- Client Data Review-New for 2009!
- Choosing a Reporting Basis
- Reviewing the Balance Sheet
- Additional Data Reviews
This chapter is from the book
This chapter is from the book
This chapter is from the book
Reviewing the Balance Sheet
Did you know that the report a business owner is least likely to look at is also one of the most important? To the business owner, the Balance Sheet report shows the balance of assets (what the business owns), liabilities (what the business owes others), and equity (what was put into the business or taken out of the business). Because these numbers are important, a business owner should first review this report.
Remember, this chapter presents the reports in accrual basis unless otherwise mentioned.
Begin by creating a Balance Sheet report of your data; this is the primary report we use for review:
- Click Reports, Company & Financial and choose the Balance Sheet Standard report. The report dialog opens.
- Leave the report with today’s date. You are going to first review your report with today’s date before using any other date. In the following instructions, if a different date is needed, it will be noted in the step-by-step details. Verify that the top left of the report shows Accrual Basis. If not, click the Modify Report button on the report, and select Accrual Basis from the Report Basis options.
- Click OK to accept the change in basis.
Figure 4.1 shows a sample data Balance Sheet.
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Figure 4.1 Review your Balance Sheet first, as in this example.
Account Types
Reviewing the account types assigned requires some basic knowledge of accounting. If as a business owner you are unsure, this review provides the perfect opportunity for your accountant to take a quick look at how your accounts are set up.
Review the names given to accounts. Do you see account names in the wrong place on the Balance Sheet? For example, does an Auto Loan account show up in the Current Asset portion of the Balance Sheet?
Follow these steps if you need to edit an account type:
- Click Lists, Chart of Accounts to open the Chart of Accounts dialog.
Select the account in question with one click. Select the Account drop-down menu and select the Edit menu option. On the Edit Account dialog (see Figure 4.2), you can select the drop-down menu for Account Type to easily change the currently assigned account type (see Chapter 2, “Reviewing the QuickBooks Chart of Accounts”).
Figure 4.2 The Edit or New Account dialog is where you assign the account type for proper placement of financial reports.
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Prior Year Balances
You should provide a copy of your Balance Sheet dated as of the last day of your tax year (or fiscal year) to your accountant and request that she verify that the balances agree with her accounting records used to prepare your tax return. This is one of the most important steps to take in your review because Balance Sheet numbers are cumulative over the years you are in business. You might need to provide the Balance Sheet report in both a cash and accrual basis. (See Chapter 5, “Power Reports for Troubleshooting Beginning Balance Differences,” and Chapter 15 for a discussion about setting a closing date to protect prior year numbers.)
Bank Account Balance(s)
Compare your reconciled bank account balances on the Balance Sheet report to the statement your bank sends you. Modify the date of the Balance Sheet to be the same as the last date of your bank statement balance. Your QuickBooks cash “book” balance should be equal to the bank’s balance plus or minus any uncleared deposits or checks/withdrawals dated on or before the statement ending date (see Chapter 6, “Bank Account Balance or Reconciliation Errors”).
Accounts Receivable
The Accounts Receivable balance on your Balance Sheet report should agree with the A/R Aging Summary report total, as shown in Figure 4.3. Accounts Receivable reports are available only in accrual basis (see Chapter 7, “Reviewing and Correcting Accounts Receivable Errors”).
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Figure 4.3 The A/R Aging Summary report total should agree with your Balance Sheet Accounts Receivable balance.
To create the A/R Aging Summary report, click Reports, Customers & Receivables and choose the A/R Aging Summary or A/R Aging Detail report. Click Collapse on the top of the report to minimize (remove from view) the line detail, making the report easier to view at a glance. The total should match the Accounts Receivable balance on the Balance Sheet report, as was shown in Figure 4.1.
Undeposited Funds
The Undeposited Funds amount should agree with funds not yet deposited into your bank account, as shown in Figure 4.4 (use today’s date on your Balance Sheet report). (See Chapter 8, “Reviewing and Correcting Errors with the Undeposited Funds Account.”)
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Figure 4.4 A custom report created to show the detail of undeposited funds.
Create the following custom report to review the Undeposited Funds detail sorted by payment method:
- Click Reports, Custom Transaction Detail. The Modify Report dialog opens.
- In the Report Date Range pane, select All (type an “a” without the quote marks and the date range defaults to All).
- In the Columns pane, select those data fields that you want to view on the report and select Payment Method in the Total By drop-down menu.
- Click the Filters tab; Account is already highlighted in the Choose Filter pane. Choose Undeposited Funds from the Account drop-down menu to the right.
- Also in the Choose Filter pane, scroll down to select Cleared; on the right, choose Cleared No.
- Optionally, click the Header/Footer tab and change the report title to Undeposited Funds. Click OK to view the report.
The amount of funds shown on this report should agree with the amount of funds you have not yet taken to the bank.
Inventory
The Inventory balance on the Balance Sheet report (refer to Figure 4.1) should agree with the Inventory Valuation Summary report total, as shown in Figure 4.5. The ending dates of both reports need to be the same.
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Figure 4.5 The total of the Asset Value column should agree with the Inventory balance on the Balance Sheet report.
To create the Inventory Valuation Summary report, click Reports, Inventory and choose the Inventory Valuation Summary report. The total in the Asset Value column should match the Inventory Asset balance of the Balance Sheet report (see Chapter 10, “Reviewing and Correcting Inventory Errors”).
Other Current Assets
The Other Current Asset accounts can differ widely by company. If you have employee loans, make sure your records agree with employees’ records. For any other accounts in the Other Current Assets category, look to documentation outside QuickBooks to verify the reported balances.
Need an easy report to sort the detail in these Other Current Asset accounts by a list name? In this example, I created a detail report of the Employee Loans account sorted and subtotaled by employee, as shown in Figure 4.6. You can create this same report for any of your accounts, sorting in a way that improves the detail for your review (see Chapter 9, “Handling Other Current Asset Accounts Correctly”).
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Figure 4.6 You can create a custom report to review balances in an Employee Loans account or any other asset account.
To create a detail report of your Other Current Asset accounts (in addition to other types of accounts):
- Click Reports, Custom Transaction Detail Report. The Modify Report dialog appears.
- On the Date Range pane drop-down menu, select All.
- On the Columns pane, select what data you would like to see in the report.
- Also on the Columns pane, select Employee from the Total By drop-down menu.
- Click the Filters tab.
- The Choose Filter pane already has selected the Account filter. On the right, from the Account drop-down menu, select the Employee Loans account (or select the specific account for which you want to see detail).
- Optionally, click the Header/Footer tab and provide a unique report title. Click OK to create the modified report.
Verify the balances reported here with either the employees or outside source documents.
Fixed Assets
Fixed assets are those purchases that have a long-term life and for tax purposes cannot be expensed all at once but instead must be depreciated over the expected life of the asset.
Accountants can advise businesses on how to classify assets. If the numbers have changed from year to year, you might want to review what transactions were posted to make sure they are fixed asset purchases and not expenses that should appear on the Profit & Loss report.
If you have properly recorded a fixed asset purchase to this account category, provide your accountant with the purchase receipt and any supporting purchase documents for their depreciation schedule records.
If you see a change in the totals from one year to the next, you can review the individual transactions in the account register by clicking Banking, Use Register and selecting the account you want to review. Figure 4.7 shows the register for Fixed Assets—Computers. If a transaction was incorrectly posted here, you can edit the transaction by double-clicking the line detail and correcting the assigned account category.
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Figure 4.7 Use registers for certain accounts to see the transactions that affect the balances.
Accounts Payable
The Accounts Payable balance on the Balance Sheet report should agree with the A/P Aging Summary report total, as shown in Figure 4.8. Accounts Payable reports are available only in accrual basis (see Chapter 11, “Reviewing and Correcting Accounts Payable Errors”).
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Figure 4.8 The A/P Aging Summary report total should agree with your Balance Sheet Accounts Payable balance.
To create the A/P Aging Summary or Detail report, click Reports, Vendors & Payables and select the A/P Aging Summary or Detail report. QuickBooks reports only Accounts Payable on an accrual basis (see Chapter 11).
Credit Cards
Your Credit Card account balance should reconcile with those balances from your credit card statement(s). You might have to adjust your Balance Sheet report date to match your credit card vendor’s statement date. Now might be a good time to request that your credit card company provide you with a statement cut-off at the end of a month.
Payroll Liabilities
The Payroll Liabilities balance on the Balance Sheet report should agree with your Payroll Liability Balances report total. Be careful with the dates here. If you have unpaid back payroll taxes, you might want to select a date range of All for this report. In Figure 4.9, I used This Calendar Year-to-Date as the date range (see Chapter 14, “Reviewing and Correcting Payroll Errors”).
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Figure 4.9 The Payroll Liability Balances report total should agree with the same total on the Balance Sheet report.
To create the Payroll Liability Balances report, click Reports, Employees & Payroll and select the Payroll Liability Balances report. Totals on this report should match your Balance Sheet report for the payroll liabilities account.
Sales Tax Payable
The Sales Tax Payable balance on the Balance Sheet report should agree with the Sales Tax Liability report balance. You might need to change the Sales Tax Payable report date to match that of your Balance Sheet. Caution: If you have set up your Sales Tax Preference as Cash Basis, you cannot compare this balance to an Accural Basis Balance Sheet report (see Chapter 12, “Reviewing and Correcting Sales Tax Errors”).
To create the Sales Tax Liability report, click Reports, Vendors & Payables and select Sales Tax Liability report.
Make sure the To date matches that of the Balance Sheet report date. The total, shown in Figure 4.10, should match the Sales Tax Payable total on your Balance Sheet report.
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Figure 4.10 The Sales Tax Liability report total should match the Sales Tax Payable balance on your Balance Sheet report.
Other Current Liabilities and Long-Term Liabilities
Any other accounts that you might have in the Other Current Liabilities and Long-Term Liabilities account types should be compared with outside documents from your lending institutions.
Equity
Equity accounts differ for each company. These account balances should be reviewed by your accountant and might have tax adjustments made to them at year-end or tax time. Note: If you have an account called Open Bal Equity with a balance, this account should have a zero balance after the data file setup is completed (see Chapter 13, “Reviewing and Correcting the Opening Balance Equity Account”).
The reports discussed in this chapter do not make up an exhaustive, end-all list for reviewing your Balance Sheet, but they are a great start to reviewing your own data or your client’s data.