Rustler’s Quickbooks Tips

Let’s say that your state only requires you to pay sales tax on 80% of the total charged for your particular service, rather than taxing the whole amount. And let’s say your normal sales tax rate is 8.25% (0.0825) as it is here in Texas.

The easiest way to accomplish this is to find what I call the effective rate. The rate where, when you apply it to the full amount, the tax calculated is the same as if you had first determined 80% of the sale and then applied the 8.25% tax rate to that total.

Pick a number, any number, how about $1,225.00.

80% of $1,225.00 is $980.00 and the sales tax on that amount at 8.25% is $80.85. So that is the amount you should collect on the sale of $1,225.00 where only 80% of the sale is taxable.

Divide $80.85 by the total sale $1,225.00 and you get .066 or 6.6%. That is the effective tax rate.

If you multiply the original sale of $1,225.00 by 6.6% you get $80.85. Pick a few other numbers and check it, it works.

So if you set your state tax rate to the effective rate, it will always calculate the tax based upon 80% of the total as the state requires. You should keep all digits after the decimal point when calculating the effective rate (do not round it), this one worked out well, another number combination might not.

Bounced Checks happen, when they do there are several things that must be done. The original deposit has to backed out of the checking account, the fee the bank charges has to be entered as a withdrawal (credit) to the bank account, you have to re-invoice the person who bounced the check, and you should add to that invoice the bank fee and any other handling fee you impose.

Set up an income account called “Bad Check Charges”, if your business does not charge more than the bank charged you for the bad check you do not need this item

Several items need to be set up.

An “Other Charge” item called “Bad Check”, make the item non-taxable, leave the amount blank, and select your bank account in the account field, in the description block enter “Check returned NSF”.

An “Other Charge” item called “Bad Check Fee”, make the item non-taxable, leave the amount blank, and select your bank account in the account field, in the description block enter “Bank Service Charge”.

An “Other Charge” item called “Bad Check Charge”, leave the amount blank, set it to non-taxable, and select your new income account (Bad Check Charges) in the account field, in the description block enter “Bad Check Handling Charge”. If your business does not charge more than the bank charged you for the bad check you do not need this item or the income account set up in the beginning - decision point as to whether the added work is worth charging for.

When you get a bad check returned from the bank, it also tells you the amount of the bad check charge your bank charged you.

Create an invoice, select the customer:

Line 1: enter the Other Charge item “Bad Check” and the amount of the check that bounced.

Line 2: enter the Other Charge item “Bad Check Fee” and the amount the bank charged you

Line 3: enter the Other Charge item “Bad Check Charge” and the amount your company charges for handling bad checks (note that if you do not charge more than the bank does this line and the associated item does not need to be used)

Send the invoice.

What happens:
The Other Charge item “Bad Check” credits your bank account for the amount of the check, basically reversing the original deposit.

The Other Charge item “Bad Check Fee” credit your bank account for the amount of the service fee charged by the bank, and it will show up as a seperate item in the reconciliation as it will on the bank statement, and your bank balance will be correct.

The Other Charge item “Bad Check Charge” will account for the income from the charge when the total amount is received and the total amount received will go to undeposited funds as with any other receipt. This assumes you charge an additional charge for having to deal with a bounced check.

IRS Form 1099 is required to report payments to people and businesses you do business with, especially subcontractors. If the business you make payments to is a corporation you are not required to file a 1099, only unincorporated business must get a 1099 (with a few exceptions listed below).

The IRS requires that the 1099 be in the hands of the recipient by Jan 31 of the following year. (my suggestion is to order the forms early!) You have until Feb. 28 to get the forms to the IRS itself.

The who and how much varies though (get the directions for Form 1099 to see the whole gamut of reasons to file), some of the most common reasons are:

If the business pays subcontractors or others providing services - $600 or more (box 7).

If the business pays Rents and Commissions - $600 or more (box 1).

the exceptions:

Payments made to all providers of medical and health care services of at least $600 must be reported regardless of whether the recipient is a professional corporation (box 6).

All payments to attorneys must be reported regardless of whether the recipient is a professional corporation (box 14).

Note that the first item (box 7) also includes the value of any barter transaction. If you pay for a service by giving something from the business (inventory, professional services, etc) the fair market value of that item or service is taxable income to the person you traded with.

In QB, when you bring up the vendor edit screen there are two tabs, on the “Additional Info” tab there is a check mark box saying “Vendor is eligible for 1099″ mark that box and QB will keep track of the payments to that vendor for the purpose of filling in a Form 1099. You can get a report by using the menu Reports>Vendors & Payables>1099. I would think it would be under the menu item “Accountants & Taxes” but it isn’t.

Recurring invoices are a problem in QB. You can memorize an invoice so it makes it easy to pull up, but you have to remember to do it each month.

If you have Premier or higher there is another way. Use a sales order.

The reminders window, which you can set to open all the time will show all future sales orders in date sequence (see the entry “Custom Desktop View” in the Misc category).

Create a sales order, for each recurring invoice you need, and date it for the next date you will need to use it (mark it as needing to be printed so it shows up on the reminders window list). That puts it in on the reminders list, when you need to invoice, double click on the sales order, click the create invoice button, print, mail and save the invoice created.

Then go back to the reminders window and double click on the sales order you just used, change the date to the next month and save it. That puts the sales order in a new position in the list.

Sales tax rates and new rates.

QB allows you to change the sales tax rate in the sales tax item and all future sales will use the new tax rate.  That is great huh?  Don’t do that.

The problem is that there is no way to go back if you have to re-write an invoice due to some kind of adjustment or something, QB will use the current sales tax rate rather than the one that was in effect when the invoice was written.

When sales tax rates change, create a new sale tax item, change the name of the old one to show the ending date for its’ use, and make the new one the default.  Then if you have to go back, you can select the old tax rate and use it.

Occasionally inventory is obsolete, spoiled or damaged somehow and you need to get rid of it.

One way is to set up an account called something like “spoilage/obsolete” as a sub account of COGS. Then use inventory adjust, select the account “spoilage/obsolete” as the adjusting account and then lower the quantity on hand of the item that are no good anymore.

This assumes of course that you really do throw the items away.

And you thought the only income you needed to record came from sales huh? A donation is an income event too.

I don’t deal with non-profit accounting and from what I understand they have some different rules to go by so if you are a non-profit this may not apply.

A donation is an income, even if what is donated is equipment, it has to be recorded at the fair market value on the date of donation.

You need to create a seperate income account, called something like “Donation Income”, or just use the “Other Income” account and enter something in the memo block to remind you about it.

Then the value of the donation is debited to an asset account (cash, equipment, inventory, what ever) and credited to the “Donation or Other Income” account.

To get this done, bring up inventory adjust, mark it as a value adjustment, select the donation income account as the adjusting account, increase the quantity of the item, and increase the total value of the item. That gives the item a cost and the income account shows that same cost as income to the business.

This same holds true for rebates from credit cards, that is also an income.

A donation is free and clear of ownership, the person donating has no claim to business equity. If the donation is tied to a claim on ownership of some part of the business then you need to set up an equity account for the person donating (what they are really doing is investing not donating) and credit that equity account instead of income.

Interesting topic.

In cash accounting you account for cash in and cash out. You aren’t owed anything. A local candy store might be a good example, people come in and you get cash, you buy candy in bulk for cash. But you don’t extend credit if someone wants to buy.

In accrual accounting things change a lot. Income is posted as being received when you bill someone, that throws people off sometimes. But if you think it through it really makes little difference, you will get the money. The only time this appears to be an issue is at the end of the year. But when the new year rolls around, and you receive money on an invoice from last year, QB does not post it to the current years accounts - after all it was already posted to last years.

The problem I see is that people want to switch back and forth, and when the financial statements don’t make sense to them then there are problems. If you invoice and the customer owes you money there is a difference in the way the two systems handle it.

Accrual - the cost of what was sold is sent to COGS immediately and the amount you invoiced for becomes a receivable and is sent to sales.

Cash - Nothing happens! Well inventory is reduced but that is all. When you tell QB that you received some of the money owed then and only then does QB send the cost of what was paid for (the cost of what you sold) to COGS and the amount received goes to sales. Now if you receive the full amount owed that works out pretty good, the full cost goes to COGS. But if your customer only pays half of what is due, then only half of the cost is sent to COGS, and QB waits to be told that the rest has been paid for, cash has been received. This really screws up COGS when you try to look into the detail behind the postings - at least for me.
People seem to want the full cost to go to COGS when an invoice is written in the Cash system, but that just does not happen.

Trying to compare either of the financial statements is a lost cause too, you just cannot do it. You cannot compare the cash basis profit and loss to the accrual profit and loss, and trying to compare the balance sheets is even more of a problem.

Of course keep in mind that I am not an accountant, so what seems wonky to me, might make a lot of sense to someone who is actually trained.

When you issue a refund, if you got the item back then use the item on the refund form and QB will return the item to stock.  If for some reason the item cannot be returned to stock you need to set up an other charge and use that item for the refund.