After a period of time your QuickBooks file will become larger and larger. One way to reduce the file size is to archive or clean up data. Before you begin this process, it is important to know how QuickBooks cleans up data and what transactions are affected.

Below is a detail of how QuickBooks cleans up data and what transactions are affected. The reports on a cash basis will be the most affected and in reality, it is a good idea to run reports on an accrual basis.

How QuickBooks cleans up data

Important: When you clean up your data file, QuickBooks deletes transactions that you no longer need, replacing them with new general journal transactions that summarize, by month, the deleted transactions. You can also choose to have QuickBooks clean up data by removing list items that you no longer need.

An example of what happens during clean up follows:

If an invoice has been paid in full, QuickBooks deletes the details and includes the amount in a summary transaction showing income accounts. Neither the customer name nor the items sold are retained. However, if an invoice is unpaid, QuickBooks leaves the invoice in your file so you can apply future payments to the invoice.

Important: Cleaning up data has a significant effect on your company file. We suggest you print and review this topic before you proceed.

Which transactions are affected?

The ending date, specified for the period of time before which you want to remove transactions, has no effect on transactions dated after the ending date. For example, if your ending date is 12/31/05, all transactions dated 1/1/06 and later remain unchanged in your company file.

Of the transactions dated on or before the ending date, QuickBooks deletes and summarizes only those that have no effect on transactions dated after the ending date.

This table gives examples of the situations that cause QuickBooks to retain transactions dated on or before the ending date:

QuickBooks summarizes deleted transactions

QuickBooks creates summary general journal transactions for the transactions it deletes from your file. Except for transactions that affect the value of your inventory, you can spot the summary transactions by looking for GENJRNL in the Type field of your registers.

There is usually one GENJRNL transaction for each month in which QuickBooks deleted transactions. The transaction amount is the total of the transactions that QuickBooks deleted for the month. For a given month, the register may also show other transactions that QuickBooks did not delete. These are transactions that could be affected by transactions you have yet to enter.

The effect on inventory

QuickBooks removes all inventory transactions until it finds one that cannot be removed. Any inventory transactions falling after the date of the unremovable transaction will not be removed. Upon finding a transaction that cannot be removed, QuickBooks creates an inventory adjustment reflecting the average cost of items on that date.

The effect on your reports

Cleaning up your company file will affect reports that include part or all of the period of time you cleaned up. The main effects are:

The effect on payroll

QuickBooks does not remove payroll transactions dated in the current calendar year.

The effect on estimates and time data

QuickBooks deletes only those estimates that have a job status of Closed. If an estimate has any other job status, QuickBooks retains the estimate.

QuickBooks deletes time data if it is marked as “billed” or “not billable,” or if its job status is Closed. If you base your payroll on time data, you must also have paid your employees for the time. For example, if you billed your customer for the time but you have not yet paid your employee, QuickBooks does not delete the time data.

Income taxes, that is. The Queen has no control over payroll taxes paid to the federal and state governments - if she did, it would be different than it is now. Let’s face it, right now you are recovering from either filing your income tax returns and paying the government a lot of money, or filing an extension and paying a portion of what you will owe the government. If you’re lucky, that is what you have just done. If you are completely in denial, you didn’t file your tax return, you didn’t file your extension, and quite frankly, your next step should be to buy land in Central America and go away for a long time until the IRS stops trying to find you.

Here is how QuickBooks can help you with any of the above scenarios and pay for your vacations. QuickBooks is a very friendly accounting program. It is so friendly that you can install it on your computer, setup the basic structure, and begin writing checks immediately and never have to see the banned words “debit” or “credit” (The Queen loves debits and credits because the Queen is secretly an accountant and lives in the Land of Accounting).

The cost of QuickBooks is very low - in the old days in the Land of Accounting, an accounting program could be very expensive - anywhere from $1,000. to $10,000., depending on the size of your business. You can buy QuickBooks for about $250. and that is a good deal for a business owner. (You can also buy it on the Queen’s website www.queenofquickbooks.com and receive a discount for your purchase - just because you know the Queen).

First let’s talk about your decision to organize your finances, get control of what you make in income, what you spend in expenses and what profit you are going to have to pay taxes on and how you can reduce that net profit and reduce your taxes. You, the business owner, have to make the decision that this is your top priority. After that everything else will fall into place easily. If you are having trouble with this step, you may want to join one of the many support groups available - I recommend the “I don’t want to be M.C. Hammer” group highly. (Signup is on the Queen’s website).

After you buy QuickBooks the next step is easy. Decide how to setup your chart of accounts. What is a Chart of Accounts (is this more accounting babble - no it is not). The Chart of Accounts is a list in QuickBooks. It is one of several lists in QuickBooks and is the most important list which holds all of the money transactions in different categories - Income, Expenses, Checking and Savings Accounts, Accounts Payable, Accounts Receivable and many more categories that are necessary to run an efficient business and keep track of your money.

QuickBooks knows how scary this first step may be and they will walk you through it in the Setup. They even have existing chart of accounts for different types of businesses. For example, you are a contractor - you can choose the chart of accounts “template” for contractors and you will have all of the basic categories you need to run the business. From that template list, you can add or delete accounts you do not need to use.

The Introduction to QuickBooks at the College of Marin taught by the Queen herself thoroughly walks you through the choosing a chart of accounts step. The class also covers many more important QuickBooks steps (see catalog for Community Education classes at: College of Marin, IVC).

OK, now you have installed QuickBooks and setup your basic company with a chart of accounts. Now you are ready to write checks and when you write the check you will choose an account from the Chart of Accounts to keep track of the expense. For example, you write a check to pay your rent on your office or building for $1,000.

• On the main Home page, on the right lower screen, you will see an icon for “Write Checks”. Click it. The window opens and you fill in the check just like you would hand write a check, filling in the person (vendor) you pay the rent to and the amount of $1,000. in the “$” field.
• On the bottom half of the screen you will see a column marked “Account”. You cannot save and close the check window without filling in that field. When your cursor lands on that field, a drop down arrow will appear to the right. You can use that drop down arrow to look at the list of Chart of Accounts and choose the appropriate expense account “Rent”.
• Or magically - you can type the word “Rent” in that field and QuickBooks will go find the correct account for you in the list.
• When you print the check, or manually write it and save and close it, the rent amount of $1,000. will be posted to the category “Rent” in the expenses portion of the Chart of Accounts.

This is how QuickBooks keeps track of all transactions. Every time you issue an invoice from QuickBooks it knows to post the amount to an Income account, every check you write will be posted to an expense account.

At the end of the year, you can prepare a Profit and Loss to anticipate what your net profit will be for the year end and make appropriate business decisions about what to purchase before the year end. At the beginning of the next year, you print out a Profit and Loss and Balance Sheet for your tax preparer, send it off, and go on vacation.

Doesn’t that sound like a much better way to spend January than spending hours and hours pouring over you check register trying to gather together your tax information? Of course it does. And this is how QuickBooks can save you hundreds and maybe thousands of dollars that you will not have to pay in taxes.

The money you save will pay for the vacation you can take in January.

Remember, 1099’s have to be mailed to the IRS by the 28th of February. They get the original, red sheet with a 1096 transmittal form. QuickBooks will print your 1099’s easily if the vendor is setup correctly and the general ledger accounts are mapped through Edit/Preferences.

A new year is a good time to implement changes which will make your financials work for you. You have done the work of inputting information, now it is time to reap the rewards. Is there job costing you want to implement so that the information you put into QuickBooks can be retrieved in a report to analyze how much money you made on a particular project or job? If so, now is a good time to review how QuickBooks is working for you and how you can utilize all of it’s intricate facets.

Payroll is another piece to look at thoroughly. Is this working for you and giving you the information you need to process paychecks to employees and do your invoicing to project? Could a time tracking application (already part of QuickBooks) be implemented to easily have timesheets in real time to be part of your current QuickBooks file? If you answer “yes” to any of these Royal inquiries, then it is time to contact the Queen and find out how you can implement the next step.

The Queen is available to answer specific questions from people in the Land of Accounting. This is a productive, quick way to have your questions answered. Contact the Queen with your questions. Answers will appear in the next newsletter. Remember, accounting is fun in the Land of Accounting.

A second, but equally important reason for starting now, is that to manage your tax obligations to your best advantage, you may want to have some discussions with the CPA or enrolled agent who prepares your tax return, about how much profit it looks like you will make this year. They may suggest that you spend some money (and who doesn’t love doing that?). If your profit for 2006 is going to be too high, this may be a good time to by that new computer or other equipment - before December 31, 2006, of course.

Trust me, I’m the Queen. Start right now. If you have any questions, contact the Queen immediately.

There are five important reasons to learn the basics of the language of accounting.

1. Maintain control of your money: As we saw in last month’s article, Maureen the jeweler was lucky because the bookkeeper she found was trustworthy. Not everyone is as lucky. An equally common scenario looks like this: A small medical practice consisting of two psychiatrists hire an office manager responsible for their bookkeeping. She appears competent and handles all of the day to day business. Unfortunately, she is competent but dishonest. After embezzling thousands of dollars from the medical corporation and filing payroll tax returns in the wastebasket, she finally slips up and is caught and eventually prosecuted. The two doctors feel that they should have been able to spot her character flaws. But while they may have been excellent psychiatrists, they did not know the language of accounting and lost control of their money to someone they trusted. To know what a Balance Sheet is and to review it regularly is important for principals who run a business, even if they do not do the day to day bookkeeping. In fact it is particularly important if they do not do the day to day bookkeeping.
2. Grow your business: To take your business to the next level, you will have to understand how to use the basic reports in accounting. To determine how to increase your income, it is essential to take advantage of the very basic accounting steps. If you do not understand a Balance Sheet or a Profit and Loss Statement, you will not be able to make successful decisions based on the reality of your financial situation.
3. Borrow money: When you go to your local banker and ask them for a loan of $500,000 to expand your business, the banker will NOT smile and say, “I like you, here’s the money.” The banker will say “Please provide us with a current Profit and Loss and Balance Sheet for the past three years.” It will help if you know what these things are, and why they are important.
4. Take a vacation: This is a very important reason to be familiar with the language of accounting. As a business owner you have been working 14 hour days, sometimes 6 or 7 days in a row, and you are really in need of some time off. You will want to know from a cash flow perspective when you can afford to book that cruise to Fiji for three weeks. Only accurate accounting reports are going to give you that information.
5. Be able to sleep at night: This is the most compelling reason why business owners decide it is time to get a grip on their financial information. When you go to sleep at night you do not want to be haunted by the devilish visions of vendors showing up at your door demanding money. Midnight is not the time to be wondering about the status of your accounts receivable.

Learning the language of accounting is just like learning any other foreign language- you only enough to get around in the new country! Let’s go over the very basic accounting lingo you need to learn.
Chart of Accounts: This is a list of where you keep financial information. Imagine little buckets. When you buy some copier paper with your credit card, you get a receipt. You enter the receipt into an accounting program and it puts it in to two places for you. It puts it in the bucket marked “office supplies” and in the bucket marked “credit card”. The good news is you only have to put it in once and the accounting program does the rest. At any time you can look and see what you have in each bucket or account. We will go into more detail about how to set up the chart of accounts correctly in another article. If you can’t wait, contact the Queen now and she will help you.

Balance Sheet: This is a handy report that tells you at any given time how much money you have in your accounts. The checking account is at the top of the list and as you write checks and make deposits this balance changes minute by minute. The balance sheet gives you a snapshot in time of all of the balances in the chart of accounts except the Income and Expense buckets. We need a separate report for that.

Profit and Loss Statement: In the land of accounting, these are the Income and Expense accounts, and at the bank, this is called a P&L. This gives you a picture from a particular date range - like January to December, 2005 - of how much money you made, how much money you spent, and how much money is left over for you.

Cash Flow: This tells you how much money you have right now, how much money your customers owe you (Accounts Receivable), how much you owe your vendors (Accounts Payable) and how much is left for you.

And this is basically all you have to know. But it is critical that you do know it, and feel confident using the information.

The Queen awaits your questions about what you have just learned and any way she can help you, so contact the Queen, today. She loves nothing better than answering questions and helping people take the royal tour through the land of accounting.

The MC Hammer Approach to Accounting.

Actually, you don’t need to know accounting at all to get a lot of money. You can do different things to make a lot of money and then spend it.So let’s look at how the famous rap star who was once a bat boy for the Oakland A’s handled his money. He made millions of dollars and the money came in the door and his hanger-on “friends” helped him spend the money.

Then when the money was gone, he said, “Oh well, I’m out of money, now what?” And his hanger-on “friends” did not have an answer. Sad, but true. A similar scenario happens to dozens of famous musicians, rock stars and athletes every year. That’s life. Learn from it.

The More Mature Approach to Handling Money.

When the money came in the door, if MC Hammer had an accountant to keep track of it, he would have known two critically important things:
1) He would have known exactly how much money he had and
2) He would have known exactly what he was spending it on.

Most importantly, he would have had some warning before he ran out of money and he could have managed the money to make it last longer or invest some of it so that when he wasn’t making money he would have some more to spend. At the very least, it would have told him when to cut loose the hanger-on “friends” who were helping him spend it.

It’s not hard to make money! Really, it isn’t hard at all. But it is a bit more difficult to take the next step and keep track of what you have, what you’re spending, and how to make sure that whatever method you use to make money, you can keep doing it more and more. The goal is to make sure the money river keeps flowing in your direction.

This seems like a simplistic approach to something as daunting as accounting. It’s not. It really is just that simple. There are a few basic things you need to know about accounting and then you can use it as a very effective tool to manage the money you have, project how to get more, and leverage your money so that it works for you –– not the other way around.

Every time you turn around, someone is telling you that to run a business you have to know accounting. This is partially true. You either have to know about accounting or you have to know about hiring the most competent person you can find to do your accounting.

You do have to have one or the other. To be successful with your business, there is no escape. You have to have accounting involved at some point. But it is not scary, it can even be fun. Trust me, I’m the Queen of QuickBooks®.

Let’s Look at Maureen’s story: Case Study #1.
Maureen was a gifted artist who created beautiful jewelry. At first, she made it for herself and for friends, but then her friends starting sending other people to her to make more jewelry for them. Maureen did not want to spend her time doing bookkeeping –– all she wanted to do was make jewelry and if it sold, that was great, then and all the better.

She was fortunate that one of her friends who loved her jewelry was a bookkeeper named Susie. She, offered to set Maureen up on QuickBooks® on a computer, come to her studio once a week to record the sales and expenses, take care of the reports that the different agencies requested, such as sales tax collections and payments. So Susie showed up once a week and set Maureen up with a sales book she could use to write out her individual sales.

Later, when Maureen began selling to large department stores, Susie set up a system for invoicing the stores and fulfilling the orders. All Maureen had to do was keep making jewelry, and of course, eventually she began concentrating on the design of the jewelry and hired other people to work in the studio and help her make all the pieces. She concentrated all of her energy on design, production and shows. She traveled and made European contacts with stores there. Most importantly, Maureen did everything Susie told her to do about the money steps.

Maureen was lucky, actually, because she got by without knowing any accounting at all. This was because she trusted Susie, and more importantly, Susie was honest. But what if Susie had not been honest and trustworthy? What then? How would Maureen have known Susie was doing what she was supposed to do? Many questions, and now, many answers.

You Have to Know Something About Accounting or You Shouldn’t Run a Business.
Now I’m going to qualify something I told you a few paragraphs ago. It would be useful if you learned just enough accounting to know if the person you trust with the accounting tasks is doing it right.
Fortunately, for you, business owners all over the world have had to deal with this exact situation –– for hundreds of years –– and have come up with a solution for how to do it.

It is called an ACCOUNTING SYSTEM. More good news –– unlike other systems in the world, the accounting system is logical, rigid, includes checks and balances, and has rules.

I call this system the Land of Accounting. If you want to go to the Land of Accounting, you will have a better time if you speak at least the bare minimum of the language of accounting.

Look at it this way. Do you want to walk everywhere you go? Of course you don’t. Walking on the freeway would be dangerous, time-consuming and you would probably never get anywhere.

What is the solution?You want to drive a car to get where you want to be. How do you learn to drive a car? First, you get a car and then you get someone to teach you how to drive it. Next, you have to get a driver’s license. Then, you have to learn some basic rules of how to put a key in the ignition, how to press your foot on the accelerator, learn how to brake, discover how to steer, and then how to drive on the freeway. Plus, you have to pass the test to get your license.

The world-driving-people (The Land of Driving) have come up with some basic rules you have to follow in order to drive on the highway. If you don’t learn these basic rules –– like driving on the right side of the road in America –– you will get killed in an accident when you go out driving your car.

So is it worth it to learn the basic driving rules? Absolutely. Does it take you much time to learn the basic driving rules? No. Is it any harder to learn the basic rules of accounting? Absolutely not.

Now that we are agreed that you do want to know some basic information about accounting, at least enough to navigate in the Land of Accounting, we will learn some very basic, simple to remember language words for accounting.

Next Article – The Basics.

Article II – August, 2006

Available on the Queen of QuickBooks Web site by July 31st!