Using QuickBooks for Tax Time…  from the Accountant/CPA’s perspective

As a QuickBooks Trainer teaching courses all over the country, I have noticed that specially during the first quarter of the year, accountants are looking to get their quickbooks skills brushed up to speed up work during the season where “time is money” is actually an understatement.  We do cover a bit of end of year procedures in our Advanced (level 3) class, and I would like to share some of these with my fellow accountants and business owners that like to involved in the tax preparatin process.

During tax time accountants usually use QuickBooks as the primary tool to generate the P&L and Balance Sheet required to prepare the business tax returns.

Most accountants are involved with QuickBooks for tax preparation in one of these two circumstances:

1. Client (the taxpayer) does not use QuickBooks and hands over the accountant all bank statements, spreadsheets, receipts, etc.   At this point the accountant simply transcribes the bank transaction data from the statements and other client records into QuickBooks, classifies the expenses to the correct GL account and classifies must deposits as income.  And Voilà, financial statements are ready to prepare a cash basis ta return
2. Client (the taxpayer) hands the accountant a QuickBooks file and wants to this company file to contain all adjustments that were used for the tax work and given back to them… Ouch.

I am going to discuss the later circumstances, as must accountants reading this know how to write-up financial statements on cash basis with QuickBooks.

First, I would like to reiterate that must traditional accountants I have met in my lifetime cringe at the thought of working the client’s QuickBooks File.  Understandable, a non-accounting is likely to make a mess in the books, some of the issues commonly seen in this scenario are the following:

• Expenses wrongly classified
• Bank debits in income accounts or deposits in expense accounts, causing all sorts of negative or contra entries that do not belong
• Tons of personal expenses in books
• Customers with negative and overstated A/R balances
• Vendors with negative and overstated A/P balances
• Bank accounts no reconciled
• Duplicate or bogus transactions
• Credit card payments entered as bills instead of credit card charges

The list goes on and on…  This is especially true when the client did not work with the accountant to review the books on a monthly/quarterly basis and the client’s bookkeeping staff (if you can call them that) has no formal training in QuickBooks or any accounting.

So the question is, as an Accountant using QuickBooks 2013, what are the tools to tackle this debacle?  Let’s first review the basics:

1. Request an Accountant’s Copy of the QuickBooks File.  If the client give a Portable File or Backup File, it is important to urge the client to STOP doing any accounting work to be able to receive the adjusted QuickBooks file when the accountant is finished.  The alternative to this would be to do the work at the client’s office or work remotely on their file so no transfer is ever necessary.
2. Review the file for the actual things that were done correctly, such as verifying open invoices and open bills with client and deleting or writing off any that should not have a balance
3. Reconcile the banks, enter missing transaction, and delete all un-reconciled transactions that are not specific outstanding checks or deposits that are confirmed in the first couple of days of January.
4. Create Credit Card accounts if not done by client and enter ACTUAL credit card charges and get rid of “credit card bills”.  It is important to put the actual vendor on all the transactions for later review
5. Pull a filtered report to show all transactions in the Income accounts and look for any debits that are likely not to be in the Income accounts
6. Pull a filtered report to show all transactions in the Expense/COGS accounts and look for any credits that are likely not to be in these types of accounts
7. Review expenses that are usually in “office supplies”, “Office expense”, and “Computers and Internet Expense” for transactions with high amounts; the idea is to try to identify purchases of Fixed Assets and reclassify them as such
8. It is recommended that all transactions that could not be identified by accountant because the vendor/customer information is missing or the nature of the transactions is unclear to classify these them as “Ask Client” as an Other Expense account.   Then pull a filtered report with just these transactions to send to client for research

The second step is to take full advantage of the tools available for accountant is QuickBooks Accountant 2013:

• Using Adjusting Journal Entries, by checking the ADJ Box on top of the journal entries window… This will allow you to easily review the Working Trial Balance before and after these adjusting entries, also you can double click on any of the journal entries made that were marked as “ADJ”
• Use the Reclassify Transactions function under client Data Review to easily change the expense accounts for a particular vendor or a group of transactions in classified wrong account.  This is known to save accountants hours!
• Use the REVERSE function in the General Journal Entries window to create complete reversal of the temporary adjustments for the following year.  Quick and painless.  Usually defaults a 12/31/2012 entry to reverse on 01/01/2013
• Fix Unapplied Payments for Customer and Vendors under the Client Data Review Window, this tools allows you to apply any payments to the vendors to open bills and vice-versa with customer invoices.  Great way to clean up the client’s QB file
• Clear Undeposited Funds from the Client Data Review Window, this tool allows you to match-up received payments against bank deposits that were entered as income but leaving Undeposited funds overstated.  This is a very, very common issue, having “undeposited funds”
• Write-off in batch all invoices that are duplicated or already paid off, this is the fastest way to write off invoices for MULTIPLE customers in one shot.  Retaining integrity on Accrual based Sales Tax liability calculation as well by reversing it.
• Batch Enter Transactions by quickly inputting check or deposit data in the spreadsheet style module, also easily copy and paste from excel.  Accountants have been asking for this feature for over 10 years!
• Finally, Send Journal Entries to your client if you are not working on an Accountant’s Copy or the client’s actual file, this tools allows you to just email the client the journal entries generated by accountant to have client’s financial statements match.  This is a working progress still

QuickBooks Accountant during tax time is all about saving time.  For must accountants in the tax business, getting work done faster is crucial to increase accuracy and capacity to maximize profitability during the most crucial time of the year.  We have QuickBooks Training classes and Tax Law classes… but we do not have a Tax Preparation using QuickBooks class.  If we did, this article would be the perfect outline for the content.