R. Ricco - Sample Accounting Manual 2013

8/22/2019 R. Ricco - Sample Accounting Manual 2013

1/34

COMPANYNAME

&LOGOHERE

Accounting Procedures& Policies Manual

2013

1 Copyright by Robert Ricco and Property of Company Name Here. All rights reserved.


2/34

Table Of Contents

I. Creating and Configuring Customers and Jobs................. 3II. Creating Different Types of Items for Invoices..... 6III. Invoicing Customers and Collecting Payment..... 9

IV. Making Deposits and Managing Bank Accounts................ 14V. Reconciling Bank Accounts........ 16VI. Creating and Configuring Vendors. 19VII. Managing and Paying Vendor Bills.... 22VIII. Managing and Reconciling Credit Card Accounts.............. 25IX. Managing Employees and Processing Payroll................... 27X. Creating and Customizing Reports.................................... 30XI. Routine Maintenance of the Company File........................ 32



3/34

Chapter 1

Creating and Configuring Customers and Jobs



4/34

The Customer Centeris where all your customers and jobs, and detailed information about them, are kept. Itsalso where you go to create, edit, and get reports about customers and jobs. To open the Customer Center,

Click the Customer Centericon or Press CTRL J

The left pane shows all of your customers and their respective balances. Its important to notice that some of our

customer records stand alone as single-line entries and some appear to have sub-names or some form of bulletedlisting below them. In the image below, Maria Cruz is the customer and Branch Opening is a job for that customer.

In QuickBooks, customers and jobs are handled together. You can create a customer and consider anything andeverything you invoice to that customer a single job, or you can create multiple jobs for the same customer.

Some businesses dont worry about jobs; its just the customer thats tracked. But if youre a building contractor orsubcontractor or some other kind of service provider who usually sends an invoice based on a project (which weare), we should track jobs.

If you look at our own XYZ Construction Customer Center, youll notice that there are multiple jobs for many of ourcustomers. My recommendation is that if theres a fairly decent chance that a new customer will result in repeatbusiness, its best to set this up from the beginning and create a new customer, then create a new job for thatcustomers specific project. When additional projects come up in the future, youll already have the correct templateset up without needing to go back and do revisions.

To create a new Customer and then a new Job for that customer,

Click New Customer and Job, Select New Customer Enter the Customers Name and any additional information you want to have a

record for in the tabs labeled, Address Info, Additional Info, Payment Info, andJob Info

Click OK



5/34

Now, with the customer selected (and to create the new job)

Click New Customer and Job, Select Add Job Enter the Job Name (i.e.. Kitchen Repair)

Click OK

Its entirely up to you on how much detailed information you want to fill in with respect to specific jobs. By default,QuickBooks will take whatever customer contact information youve set up and that, generally, is all I wouldrecommend as necessary. The Job name should be specific enough for a customer to know what project yourinvoice pertains to, and in that regard, its important to recall that whatever you name your job, that same name andformatting will be visible on invoices and statements you send your customers.

Once youve saved a job, youll notice that it is indented in the same manner as discussed previously. If youreuncertain on whether or not its been saved correctly, see the image on the prior page. Your job should appear inthe same formatting as Branch Opening, underMaria Cruzs customer record.

Quick References for Customers and Jobs

What if I want to edit or make changes to customers and/or job information?o Select the customer or job you want to edit on the Customer Centerwindowo Press CTRL E

What if I want to delete a customer and/or job?o If and only if its never been used in a transaction, select the customer and/or you want to delete on

the Customer Centerwindowo Press CTRL Do If youve ever posted to the customer and/or job, you cannot delete it. In these cases, its best to

search for the transaction(s) posted and if not relevant to the current or a recent tax year, you may

want to consider hiding it from standard view. See next.

What if want to hide the customer and/or job from other users or to prevent anyone from posting tothis customer and/or job?

o Select the customer and/or job you want to hide on the Customer Centerwindowo Right-click and Select, Make Customer: Job Inactiveo If you ever want to show hidden customers and/or jobs or reactivate them, Select View all

Customers at the bottom of the Customer Centerwindow

What if I accidentally created two customers and/or jobs for the same purpose?o Select the customer and/or job that you DO NOT want to keep on the Customer Centero Press CTRL Eo Change the customer name and/or job name to match identically the one you want to keepo You will see the prompt: This name is already being used. Would you like to merge them?

o SelectYeso If you dont receive the prompt above, then check the spelling of the customer and/or job name.

They must be identical.



6/34

Chapter 2

Creating Different Types of Items for Invoices



7/34

An Item is any component that you use when you create a sales transaction (i.e. customer invoice). It can be aproduct, a service or any other necessary entry in a sales transaction. The following is a list of the different itemsfound within QuickBooks.

Service Item a service you provide to a customer; charged by the job or per hour Inventory Part a product you purchase for the purpose of reselling. These costs are posted

as you sell them rather than when you write a check to purchase them. Non-inventory Part a product you sell but dont track as inventory Other Charge other items that dont fit into a service or product item; for example, shipping

charges can be other charges Group used to enter a group of items all at once, rather than entering each individual item

that includes those two items; for example, if you sell online only, you could sell a product thatalways includes a shipping chargethe group in this case would likely be an inventory partand an other charge.

Discount discounts given to customers; you may have more than one item that falls into thisitem type, such as discounts for wholesale customers and discounts for volume purchasesinthis case, the discount item applies more specifically to what youre selling rather than who youare as a customer, as we saw in the previous chapter concerning price level lists.

Payment payment received from customers, either in total or as a partial payment (deposit) Sales Tax Item used for each sales tax authority you collect for Sales Tax Group used for multiple sales taxes (state and local) that apply to a product to be

purchased by a customer

Not all items are necessary for every business and in our case, well utilize only Service Items, Other ChargeItems, and Discounts. Before working our way through the three of these, Ill briefly make an attempt to explainwhy the others arent necessary.

We carry no inventory and though its true we do carry materials needed to carry out fulfillment of specific jobs,because we have made the decision not to directly bill back these materials, non-inventory parts are also notnecessary. Remember, items are used to create sales transactions and are necessary only if you intend to includepurchased materials as a separate and visible line item on an invoice. Many businesses choose to simply lumpservices and materials into one line item, accompanied with a notation in the description field, and bill it to thecustomer. For that purpose, a Service Item is sufficient.

Because every job is very different in scope, Groups arent really helpful to our business. There arent very manypre-set services we can definitively say to a customer, this is what we can do and this is how much it costs.

While the Payments item may look important, we will apply payments in a very specific way, which will bediscussed in a later chapter.

Sales Tax Items and Sales Tax Groups are not applicable to our business, as we are not in the business of sellinga product that requires sales tax.

With regard to the items we will use, Service Items will be used almost exclusively for all regular and ordinarysales of services and/or inclusion of costs billed back to a customer for a specific job.

To create a Service Item,

On the top toolbar, Select Lists, Item List Press CTRL N, Select Service

Enter the Item Name Leave the Description blank

Leave the Rate field blank Select the appropriate income account (i.e. Construction Income) Make sure the Tax Code is Non

Weve already discussed lumping both our service and the materials for that specific job into a single Service Itemto be billed to the customer. For that reason, having a very specific service name on our invoice doesnt reallymean much if were throwing a little bit of everything in that single line item. Thats not to say we dont provide a lot



8/34

of different services but we want to make sure were creating items that make sense. We have emergency servicesand regular services. Those should be two separate items.

The description field should be left blank. You will use the description field on the actual invoice to notate whatservices were provided and materials used for that particular project or phase of the project.

The rate field should be left blank. One reason is that there is no set rate for the services we provide. Maybe forsome, not for others, particularly when we make use of materials - whose purchase price cannot always be readilydetermined. The other reason relates to the first. Having a pre-filled amount appear in that field can result in an

incorrect amount being sent to a customer. By leaving it blank in the set-up, it will appear as zero on an invoice andwill catch our attention before anything is sent out to the customer.

The income account can be Construction Income or whatever the general income account appears on our Chart ofAccounts. Were not as focused on what income account all of these items go as much as we are onprofitabilityofthe entire job, something well take a look at in a later chapter.

With regard to Other Charge items, its entirely possible we wont make use of these on most of our invoices. Thebenefit of having an Other Charge item is to include something on an invoice that merits separate disclosure orattention. One example could be if you had to special order something and you wanted the customer to see thisseparate from your normal service. Its entirely up to you on whether to use them or not.

To create an Other Charge item,

On the top toolbar, Select Lists, Item List Press CTRL N, Select Other Charge


Leave the Rate field blank Select the appropriate cogs account (i.e. Direct Materials) Make sure the Tax Code is Non

The rationale for the above guidelines follows the same reasoning as forService items.

With regard to Discount items, these are items that we will use on customer invoices, in addition to Service items.Its important to use these with Service items so your customers know what exactly youre discounting. They

should always come last on an invoice.

To create an Discount item,

On the top toolbar, Select Lists, Item List Press CTRL N, Select Discount


Leave the Amount field blank Select the appropriate cogs account (i.e. Discounts) Make sure the Tax Code is Non (though it doesnt really matter)



9/34

Chapter 3

Invoicing Customers and Collecting Payment



10/34

In this chapter, we are going to cover how to invoice customers and how to receive payment. Neither areparticularly challenging but its extremely important that you do the sequence of events correctly the first time oryoull find yourself in a mess quickly.

Weve already created customers and jobs and creating an invoice is very straightforward. To create an invoice, firstopen up the Customer Center(shown below)

Click New Transactions Create Invoice

On the invoice, select the appropriate customer. If you have a job set up, select the job for that customer and notthe customer. Select the appropriate items and quantities to populate your invoice. Make sure the rates are correct,terms should be Net 30 or whatever has been decided by management. Net 30 tends to be considered reasonablein your industry. Some of the other fields, such as P.O. Number, Rep, Customer Message are not important unlessmanagement has taken a policy of providing data on these.

The Class field near the Customer:Job field is not important but make sure you select the Class that appearson each item youve populated on your invoice. For example, if you use the Emergency Service Service item anda Discount, each of those should have a class on their respective lines and each of those classes should beassigned their correct class, which in our case pertains to insurance carriers. In every case, all classes on any oneparticular invoice will be the same as one another, since they are assigned respective to the customer and theinsurance carrier that customer carries. Nonetheless, if your customer has, for example, Farmers insurance, every

item on the invoice must be assigned a class that reflects that designation.

The reason for this is that every item on your invoice is a transaction and is therefore, reflected on yourChart ofAccounts. Service items go to some income account, Other Charge items likely go to some type of cost of goodssold account, and Discount items go to a discount account. Again, each item is a transaction and therefore, eachitem needs a class designation. Assigning one class for your customer at the top of the invoice will result inincomplete reports and will need reclassification to obtain accurate reports for each of your insurance carriers.

An example of the Class area can be seen on the image provided below. Again, these classes pertain to insurancecarriers and anything that doesnt fit in one of these designations (i.e. general office expenses, rent, etc.) should beassigned to the XYZ class selection. No other classes should exist, nor be created.



11/34

Check Figure

After weve created and sent out our invoice to the customer, the customer may remit full or partial payment on thatinvoice. To record and apply payment to an invoice, open up the Customer Centerand then

Click New Transactions Receive Payments

Select the appropriate customer, the amount received, the date payment was received, the payment method and

document #, if applicable. Notice that if you select the job as the Received From, the invoices outstanding for thatjob populate on the list and if you select the customer as the Received From, all invoices outstanding for all jobspopulate on the list. Partial payments are done in the exact same manner as full payments are done. When you doa partial payment, QuickBooks will ask you if you want to leave it as an underpayment or write off the extra amount.Select leave it as an underpayment, which is the default choice and save. Youll do this with every payment thatcomes in.

If by some chance, you decide that you do want to write off the leftover amount, you can select Discounts &Credits near the bottom of the window and select the amount you want to discount. For the Discount Account,use the same discount account youre using for yourDiscount item. In fact, using a Discount item on an invoiceand using the Discounts & Credits button in the Receive Payments window work in a very similar way.

The only major difference usually comes up in the timing of the discount. Its very possible that you may invoice acustomer, and only after some later event or correspondence with the customer, may you decide to apply adiscount to their balance. You can revise the invoice with the adjusted amount but this is an alternative to that. Youkeep the original invoice with the original total and after the fact, you can give the customer a discount whenpayment is received. This alternative is also good when a discount is awarded to a customer only when paymenthas been received. For example, you call the customer and agree to discount their $1,000.00 invoice by 10% if youreceive payment in 10 days. They send you a check for $900.00 and you apply the $900.00 to their open invoiceand use the Discounts & Credits button to mark down the other $100.00, which in effect closes out the entireinvoice as paid-in-full. This also allows you reflect events as they really happened and retain the invoice in itsoriginal form, at the gross $1,000.00 amount, before certain events transpired.



12/34

Something also very important to take note of is that if you receive a payment, it needs to be applied to aninvoice. Do not receive a payment and forget to apply it to an open invoice. When you do this, it distorts theaccounting and reflects that a customer is, in essence, making a deposit on account - in other words, theyreprepaying you for work to be done in the future. Accounts receivable becomes a negative.

Now, this can be considered correct if, and only if, they actually do make a deposit on account. However, when thetime comes for you to finally invoice them for work done, you will have to go back to the payment record and thenapply it to the invoice that you created after the payment was originally remitted. The point remains the same, all

payments absolutely must be applied to an invoice either in the present or at some definite time in the future if acustomer makes a deposit on account for services to be invoiced in the future.

One of the most important things you can do in your business is properly manage the collections process. Thisprocess begins with regularly sending customers statements, which show all of their activity. Invoices should besent when appropriate or when the job is ready to be billed. Statements should be sent on the first of every month,in addition to any invoices that were sent previously. Statements should not offer the customer any newinformation but should seek only to support correspondence the customer has already received or would be awareof (i.e. any payments made against outstanding invoices). An example of the create statements window isdisplayed below. It is intended to be only a sample illustration and specific directions on what selections to makeare provided below.

Select Customers, Create Statements Change the appropriate Statement Date to the 1st of the following month of

relevant customer activity Change the Statement Period to reflect the first and last day of the prior month

or relevant month of customer activity

Select All Customers Under the Do not create statements, Select with a zero balance Select Preview Review

Select Print

In order for you to understand what were doing here, we are running a statement for the prior month. For example,our January statement will be dated on January 1 and by selecting the appropriate Statement Period, ourstatements will include all activity for the preceding December. The reason I pick January 1 instead of December31st as the statement date is it better reflects the idea of a closed month. The customer sees January 1 andunderstands this as well. The reason we go with a 30 day period is that ideally, if youre sending monthly



13/34

statements, you only need to reflect the last months of activity. There may be some customers that have activitythat dates much further back than 30 days. Its appropriate to change their statement period to reflect a muchbroader date range. The instructions above are meant to apply to the norm and again, should be done on at thebeginning of every month for the prior months customer activity.



14/34

Chapter 4

Making Deposits and Managing Bank Accounts



15/34

Making deposits and managing bank accounts should be a relatively straight forward process. That said, youshould never make a deposit on a payment from one of your customers without first running it through the ReceivePayments window that we overviewed on pages 11 and 12.

Depositing a check without running it through the Receive Payments window will result you failing to apply propercredit to the customer for that payment. The invoice to which that payment relates to will remain outstanding andthe customer statement will not reflect a payment made by your customer. Simply put, its not good business if youlose your customers payment.

After youve received payments on all of your customers who have sent payment in. you can make a deposit.

Select Banking, Make Deposits Select the appropriate payments Click Ok

Any payments that have not already been deposited in your register should appear on this list when you go toBanking, Make Deposits. If for some reason they dont, the most likely scenario is that you already had the MakeDeposits window open before you went through the process of receiving payments. Simply close the MakeDeposits window and then re-open it, using the process above. The payments to deposit list should appear.

Once youve selected your payments to deposit and clicked OK, you should simply be able to Save & Close. All of

the information you entered when you received the payment, such as check # and any memo on the payment, haveautomatically been transferred to this Make Deposits window.

In the course of business, you will inevitably receive payment of currency, in the form of a rebate or refund, fromone or more of your vendors. We will address vendors soon but for now, know that since invoices are notassociated with vendors, no special rule exists for depositing their checks. You may simply put it through thedeposit window.

Select Banking, Make Deposits Enter the to be deposited, Click Save & Close



16/34

Chapter 5

Reconciling Bank Accounts



17/34

One of the most important tasks connected with financial record keeping, reconciling your bank isnt only a way tomake sure your own records are correct and match that of the bank statements but its also to ensure the bankdoesnt make a mistake. Its more common than you might think.

Select Banking, Reconcile

If youve never reconciled your bank account in QuickBooks, you wont have a beginning balance. In our case, we

should have a beginning balance.The Beginning Balance SHOULD ALWAYS EQUAL the Ending Balance of your previous periods

reconciliation. That is the point of performing the bank reconciliation in the first place; to maintain an accurate,runningtotal of your bank balance against your check register. If these two are not the same number, then one ofthe following probably occurred.

You changed the amount of a transaction that had previously cleared.You voided a transaction that had previously cleared.You deleted a transaction that had previously cleared.You removed a cleared check mark from a transaction that had previously cleared.You manually entered a cleared check mark on a transaction that had not cleared.

If you do any of these, QuickBooks has a tool to help you fix the reconciliation. It can be found underBanking,

Reconcile, Locate Discrepancies.

Assuming none of these errors have occurred and for the most part, they shouldnt, select the appropriateStatement Date and enter your ending balance from your bank statement. You can include any interest or servicefees in this same window. Select the appropriate accounts for each of these respective items (i.e. bank servicecharges expense account and interest income account) Then click Continue. You should then see a running list ofoutstanding checks/payments and deposits/credits, similar to the one shown below.

Your task is find the transactions that both your bank statement and this reconciliation list have in common andclear them from the list.



18/34

A few helpful things...First, since we are working retroactively, it is helpful to check the box Hide transactions afterthe statements end date. Those transactions dated after the closing date have no effect on this reconciliation buttheir absence might help because it reduces the number of transactions you have to search through to find whatyou really want.

Additionally, you can take two different approaches to your reconciliation. You can either

Clear every transaction on the page, find the difference, and then uncheck that transaction. Thetransaction you uncheck (deposit in transit or outstanding check) will in all likelihood clear next

month unless someone really doesnt want to cash your check.Go through each transaction individually, checking them against the Bank Statement and using

the information on the bottom right against the Bank Statement (which took straight off theBank Statement)

If youve entered an amount in QuickBooks different than you should have, the first option is not going to help youmuch. The first option is helpful in finding the transactions that havent yet cleared but if you havent entered all theother transactions in correctly, then the difference at the bottom of the reconciliation will be a number you cannotimmediately account for.

That said, its usually worth trying the first method because its quick and it will tell you immediately if youve enteredsomething incorrectly along the way.

Once youve gone through your bank statement and checked off everything in this window that also shows on your

bank statement, you should arrive at a Cleared Balance that matches yourEnding Balance. The Differenceshould also show as zero. If you do not arrive at a difference of zero, then something has not been accounted for.You will need to review your bank statement and see if a service fee or something posted that have not accountedfor, as this is often the case when there is a difference.

When you arrive at a Difference of zero, Click Reconcile Now. Youll follow the same procedure next month,where this months ending balance becomes next months beginning balance.

If this is not the case, Select Banking, Reconcile, Locate Discrepancies to help you determine what error mayhave been made since the last reconciliation.



19/34

Chapter 6

Creating and Configuring Vendors



20/34

The Vendor Centeris where all your vendors, and detailed information about them, are kept. It is only important toenter vendors who you want readily accessible and detailed information on. For example, vendors on our listwarrant being added to the Vendor Center because they are entities that we regularly conduct business with. Toopen the Vendor Center,

Click the Vendor Centericon

The left pane shows all of your vendors and their respective balances. On the right is all the activity associated witheach vendor.

To create a new Vendor,

Click New Vendor Enter the Vendors Name and any additional information you want to have a

record for in the tabs labeled, Address Info, Additional Info, Account Prefill Click OK

One thing you may want to consider is creating names for your vendors that make it easy for you to track, in-house.For example, if you have 3 phone lines, rather than have one vendor named AT&T, consider creating 3 different

vendors, with AT&T - XXXX (AT&T, following by the last 4 numbers of the line). You can then open the vendorrecord and on the field Print on Check As, you can simply put AT&T. The phone company will only see the latterdesignation but for running reports, youve taken steps internally to separate the various lines. This may become akey procedure as you accumulate various accounts and/or are provided various services by the same vendor.



21/34

Quick References for Vendors

What if I want to edit or make changes to vendor information?o Select the vendor or job you want to edit on the Vendor Centerwindowo Press CTRL E

What if I want to delete a vendor?o If and only if its never been used in a transaction, select the vendor you want to delete on the

Vendor Centerwindowo Press CTRL Do If youve ever posted to the vendor, you cannot delete it. In these cases, its best to search for the

transaction(s) posted and if not relevant to the current or a recent tax year, you may want toconsider hiding it from standard view. See next.

What if want to hide the vendor from other users or to prevent anyone from posting to thiscustomer and/or job?

o Select the vendor you want to hide on the Vendor Centerwindowo Right-click and Select, Make Vendor Inactiveo If you ever want to show hidden vendors or reactivate them, Select View all Vendors at the bottom

of the Vendor Centerwindow

What if I accidentally created two vendors for the same purpose?o Select the vendor that you DO NOT want to keep on the Vendor Centero

Press CTRL Eo Change the vendor name to match identically the one you want to keepo You will see the prompt: This name is already being used. Would you like to merge them?o SelectYeso If you dont receive the prompt above, then check the spelling of the vendor name. They must be

identical.



22/34

Chapter 7

Managing and Paying Vendor Bills



23/34

While the last chapter very briefly overviewed creating and setting up vendors, this chapter is dedicated to thetransactions associated with those vendors. Its important to take a moment to understand what we hope toaccomplish from an accounting standpoint. Its also important to recognize that this is new territory from thestandpoint of XYZ Construction & Technologies, Inc.

One of the keys to reengineering our accounting system is to properly classify costs between fixed and variable andultimately be able to determine how profitable, if at all, each job is that we elect to take on. Its almost exclusivelythrough accounts payable and payroll that we can classify these costs.

To overview the difference between fixed costs and variable costs, the question ultimately becomes: If businesswere to stop, what costs are unavoidable, in the SHORT-TERM? The phrase, short term is key, as all costs areultimately unavoidable, if we decided to close the business. However, its in the short-term we have to askourselves, which bills would we continue to pay as part of keeping our doors open, and which bills would cease ontheir own as those vendors arent necessary when business is slow?

Commons fixed costs include rent, telephone, office supplies, general and administrative salaries, insurance,professional fees such as accounting, legal. These are, for the most part, necessary expenses that we incurregardless of how much business we have coming through the door.

Variable costs fluctuate with the volume of business we receive. For example, subcontractors, job materials, fuel forour trucks, and our job labor. These are all variable costs and are listed on ourChart of Accounts as cost of goodssold accounts. We take these costs and direct them towards the jobs they relate to so we can determine the true

profitability of each job.

To better understand this, lets say we bill out a job at $10,000.00 but spend $11,000 on labor. Unfortunately, this$11,000 is lumped in with labor from 10 other and completely separate jobs. Its virtually impossible for us todetermine that we 1) had a lost on this job and 2) that these costs were completely avoidable, as we could havemade a determination early on that, based on the the fees we would receive and the labor necessary to completethe job, we never should have taken the job.

When youre entering a vendors bill, it will be important to understand this designation. If were entering in a HomeDepot credit card bill, you should be posting to the Direct Materials cost of goods sold account. If were entering ina subcontractors bill, we should be posting to the Subcontractors costs of goods sold account. However, if wereceive a telephone bill for the office, we should be posting to the Telephone expense account, not to a cost ofgoods sold account.

Inevitably, one might ask, Cant you argue that the telephone is a variable expense if its say a cell phone and asbusiness slows down, the number of minutes used goes down? Or Isnt our insurance based on a certain amountof business a year and if that goes down, our liability insurance also goes down? Dont over think it. Its eitherclearly variable or its fixed. These two examples, for instance, are fixed costs. They are costs of doing business,regardless of how they might or might not fluctuate given different conditions.

The only gray area lies in things like tools, fuel, some general job supplies, things that definitely go to jobs but thatare difficult to trace to specific jobs, or are too time consuming to track to separate jobs. For these things, assignthem to the cost of goods sold account notated Overhead Applied, select the XYZjob and move on...for now.

While assigning the appropriate cost of goods sold account or expense account is extremely important, its alsothe less important of a two-step process. The more important is assigning the correct job to the vendors bill thatyouve entered. In some cases, this will entail dividing up one vendors bill into several parts, with each partbeing allocated to the appropriate job it pertains to. This can be a frustrating (but necessary) task, as its often time-consuming and thats with the assumption we have the all the information necessary to make these allocations. Inmany cases, we may have to follow up with Tony or Devin on what certain costs were purchased for.

Its almost impossible to stress how important this step is because if we dont allocate our costs appropriatelyamongst the jobs they pertain to, the actual account theyre posted to is almost meaningless. Remember, the key tothis entire process is to determine how profitable our jobs are. We can only accomplish this by accounting for all ofour costs.

Lets look at the image below and discuss:



24/34

To enter a bill, youll first go to the Vendor Center, Select New Transactions, and Click Enter Bills

On the bill, similar to above, youll assign the accounts, with fixed costs being in the expense section of your list

and variable costs being in the cost of goods sold section of your list. I suppose its possible that one vendor couldhave both cost of goods sold accounts and expense accounts being used but I cant think of many. One might bewith reimbursements. You reimburse an employee for both something related to the office and something for a job.With regard to any cost of goods sold accounts, youll also need to select the appropriate job that these costs gowith. If they fall into the Overhead Applied account, select XYZ. If they fall into any expense account and are thus,fixed costs, you should assign them to the XYZjob.

The trickiest part of this process will be that you will also see Class show up on each of your bills. You will need tolook up each job used in the Customer Centerand see what insurance carrier pertains to that specific job. In otherwords, in the same way you assigned classes to your invoice items, you will also need to assign classes to eachline item on your bill that relates to any job. For fixed costs, you should assign them to the XYZ class. While it maynot seem important to assign your expense account line items to a class (since these are fixed, internal costs), itwill be important when we look at our classes to know that everything has been accounted for. Any line item thatgoes unassigned will end up in a group called, you guessed it Unassigned. We do not want to make the

assumption that all Unassigned transactions are unrelated to jobs, as some might be and will need to be clearedfrom this group - something wed prefer to avoid, if possible.

Once youve appropriately allocated your bill to its appropriate 1) accounts, 2) jobs, and 3) classes, you can savethe transaction. Paying bills is a much easier task.

On the top toolbar, Select Vendors, Pay Bills Select the bills you intend to pay (partial payments where desired or appropriate) Confirm the Payment Date

Click Pay Selected Bills



25/34

Chapter 8

Managing and Reconciling Credit Card Accounts



26/34

Managing credit card accounts is very similar to managing vendor bills. The main difference will be that most ofyour credit card transactions will not be broken up into various jobs. For the most part, each charge will have onlyone job attached to it. You will still need to designate the appropriate account but for most of the credit cardtransactions, you will be looking at cost of goods sold accounts, as most activity on the credit card relatesspecifically to job materials.

To enter a credit card charge (or credit)

Select Banking, Enter Credit Card Charges Enter the vendor If the transaction is return, make sure to Select Refund/Credit

Select the appropriate account (most likely a cost of goods sold account) Select the appropriate job Select the appropriate class Click Save & Close, Yes

For guidance on job and class designation, see pages 23 and 24

For reconciliation of credit card accounts, it will be almost identical to reconciling bank accounts. The onlydifference is that instead ofChecks and Payments, you have Charges and Cash Advances, and instead ofDeposits and Other Credits, you have Payments and Credits. The goals is still to arrive at a difference of zero.



27/34

Chapter 9

Managing Employees and Processing Payroll



28/34

Weve already discussed how important it is to record our vendors bills to properly reflect the appropriateaccount, job designation and class designation. With respect to properly allocating costs, no other area is asimportant as payroll and the reason lies simply in the total dollar amount reflected in payroll.

Payroll is often a companys largest expense and since ours is manpower-heavy, we should be particularlysensitive to allocating payroll to those jobs to which it applies.

If you press and hold the CTRL button on your keyboard and while holding the button, also press the letter T, a

memorized transaction list should appear on your QuickBooks screen. While Ive set up each employee, its a verygeneral set-up and before we get too much into allocating each employees salary amongst the various jobs, weshould first discuss the basics on how a payroll service company works and how best to record it on a companysbooks.

The way a payroll service company generally works is that it withdraws funds via your payroll bank account in threeseparate transactions. One withdrawal is for the net paychecks, one is for all the payroll taxes withheld, and thefinal is a service fee paid to the payroll service company for processing payroll. The final withdrawal is the simplesto account for and needs only a debit to your bank register.

Select Banking, Write Checks EnterADP for your vendor

Select the appropriate check run date

Unselect the To be Printed and where the check # usually would go, typeDEBIT Enter the appropriate $ amount Select Payroll Service Fees or something similar for the expense account Select Save & Close

The other two transactions are a bit more complicated. What we want to do is try and create a mirror image of whatthe payroll service company does and our memorized transaction list gives us an idea of how to do that. Eachemployee is already set up. What we want to do is on their check, start at a gross, similar to what ADP shows ontheir report. We then want to use a negative number on the next line to reduce the gross by the appropriate taxes tobe withheld. This is also given on the ADP report. When we do this in QuickBooks, we should arrive at the same netthat ADP shows the employee as having been paid. If mileage needs to be added to the employees check, thismust also be done or you will be off by that amount. You should see something like this in QuickBooks for each

employee

Account

Labor $2000.00Payroll Taxes -$500.00 (negative amount)

The net check should show $1,500.00 based on the above entries. Keep in mind we are doing nothing other thancreating a placeholder in our register to reflect ADP withdrawal of our funds to cover payroll.

When you do this for every employee, these net checks, dated with the appropriate check date, will cumulativelytotal one of the debits to your bank account. The final debit relates to payroll taxes.

In the scenario above, we took out $500.00 in payroll taxes from this employee. We obtained this figure from the

ADP report. Also on the ADP report should be a payroll detail that shows all of these taxes adding up to a total, butalso with an employer portion added on to this total. Part of the benefit of being employed is that your employerpays in on your FICA and Medicare (in addition to Unemployment, etc.). The final transaction youll need to createwill take care of all of these payroll taxes, both the employees portion and the employers portion. This also shouldbe created in QuickBooks in a very basic form

Account

Payroll Taxes 500.00 (positive amount - same amount you took from above employee but this time, addup everyones on this check - should be given already for you on report)

Payroll Taxes ? (positive amount - should be given already for you on report)



29/34

These three transactions make up the transactions that hit your bank account for the payroll processing.Unfortunately, theres a catch. We have to take each employees gross salary, $2000 in the above scenario for thatparticular employee, and divide that $2000 into hours and allocate that amount among the jobs he worked onduring that payroll period. Therefore, he will likely have Labor several times with several amounts that, whenadded together, equal $2000.00. This is only necessary for workers who work in the field. For administrativesalaries, simply do the above procedure, using a salary expense account for the entire salary.

For the sake of efficiency, allocate all the payroll taxes associated with any job related employees to Overhead

Applied, and select the XYZjob. While more correct to also allocate payroll taxes proportionate in the same waygross salaries were allocated, most of the payroll will result in a wash and the very little left over as the employerportion will be allocated fairly accurately through a journal entry later.

Please note that allocating payroll is perhaps the most error-prone of all the job costing procedures and also themost important. Theres just no way to give it its due with paragraphs of text. Its essential that whoever performsthis function understand exactly what theyre doing and why theyre doing it.



30/34

Chapter 10

Creating and Customizing Reports



31/34

In this chapter, we are going to use the Report Centerand discuss some of the various reports well need on aregular basis. If you open up the Report Center, youll see a long list of available reports.

The ones we should be primarily focused on running on a regular basis are:

The Balance Sheet is designed to show only the totals of your Balance Sheet accounts (assets, liabilities, equity).Its a more accurate report of your financial health because it considers the company past the short-term withregard to income accounts.

The Profit & Loss is probably the one report youll run most often. Its natural to want to know if youre making anymoney. It shows your income accounts, expense accounts and then gives the difference between the two. You cansort by a date range or for a specific date to provide Devin with his daily activity report.

The Profit & Lossby Job is one youll want to run almost as often as you run the Profit & Loss. Its the mosteffective report at providing job profitability and is the direct result of job costing through our bill entry and payrollentry processes. These costs, taken from the amounts we billed through our invoices, give us our net profit for each

job.

The Profit & Lossby Class is one youll want to run every so often to ensure that all transactions are being postedto their correct classes. If numbers populate to the far right in a class called Unclassified, those transactions thatmake up that group need to be gone through and reclassified to their appropriate insurance carrier or the XYZ classdesignation.

The Open Invoices report is one youll want to run frequently to know what is owed to you and how many differentthings you have outstanding. This report should also be run in conjunction with A/R Aging Summary & CustomerBalance Summary

The Unpaid Bills Detail is the most useful report in providing the bills we have outstanding. This report is similar tothe screen you see when you go to Vendor, Pay Bills but here, you can open and edit your bills. You cannot dothese functions in the Pay Bills screen.



32/34

Chapter 11

Routine Maintenance of the Company File



33/34

We need to ensure were doing what we need to be doing to get the information we need to make decisions. Inorder to do that, we need to maintain the company file and put certain procedures in place to ensure everythingsbeing properly accounted for.

A couple reports we should run on a weekly basis are the Profit & Loss by Class and the Profit & Loss by Job.When we run these reports for maintenance, were focusing less on the bottom line and more to see if everythingmakes sense.

In the case of a Profit & Loss by Class report, we should not see a column titled Unassigned. The mere

appearance of this column means there are things that need reclassified somewhere. If they are related to aspecific job, they belong in one of the insurance carriers. If they are job related but are for general purpose, theyare likely Overhead Applied designated transactions and should be classified to the XYZ class. Likewise, all fixedexpenses should also be classified to the XYZ class. No fixed expenses should appear in one of insurance carriersclasses.

In the case of a Profit & Loss by Job report, we should see amounts only in the cost of goods sold accounts, asonly these accounts are used to post our variable costs - and variable costs are associated with jobs. Fixed costsshould be posted to the XYZjob only. No fixed costs should appear in any other job.

We also need to empty out the Overhead Applied bucket. The easiest way to do this is with a journal entry oncea month. You can create this journal entry by going to Company, Make Journal Entries. For example, forDecember 31, the entry should look something like this:

Date: 12/31/12Account Debit Credit Memo Name Class

Overhead Applied XXX To empty bucket XYZ XYZOverhead Applied XXX To apply overhead Job #1 Put carrier hereOverhead Applied XXX To apply overhead Job #2 Put carrier hereOverhead Applied XXX To apply overhead Job #3 Put carrier hereOverhead Applied XXX To apply overhead Job #4 Put carrier here

What were doing in this journal entry is emptying or reversing what weve accumulated in the Overhead Appliedaccount for XYZ at the end of the month and re-allocating it to the Overhead Applied for each job according to each

jobs share of this Overhead Applied. How do we determine each jobs share? By looking at each jobs share ofLabor for that same month. For example, lets say we had 4 jobs last month. Lets also say after doing our payroll,

we ran a Profit & Loss by Job and for Job #1, our cost of goods sold account called Labor had a total of amount of$10,000.00 Job #2 had $12,000.00, Job #3 had $18,000.00, and Job #4 had 10,000.00. If you total all of that laborfor the month, it totals $50,000.

Job #1s percentage of all labor costs is 20% or $10,000/50,000Job #2s percentage of all labor costs is 24% or $12,000/50,000Job #3s percentage of all labor costs is 36% or $18,000/50,000Job #4s percentage of all labor costs is 20% or $10,000/50,000

The reason we are using Labor is because labor is a significant driver of costs for our jobs. Because of this fact,we are using it to make a reasonable estimate on what each jobs share of Overhead Applied might be. Its not anexact science but can give us as good as estimate as anything else, since weve already determined that costs inthis bucket are difficult to trace directly to our jobs. This procedure will attempt to provide a reasonable method ofallocating these costs.

Again, looking at the above journal entry, lets suppose we have $10,000 in Overhead Applied for December.

Date: 12/31/12Account Debit Credit Memo Name Class

Overhead Applied 10,000 To empty bucket XYZ XYZOverhead Applied 2,000 To apply overhead Job #1 Put carrier hereOverhead Applied 2,400 To apply overhead Job #2 Put carrier hereOverhead Applied 3,600 To apply overhead Job #3 Put carrier hereOverhead Applied 2,000 To apply overhead Job #4 Put carrier here



34/34

Youll notice we used the percentages we calculated for each jobs share of labor and applied those percentages toreallocate our applied overhead. Again, all were doing here is using a procedure weve deemed reasonable toapply overhead to our jobs.

Documents

R. Ricco - Sample Accounting Manual 2013