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QB Question


Terry D EA

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To all QuickBooks experts I am in need of some assistance with QB. The client I am working with is an S-Corp client who has been using QB online. While this is my first time using QB online, it is very similar to the desktop version. My question is not relevant to any particular QB version. I apologize for the lengthiness but here goes. First, I started this QB file for these folks in 2013 and they have screwed it up immensely. I normally tell folks that no matter what they do I can generally fix it. So much for putting my foot in my mouth. During their learning curve, the only thing I have used their file for is income and expenses. I have been preparing the financials separately each year. I have spent the summer trying to get their QB to match my records per their request and I agree it should. I know QB can automatically close the books at the end of the year and when it does, all it does is finalize to retained earnings. I am not sure if this can be done manually in QB. I have created the AAA account and the OAA accounts but QB online will not allow these as sub accounts to Retained Earnings. Isn't creating sub accounts to RE the the right way to do this? Also, how do I adjust the Retained Earnings to show the income/loss at the end of the year? Which accounts are used to make those entries.

The bookkeeper created an account called "Taxes Paid" as an expense account for the shareholder withdrawal and credited the cash account to pay the taxes owed for the year. Yes, Retained Earnings were more than sufficient to make this withdrawal. I made an adjusting entry to DB Retained Earnings and CR the "Taxes Paid" account to correct this entry. My confusion here is the IRS ordering rules which state this withdrawal comes from AAA first. How do I show this in QB? I am at the point to just forego tracking this is in QB and track it as I have been which is accurate. Any help anyone can give me will be appreciated.

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Ok never mind with the first part of my post. I just realized I am way over thinking this and getting confused with account naming and posting. QB online will not allow the creation of the proper sub accounts. All I need is to be able to adjust the beginning RE so the year ending RE will reflect the proper amount. Sorry for the clutter.

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Drake has an M-1 reconciliation report, but you have to enter the book balance sheet in Sch L.

When I'm confronted with a client bookkeeping disaster, I usually offer to keep the books myself on a tax (almost always cash) basis and let them use their Quickbooks to keep track of their payables and receivables.  If they can't keep the books, they are probably just using QB as a word processor to print checks and invoices anyway.  

I agree with Abby regarding messing around with the equity accounts. I set up my SCorp equity section with the QB retained earnings and then I add an account called "current year distributions" to show the shareholder distributions, which I then close to retained earnings with a journal entry on Jan 1 of the following year.  You might teach your client's bookkeeper to code any disbursement made to the shareholder to that distribution account rather than put it on the profit & loss.  Pretty easy to run a report and just see what tax payments (estimated or otherwise) were made if the bookkeeper puts an explanation in the "memo" on the payment.

Last thing:  Has the business ever been a C Corp, or has it from day one been an S Corp?  

 

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1 hour ago, BHoffman said:

If they can't keep the books, they are probably just using QB as a word processor to print checks and invoices anyway.  

At best....  (Although sometimes I think they use QB as an accountant's torture device.  A bit like knowing someone is OCD and making all your pictures crooked before they visit.)

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23 minutes ago, Abby Normal said:

M-1 is a reconciliation so I don't know what use another reconciliation is. AAA to RE is the reconciliation you need... although I've never had any need to use the AAA balance, so I have no clue why we even track it.

I have only used the AAA account when the company had AEP from previous years as a C Corp. 

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21 hours ago, BHoffman said:

Drake has an M-1 reconciliation report, but you have to enter the book balance sheet in Sch L.

When I'm confronted with a client bookkeeping disaster, I usually offer to keep the books myself on a tax (almost always cash) basis and let them use their Quickbooks to keep track of their payables and receivables.  If they can't keep the books, they are probably just using QB as a word processor to print checks and invoices anyway.  

I agree with Abby regarding messing around with the equity accounts. I set up my SCorp equity section with the QB retained earnings and then I add an account called "current year distributions" to show the shareholder distributions, which I then close to retained earnings with a journal entry on Jan 1 of the following year.  You might teach your client's bookkeeper to code any disbursement made to the shareholder to that distribution account rather than put it on the profit & loss.  Pretty easy to run a report and just see what tax payments (estimated or otherwise) were made if the bookkeeper puts an explanation in the "memo" on the payment.

Last thing:  Has the business ever been a C Corp, or has it from day one been an S Corp?  

 

Thanks BHoffman. I have done the same thing with the equity accounts. I give instructions to these folks every year after I make all of the necessary adjustments with the hope they will do as I say. More often than not, those directions are not followed. As I look at what they have done so far this year, they are doing the same things. But, I will ask them to go back and fix their errors with instructions on how to do so. I have even done screen shares with these folks to help. Each account in the COA has what it is used for in the description as well.  So, as long as they are willing to pay me to fix this each year, then so be it.

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20 hours ago, BHoffman said:

I have only used the AAA account when the company had AEP from previous years as a C Corp. 

I agree here as well. Forgot to answer your question. This company has always been an S-Corp. The CFR gives you the necessity of the AAA, OAA and AE&P for both entities. A bit confusing read.

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So that's why when I go to someone's home their pictures are crooked. I can't stand crooked pictures or anything else that is crooked for that matter. I wonder if there is a pill for crooked picture people. Wouldn't you just love to have a pill you could take so you wouldn't give a sh@# about anything when needed.

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37 minutes ago, Terry D said:

as long as they are willing to pay me to fix this each year

A tax pro who is also a lawyer and who specializes in bankruptcy and OIC's was asked how he dealt with clients who come back every 7-8 years with the same bleeping problem.  He said the trick is to stop thinking of them as "problem clients" and instead think of them as "walking annuities" - which seems a little cold-blooded, but also both funny and accurate.

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Terry - a few things I've learned over the years concerning clients and Quickbooks include keeping the chart of accounts short and sweet.  Lots of clients come to me with pages and pages of accounts on the COA.  That makes for lots and lots of opportunities for coding errors, IMHO.  But, as long as the QB type is correct (expense, income, asset, liability, equity), the data errors are manageable.

I might suggest that you perform your work on a monthly or quarterly basis since this also has worked better.  The bookkeeper will probably be able to ask and answer questions as the issues are more recent than looking back annually.

Also, I don't think trying to force QB to a strict tax accounting basis is going to work for the reasons you mentioned above.  I think you can figure the AAA, etc. from preparing the tax return.  Again, I see no benefit to angsting over AAA, OAA, and AEP if the company has always been an SCorp.  I have only needed to consider the ordering rules when the shareholder takes distributions in excess of basis, and I keep track of that via the shareholder basis worksheet in Drake.  You might be making the bookkeeping in QB a lot more difficult than it needs to be.  My own philosophy is that simpler is better.  I am a simple woman :)

 

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