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Caesar's Brook Babblings

QuickBooks News You Can Use

August 2011 - Vol 4, Issue 8

In This Issue
Job Costing Corner
Accounting for Prepaid Expenses
Simplify your Financial Statements
QuickBooks 2011 R8 Issues
Caesar's Brook

Schooner Mary Day   


Welcome to the August issue of Caesar's Brook Babblings!


This month we return to the Job Costing Corner with an article on accounting for the cost of an owner's time, and following up on last month's article on Memorized Transactions, we look at the best practice for handling Prepaid Expenses in QuickBooks. Our QuickTip shows you how to make your financial statements easier to read, and to wrap things up we have an update on some issues created by QuickBooks 2011 R8.

How quickly the summer has flown! We'll be heading off on our annual sailing trip shortly, and by this time next month everyone will be back to school and business again. Savor it while you can. 


Savor the Summer 





FeatureFeature Article

Time is MoneyJob Costing Corner - Capturing the Cost of Owner's Time

Many small business owners who take a draw succeed in capturing all of the costs associated with jobs except the cost of their time. The problem is that when you run a Job Profitability Report or a Profit and Loss by Job, any jobs that the owner worked on look far more profitable than they actually are.

There's a simple solution, but getting it set up involves several steps.

  1. If you haven't already done so, set the owner up as a vendor.
  2. Set up a new expense account in your chart of accounts called "Owner's Allocated Cost".
  3. If you don't already have a "Wash" or "Journal Entries" bank account set up in your chart of accounts, add a new account for that as well. This is an account that will be used to hold zero dollar or wash transactions. It isn't a real bank account and should never have a balance other than $0.00.
  4. Determine the owner's hourly rate for each service provided and set up new Service type items. (Do not use the same items that you use for sub-contractors.) Check the box that says "This service is used in assemblies or is performed by a subcontractor or partner". Enter the owner's hourly rate in the Cost field and the new "Owner's Allocated Cost" account in the Expense Account field. Enter the Sales price and your standard income account.

All set up? Now you are ready to start capturing owner's time for job costing. Use the QuickBooks Weekly Timesheets or another time tracking application that integrates with QuickBooks. If you aren't already tracking time in QuickBooks, you may have to turn on the preference for time tracking in order to access the timesheets. Go to the Edit pull-down menu and select Preferences. Time tracking is a company preference under Time & Expenses all the way at the bottom of the list on the left-hand side.

Record the owner's time against each job using the new service items you set up.  On a regular basis, weekly or monthly, you will need to allocate the costs to the jobs. When you are ready to do so, open the Write Checks window using the Wash or Journal Entries bank account.

In this example, assume we are allocating costs monthly. Enter the month end date as the check date and select the vendor that you set up for the owner. You should see the "Pay for Time Worked" window pop-up with the following message: "This name has time in the company file. Do want this check to represent time worked?" Click Yes. You will then be prompted for the start and end dates, in this case, the first and the last of the month.

QuickBooks will then transfer the items from the timesheet to the Items tab of the check. Now click on the Expense tab of the check and enter "Owner's Allocated Cost" in the Account field and the amount of the check as a negative number in the Amount field. The total amount of the check should now be zero.

You will now see the items and costs associated with the owner's time on the Job Profitability Reports and on the P&L by Job, but because the items we set up point to the same Owner's Allocated Cost account as the negative amount on the Expense tab, there is no effect on your overall accounting.  

Accounting for Prepaid Expenses


ExpensesLast month's feature article was on using Memorized Transactions and I closed by saying that I don't recommend using Memorized Transactions for Prepaid Expenses. The typical method for handling prepaid expenses is to post the original bill to the prepaid expense account and then enter a journal entry monthly to debit the expense account and credit the prepaid expense asset account. It may be tempting to set up these monthly journal entries as automatic memorized transactions, but I've learned the hard way that it can lead to trouble.

Here's why. Often, the asset account that holds Prepaid Expenses comingles various expenses with different dates. That can make it difficult to determine whether or not all the proper entries have been made and that the balance in the account is correct.

The easiest and cleanest way that I have found to handle prepaid expenses is to enter all of the required journal entries at the time I post the original bill. For example, suppose you pay an annual insurance premium of $24,000 in July for a policy that runs August 1 - August 1. Post the original payment to the Prepaid Expense asset account. Then immediately enter 12 journal entries beginning with 8/1/11 and ending on 7/1/12 debiting Insurance Expense $2,000 and crediting Prepaid Expense $2,000.

(You can memorize the first one and use the memorized transaction to create the remaining 11 entries, but do them all at once and be sure to delete the memorized transaction when you are done.)

Because the transactions are dated in the future, they will not show up on financial reports until the date range of the report includes the date of the transaction. However, once all of the entries have been made correctly, the register balance in the Prepaid Expense account should be zero no matter how many expenses are comingled.

An added bonus of using this method is that although prepayments rarely divide evenly by the number of months, once you enter the journal entries you can easily identify the adjustment that needs to be made in the final entry to account for rounding and zero out the register.

QuickTip: Simplify your Financial Statements


Here are two quick tips to make your financial statements easier to read.Pennies

First, eliminate the pennies. Click the Modify Report button and select the Fonts & Numbers tab. Under Show All Numbers, check the box "Without Cents".

Second, collapse the report to combine the sub-accounts. You'll find the Collapse button over to the right of the Modify Report button, next to Refresh. If you don't like the collapsed report, Expand it again with the same button, newly renamed to Expand.

QuickBooks 2011 R8 Issues


R8In last month's article on Memorized Transactions, I pointed out that the latest release of QuickBooks 2011 R8 fixed some problems with Memorized Transactions. Well, it turns out that R8 has some other problems. Intuit has withdrawn it from automatic update and is recommending that you not install R8 if you haven't already done so. Not everyone is affected; I have been running R8 for some time and haven't encountered any problems, but here is a pointer to the article on Intuit's website detailing the issues and potential solutions: 

banner 2I hope you found these babblings useful.  Your feedback is important to me.  Please drop me a line and let me know what you think.


Susan Dugdale
Caesar's Brook Business Solutions, LLC
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