Introduction

As stated in Chapter 2 – Accountant Tools, QuickBooks Online Accountant is a Cloud-based application that allows accounting firms to access, store, manage, and process their payroll, payroll, accounting, business analysis, and tax preparation at any time and from anywhere with an Internet connected device. The features of QuickBooks Online Accountant also allow accounting firms to access, store, manage, and process their clients’ payroll, payroll, accounting, business analysis, and tax preparation.

Accounting Analytics uses QuickBooks Online Accountant to:

1. Perform our bookkeeping, payroll, accounting, business analysis, and tax preparation
2. Manage, support, and supervise our team (professional staff of bookkeepers, payroll personnel, accountants, business analysts, and tax preparers)
3. Manage, support, and supervise our clients’ bookkeepers
4. Perform our clients’ accounting, business analysis, and tax preparation

This chapter is for accountants who use QuickBooks Online Accountant to perform our clients’ accounting.

Our accounting services enable accountants to help their clients:

1. Provide timely, relevant, and reliable accounting information
2. Increase their financial position, profit, and cash flow

Accounting

Accounting involves analyzing, summarizing, interpreting, and communicating business information.  

Business information is communicated through financial and management reports and business performance analysis.

Business decisions are based on financial and management reports and business performance analysis.

Business information must be timely, relevant, and reliable since business decisions can make or break business success.

Our accounting process assures our clients their business information is timely, relevant, and reliable.

Who Should Perform the Accounting?

As stated in Chapter 1 – Introduction: Accounting System, there are three people who can perform the bookkeeping and payroll for a business:

1. Owner
2. Employee
3. Independent contractor bookkeeper

A business owner shouldn’t perform their own bookkeeping and payroll. They make better use of their time working on their business and not working in their business. The owner should delegate their bookkeeping and payroll to a trained, certified, and experienced employee or independent contractor bookkeeper.

To determine whether to delegate their bookkeeping and payroll to an employee or bookkeeper, a business owner should perform a cost-benefit analysis. A cost-benefit analysis is a process a business owner uses to analyze decisions. The owner sums the benefits of a situation or action and then subtracts the costs associated with taking that action.

If the business owner chooses to have an employee or independent contractor bookkeeper perform their bookkeeping and payroll, the owner should ensure the employee or contractor is properly trained, certified, experienced, supported, and supervised.

Intuit has a reputation for developing DIY (Do-it-yourself) applications such as Mint for personal budgeting, QuickBooks Online for payroll, QuickBooks Online Payroll for payroll, and TurboTax for tax preparation. Therefore, many business owners believe Intuit developed QuickBooks Online to replace their accountants. Thus, many QuickBooks Online users don’t have payroll or payroll training, certification, experience, support, and supervision. In addition, many QuickBooks Online users don’t set up their QuickBooks Online company files correctly to provide business owners the timely, relevant, and reliable information they need to make good decisions.

Intuit developed QuickBooks Online and QuickBooks Online Payroll to enable small businesses to perform their bookkeeping and payroll with assistance from their accountants. That’s the relationship business owners and accountants should develop.

The person responsible for completing the bookkeeping and payroll responsibilities should be an employee or independent contractor bookkeeper.

Business owners should understand that QuickBooks Online and QuickBooks Online Payroll were developed for non-accountants. With proper training, certification, support, and supervision, employees can perform bookkeeping and payroll using QuickBooks Online and QuickBooks Online Payroll. However, that doesn’t apply to accounting.

In most states, only individuals who possess an accounting degree can hold themselves out as “accountants” and can legally perform “accounting”. An accounting degree is an academic degree awarded to students who have completed an accredited accounting education program at a college or university.  Accounting is the process of recording business financial transactions. The accounting process includes summarizing, analyzing, and reporting these transactions to business owners, oversight agencies, regulators, and tax collection entities. Most accountants who provide accounting services are properly trained, certified, experienced, supported, and supervised in the industries they serve and the services and products they provide.

Most accountants who provide accounting services are properly trained, certified, experienced, supported, and supervised in the industries they serve and the services and products they provide.

Today it makes no sense for a business owner to pay an accountant to perform their bookkeeping or payroll because the cost outweighs the benefit. It also makes no sense for an owner to rely on their bookkeeper to perform their accounting because bookkeepers are not trained, certified, and experienced in accounting.

Accounting Analytics’ Accounting Process was developed based on this model. Therefore, we provide the following accounting services:

• Review and adjust financial information
• Prepare company financial statements and reports

We communicate these services to the prospective client in our Client Agreement after receiving and reviewing their Contact Information Form information.

Accounting Services Workflow

Our accounting services workflow is as follows:

1. Access Client’s QuickBooks
2. Review Financial Statement Accounts
3. Set Up and Account for Certain Balance Sheet Accounts

Access Client’s QuickBooks

The advantage of using QuickBooks Online is the client and accountant are using the same program. The accountant can perform bookkeeping, payroll, and accounting services on-demand since the client's information is accessed at any time and from anywhere with an Internet connected device. The traditional process of ensuring the client and accountant are using the same QuickBooks desktop product, year, and release; having to save and email the Accountant’s Copy file back and forth; or accessing a slower, cumbersome hosted service; is replaced with “real time” service.

To access a client’s QuickBooks Online account:

1. Select the Go to QuickBooks Online drop-down menu
2. Select the client’s name

Note: When you’re taken to the client’s QuickBooks Online account, “Go To QuickBooks” changes to “Back to Practice”. When you want to return to your QuickBooks Online Accountant account, select Back to Practice.

Review Financial Statement Accounts

We perform a monthly review of our clients' financial statement accounts. The transactions may vary with each client, but the steps to review financial statement accounts doesn’t vary with each client.  

To perform a monthly review of financial statement accounts:

1. Review the general ledger
2. Record recurring journal entries (such as depreciation expense and interest expense)
3. Review and adjust account balances

Review the General Ledger

The general ledger lists each account’s beginning balance, transactions, and ending balance for a selected period such as January 1 through December 31. Beginning with each account’s beginning balance, you should review (scan) transactions posted to the account and the ending balance to detect unusual entries or ending balances.

Some common red flags that may indicate a problem in a specific account include:

• Debit versus Credit Balance – Some accounts typically have debit balances (assets and expenses) and others have credit balances (liability, equity, and revenues). If an account has an unexpected debit or credit balance, include the account(s) in your Accounting Review Points Email
• Debit versus Credit Postings – Some accounts typically have debit postings (expenses) and others have credit postings (revenues). If credit entries are posted to an expense account or debit entries are posted to a revenue account, include the transaction(s) in your Accounting Review Points Email
• Unusually Large or Small Amounts – Most accounts have a normal range of transaction amounts. Unusually large or small amounts may indicate transaction posting errors. Include the account(s) in your Accounting Review Points Email
• Unexpected Posting Source – Some accounts primarily consist of postings from specified "types" within QuickBooks Online. For example, postings to accounts receivable generally are from invoice and payment types. If postings are from other types, the transactions may have been posted incorrectly. Include the transaction(s) in your Accounting Review Points Email
• Beginning and End of Period Balances – Balance sheet account balances often are comparable from one period to the next. If the ending balance for an account differs significantly from the balance at the beginning of the period, the transactions posted to that account may need to be reviewed. Include the account(s) in your Accounting Review Points Email
• Absence of an Entry – Many accounts have journal entries posted to them each month. You may need to investigate if a journal entry posting is missing. Include the account(s) in your Accounting Review Points Email

You should have the bookkeeper correct any errors (such as misclassifications or missed entries) detected in the general ledger review.

To review the general ledger while in the client’s QuickBooks:

1. Select Reports from the left menu
2. Under the For My Accountant section (if it’s not saved under Favorites), select General Ledger
3. Under Report Period, select Last Month in the dropdown menu
4. Select Run report

Record Recurring Journal Entries

You can adjust a client's financial statement accounts in QuickBooks Online in several ways:

1. Create a journal entry
2. Post a transaction directly to account registers
3. Modify source documents

However, to provide the best audit trail of your adjustments, we generally recommend you create journal entries rather than posting transactions to account registers or modifying source documents.

If you have any recurring journal entries, create a Recurring Journal Entry.

To create a Recurring Journal Entry:

1. If you’re in Prep for Taxes (discussed below), select the financial statement account, then Make Adjustment in the Actions column

You can also select New, then Journal Entry under Other or the Gear icon and Recurring Transactions under Lists.

2. Select Make Recurring
3. Enter the Template Name, Type (Scheduled, Reminder or Unscheduled) and days in advance, if any
4. Select the Interval (Daily, Weekly, Monthly or Yearly), on (day, first, second, third, fourth or last) and (1^st – 28^th or last), of every (1 – 12) month(s)
5. Enter Start date and End (None, By, After)
6. On the first row, select the appropriate account to be debited or credited from the drop-down menu, then enter amount
7. Enter a description to record a contribution of the account, then select the customer or vendor from the Name column (if applicable)
8. On the next row, select the account to be debited/credited from the drop-down list

The amount should automatically populate to match the amount above.  

9. Enter a description matching the credit/debit above, then select the customer or vendor from the Name column (if applicable)
10. Enter a Memo such as Monthly Accountant Depreciation Recurring Entry
11. Add any Attachments (Drag/Drop supporting file(s), if any
12. Select Save Template

You can view, use, edit, duplicate, or delete recurring journal entries on the Recurring Transactions List.

To access a Recurring Journal Entry:

1. Select the Gear icon
2. Select Recurring Transaction under Lists
3. Filter by Name or Template Type (Select the Filter dropdown menu)
4. Select the Recurring Journal Entry, then Use, Edit, Duplicate or Delete

Review and Adjust Account Balances

After recording any journal entries, you should review and adjust account balances. You can review and adjust account balances with the Prep for Taxes tool.

QuickBooks Online includes a Prep for Taxes tool. This tool presents the client's balance sheet and profit and loss statement and allows you to review balances, drill down to the source detail, make adjusting entries, and print the data. It also exports tax returns directly to Intuit's ProConnect Tax Online.

To access Prep for Taxes for a client while in the client’s QuickBooks Online file, select Accountant Tools, then Prep for Taxes under Tools.

To access Prep for Taxes for a client while in Your Practice, select Clients, then select Review Data under the Prep for Taxes column from the Client List.

The following is found on the Prep for Taxes page:

• Tax Year – Select the dropdown menu and select the tax year
• Accounting Basis – Select the pencil icon to change the tax preparation view to accrual or cash basis. This changes your tax preparation view and not the QuickBooks Online accounting method
• Year-end Actions – Select Year-end Actions to download the client’s Prep for Taxes account balances into a formatted financial statement report for the selected tax year ended Excel file.  The report contains: cover page; Notice to Reader informing the reader that the financial reports were not subjected to an audit, review or compilation; balance sheet, income statement (profit and loss), and leadsheets schedule with reference codes
• Tax Options – Select the download menu to Update existing return, Create new return, or Export CSV file
• Locked or Unlocked – The locked feature prevents unwanted transactions from being included in the client’s prior year end account balances. You lock the client’s books when you start working on their year-end close. The lock icon displays “Locked” when you set a lock or close date. Once Locked, the bookkeeper is unable to record a transaction before the locked date
• Review & Adjust tab – Review and adjust account balances
• Tax Mapping tab – Assign income tax return tax lines to each account

Review and Adjust

The Review and Adjust tab includes the following columns:

• Accounts – The accounts column lists the balance sheet and profit & loss accounts
• Year – The Year columns displays the selected tax year's account ending balances and the prior tax year’s account ending balances
• $ Change – When the Prep for Taxes feature is started, the $ Change column is locked to protect the year-end close review work. Any additional changes made by you or the client appear in the Adjusting Entries column
• Adjusting Entries – The adjusting entries column displays any adjusting entries made in Prep for Taxes
• Actions – The Actions column dropdown menu contains Make Adjustment, Add Note, and Add Attachment actions. Select Make Adjustment to make account adjusting entries. Select Add Note to add account notes. Select Add Attachments to add account attachments

Perform the following procedures:

• Agree ending cash balances to ending bank reconciliation balances
• Agree ending credit card liability balances to ending credit card statement reconciliations
• Agree the ending accounts receivable balance to the total of the Accounts Receivable Aging Summary report under Who owes you in the Reports menu
• Agree the ending accounts payable general ledger balance to the total of the Accounts Payable Aging Summary report under What you owe in the Reports menu
• Reconcile any significant differences between total monthly sales and the Sales by Customer Summary report under Sales and customers in the Reports menu
• Agree the ending balances for payroll liability accounts to the Payroll Liability Balances report in the Payroll Tax Liability report under Payroll in the Reports menu
• Agree the ending sales tax payable balance to the Sales Tax Liability report under Sales tax in the Reports menu
• Adjust uncategorized income and expense accounts.

In addition to reviewing Prep for Taxes ending balances, you also may want to review a standard trial balance by selecting Trial Balance under For my Accountant in the Reports menu. The trial balance lists the ending balances of all accounts in debit and credit columns.

Tax Mapping

When performing the client company setup, you selected the company’s tax form. QuickBooks Online automatically assigns tax lines for most of the company’s accounts to import into Intuit's ProConnect Tax Online. Accounts that are unassigned are assigned in Tax Mapping (Assign Tax Line). When the year-end adjustments are made, you can complete the client's tax return using Intuit's ProConnect Tax Online.

Set Up and Account for Certain Balance Sheet Accounts

We set up and account for the following balance sheet accounts:

• Fixed assets and accumulated depreciation
• Loans and notes payable
• Opening balance equity

When we set up a company, we set up and account for these transactions to ensure they’re set up and accounting for correctly. In addition, each month we ask the bookkeeper if any of these transactions occurred during the previous month.

Fixed Assets and Accumulated Depreciation

When the purchase of fixed assets occurs, we determine how best to set up and account for them by asking the following three questions:

1. Is the fixed asset under our client’s fixed asset scope policy? For example, we don’t depreciate fixed assets under $500
2. What account names and level of detail should we use in the financial statements?
3. Should we use an Excel fixed asset template or a QuickBooks Online fixed asset app, such as Asset.Guru, to track the client’s fixed assets?

The answers to these questions impact the accounts that are set up to record the fixed assets.

Fixed Asset Scope Policy

If the fixed asset is below the client’s fixed asset scope policy, we expense the fixed asset.

Names and Level of Detail in the Financial Statement Presentation

The fixed assets names and level of detail the client wants to report in their financial statements determines how the fixed assets are set up and accounting for in QuickBooks. For example, if the financial statements present categories of fixed assets, QuickBooks Online is set up with accounts that record category information. Some clients might want to set up a parent account called Property and Equipment, use subaccounts for each category (e.g., Furniture and Fixtures and Equipment) and accumulated depreciation, and use sub-subaccounts for additional category levels or individual assets.

Financial statements vary, but the term Property and Equipment is used more than Fixed Assets. The following are some example financial statement presentations used by companies:

• Property and Equipment, net of accumulated depreciation of $32,481
• Property and Equipment - Less: Accumulated Depreciation
• Property and Equipment: Furniture and fixtures, equipment - Less: Accumulated Depreciation
• Fixed Assets: Furniture and fixtures, equipment - Less: Accumulated Depreciation

Excel Fixed Asset Template or QuickBooks Online Fixed Asset App

If we use an Excel fixed asset template or a QuickBooks Online fixed asset app to track information about fixed assets, we set up a single Property and Equipment parent account with subaccounts for fixed asset groups: Land, Buildings, and Improvements; Furniture and Fixtures, and Equipment; and a single subaccount for Accumulated Depreciation. When the fixed asset detail is listed in an Excel fixed asset template or app, it’s not necessary to set up account balances for individual fixed assets.

We record depreciation based on the information generated in the Excel fixed asset template or app. The entry will be to the single Accumulated Depreciation subaccount.

Note: Generally, we use an Excel fixed asset template for clients with a small number of fixed assets and a fixed asset app with a large number of fixed assets.

We set up the parent and subaccounts for fixed assets owned as of the Start Date. QuickBooks Online automatically creates a Depreciation Expense account when you accept the preset chart of accounts.

Recording Depreciation

We record depreciation for our clients from our Excel fixed asset template or app. We set up a recurring journal entry in QuickBooks Online which debits the Depreciation Expense account and credits the Accumulated Depreciation subaccount.

We generally use tax basis depreciation and not GAAP basis depreciation methods and useful lives. We use the tax basis because it avoids the need to maintain separate depreciation schedules for book and tax purposes and there usually isn’t a significant difference between tax and GAAP basis depreciation. However, if there is a significant difference, we use the GAAP basis of depreciation amount.

Unless insignificant, we allocate annual depreciation expense monthly. The monthly allocation is generally made on a straight-line basis. Therefore, one twelfth of the annual depreciation expense is recorded. We adjust the monthly depreciation expense calculation for fixed asset additions, disposals, and other changes during the year. If insignificant, we don’t adjust for those items until the year-end.  

Loans and Notes Payable

When we set up a company, we set up and account for loans and notes payable to ensure they’re set up and accounting for correctly. In addition, each month we ask the bookkeeper if any of these transactions (including lines of credit) occurred during the previous month.

To set up liability accounts:

1. Select Go to QuickBooks, then the client
2. Select Accounting, then Chart of Accounts
3. Select the New button
4. In the Account Type field, select Long Term Liabilities for long-term loans or Other Current Liabilities for short-term loans (loans that will be paid off in one year or less)
5. In the Detail Type field, select Notes Payable, Other Long-term Liabilities or Shareholder Notes Payable
6. In the Name field, enter the lender's name
7. In the Description field, enter the loan or note number
8. Select Is sub-account if the account is a sub-account to a Notes Payable parent account
9. In the “When do you want to start tracking your finances from this account in QuickBooks?” field, choose Beginning of this year, Beginning of this month, Today, or Other.

QuickBooks Online will start tracking the loan or note from that day onward.

10. In the “What was your account's balance on xx/xx/xxxx?” field, enter the loan or note principle balance as of that date
11. Select Save
12. Set up an Interest Expense account if not already set up

Set up a separate loan or note payable account for each loan or note payable.

When setting up a new loan or note obtained after the Start Date, create the liability account. You should also record the loan proceeds by selecting the New button and select Bank Deposit under Other. Select the name of the loan or note payable account from the drop-down list in the Account field.

Opening Balance Equity

The Opening Balance Equity account is one of the most misunderstood accounts in QuickBooks. QuickBooks Online automatically creates this account the first time a user enters an opening balance for a balance sheet account. QuickBooks Online then automatically posts the offsetting entry to the opening balance for each asset and liability account to the Opening Balance Equity account. Since the only purpose of the Opening Balance Equity account is to offset beginning balance sheet balances as of the Start Date, you should:

• Verify that the only amounts posted to Opening Balance Equity relate to the setup of balance sheet accounts as of the Start Date. Reclassify any amounts resulting from other transactions
• Verify that the adjusted balance in the Opening Balance Equity account equals the total equity amount in the client's balance sheet immediately preceding the Start Date
• Transfer the balance in the Opening Balance Equity account to the applicable equity accounts (such as retained earnings, proprietor's capital, or partners' capital)

You can transfer the balance in the Opening Balance Equity account to the applicable equity accounts via a journal entry or by double-clicking on the Opening Balance Equity account in the chart of accounts to record the transfer directly in the Opening Balance Equity account register.

Users should not post transactions to the Opening Balance Equity account. However, QuickBooks Online automatically posts unresolved bank statement and credit card reconciliation differences to the Opening Balance Equity account. In addition, many clients post other transactions to the Opening Balance Equity account since they don’t understand the only purpose of that account is to offset beginning balance sheet balances as of the Start Date. Consequently, you should advise your clients not to post any transaction to Opening Balance Equity. In addition, you should review that account each accounting period to verify that its balance is zero. If the balance is not zero, you should review the detail transactions posted to the account and transfer the transaction amounts to the appropriate accounts.

The Accounting Review Points Email asks the bookkeeper if any of these types of transactions have occurred during the prior month.

To access the Contact Information Form, log in to Accounting Analytics Clients Only portal at accountinganalytics.com.