Financial reports help you assess whether or not gross profits and expenses are in line with your budget and projected net profits. In other words, these reports help you anticipate and avoid cash-flow problems.
c. One of the most important reasons for a business to maintain up-to-date records is for filing income tax returns. Accurate, complete and organized records help in reducing accountant fees and also help with filing taxes in a timely manner and thus avoid costly penalties. If the business has to collect sales tax from customers, good reports will help compute tax due and prepare reports accordingly.