Choosing a Reporting Basis
Are you a business owner unsure of what critical information you should be reviewing in your data file and how often you should perform the review, or are you an accounting professional new to the QuickBooks software? This chapter provides you with the needed review and quick, easy-to-create reports with practical steps to manage your or your client's data. Each section references the chapter where you can find more detailed information.
If you are a business owner, you can use the quick methods in this chapter to better manage the results of your day-to-day transaction accuracy so that when you review reports, such as the Balance Sheet or Profit & Loss for your business, you can be confident the information is correct.
The frequency with which a business owner chooses to review his data often differs from the frequency with which an accountant reviews the same data. For a business owner, this review should be performed after the bank account is reconciled. Because so many transactions affect cash, reconciling the bank account often helps uncover data entry errors.
For the accounting professional, when your client learns how to review his data before your appointment, you can spend more time offering valuable business consulting with less time spent on transaction review.
Additionally, this book assumes that the business owner does not have a degree in accounting. QuickBooks handles the "accounting" behind the scenes, making it easy to perform your day-to-day transactions. However, don't misunderstand me—you do need an accountant to review your data regularly and prepare financials for lending institutions, in addition to properly preparing your tax return.
This chapter provides a quick, step-by-step guide to navigating the many QuickBooks reports and alerts you to the ones that give you the valuable information you need.
When you review your QuickBooks reports, you have options for the accounting basis you want to report on. To set up the default reporting basis, click Edit, Preferences, select Reports & Graphs, and then click the Company preference tab (you must be logged in as the Admin or External Accountant user). In the Preferences dialog that opens, select a Summary Report Basis of either Cash or Accrual:
- Cash Basis—Your Profit & Loss report shows expenses as of the date of the bill payment and income as of the date of your customer payment. No record of expense is recorded on the vendor bill date, and no income is recorded on the customer invoice date.
- Accrual Basis—Your Profit & Loss report shows expenses as of the date of the vendor bill and income as of the date of your customer invoice, whether or not these bills or invoices have been paid.
QuickBooks users can prepare reports in both types of basis. The need for selecting a specific basis is more a tax filing determination than a business management reporting decision. Certain Internal Revenue Service rulings govern what type of accounting is appropriate for certain businesses; this discussion is outside the scope of this book.
The reports discussed in the remaining sections of this chapter use accrual basis reporting. The reports I recommend reviewing are just a suggestion; your business (or client) might need to use all or just some of the review recommendations listed here. Where appropriate, I have also referenced the related chapter in this book where you can get more detailed information about the particular review topic.