Caesar's Brook Babblings
QuickBooks News You Can Use
December 2008 - Vol 1, Issue 4
Welcome to the December issue of Caesar's Brook
I'm pleased to announce that we've added a
page to our website where you can
find any past issues you might have missed. And did you
notice our spiffy new Newsletter banner? Thanks to
for both the website updates and the
A Happy Holiday Season and a Prosperous New Year from all
of us here at Caesar's Brook Business Solutions.
Tis the Season...A Holiday Quiz for
How savvy are you on these common year-end holiday
Here's a quick quiz. Good luck!
- A gift of a fruit basket, wine, turkey or ham _____ (is/is
not) treated as wages subject to all taxes.
- A gift certificate for a fruit basket, wine, turkey or
ham _____ (is/is not) treated as wages subject to all taxes.
- Your firm gives one party each year at Christmas to which
all employees are invited. Is it income to employees?
- Your firm gives one party each year at Christmas to which
all employees are invited. Is the cost to your firm subject
to the 50% limitation on meals?
See Answers below.
QuickTip of the Month
If you enter a transaction date as 12/15 or as 1/5, by
default, QuickBooks will post the transaction to the current
year. Most of the time, this speeds up data entry, but this
time of year it can be dangerous. It makes it too easy to
unintentionally back date transactions to January 2008 or
future date them to December 2009. To help prevent these
kinds of errors, be sure that the QuickBooks date warnings are
turned on. Logged in with Admin privileges, select
Preferences from the Edit pull down menu. Select Accounting,
Company Preferences and check the boxes to warn if
transactions are more than x days in the future or past. By
default, the warnings are set at 90 days in the past and 30
days in the future. In general, this range will keep you out
of trouble, but if you are doing a lot of catch up work or
your business frequently posts items outside these limits
adjust them as required. You want the warning to actually
alert you to a problem rather than simply being another
annoyance you click right through.
Year End Cash Basis Accounting in QuickBooks
Many small businesses are cash basis tax payers. However,
viewing your business on a cash basis can give you a distorted
picture of your net profit, particularly if you buy from your
suppliers on credit or extend credit to your customers.
One of the great things about QuickBooks is that it
allows you to manage your business on an accrual basis and
still produce cash basis reports for tax preparation at year
By default, QuickBooks displays all reports on an accrual
basis and prints the basis in the upper left-hand corner.
Most reports can be viewed on either basis by clicking on the
Modify tab and changing the report basis on the display tab.
If a report is set to Cash Basis, QuickBooks removes
unreceived income (unpaid Accounts Receivable invoices) and
unpaid expenses (unpaid Vendor Bills) from your reports. It
also adds income and expenses from last year that were
received or paid in the current year.
Normally, you should not see a balance in Accounts
Receivable or Accounts Payable on a Cash Basis Balance Sheet.
However, there are instances where balances do
appear. At year end, the source needs to be identified and
may need to be corrected manually. Here are the most common
reasons that balances appear:
- One or more open invoices includes an offset to a balance
sheet account. For example, an open invoice with sales tax
will leave the sales tax portion in A/R as well as in the
Sales Tax Payable account and an open invoice with Inventory
Items will leave the inventory portion of the invoice in A/R
as well as in the Inventory Asset account. You might also have
other Item types that are coded to a balance sheet account.
There are legitimate reasons for doing this, but it could also
be the result of a setup error.
- If you have a negative balance in A/R, it is most likely
the result of unapplied payments and/or credit memos.
- On the Payables side, the same logic applies. You may
have one or more unpaid vendor bills that point to a balance
sheet account. Examples include credit card bills and the
principal portion of a loan payment.
- If you have a negative balance in A/P, it is most likely
result of unapplied vendor credits or payments.
If you need help troubleshooting your year-end Cash Basis
All a Matter of Timing
A Cash vs Accrual Primer
There are two basic accounting methods available to most
small businesses - cash or accrual. The difference between
them is primarily a matter of timing.
In cash basis accounting, revenues are recognized when cash
is received and expenses are recognized when paid. In
accrual basis accounting, revenues are recognized when they
are earned and expenses are recognized when they are
Here's an example to help explain the difference. In
November, you agree to perform some work for a customer and
purchase materials for that job on 30 day terms. In
December, you pay the vendor. In January, you complete the
work for the customer and send them an invoice. In
February, you receive a check from your customer. When do
you recognize the income and the expense?
Income in February - when you receive the payment
Expense in December - when you pay the vendor
Income in January - when you complete the job
Expense in November - when you take delivery of the
Both methods have their advantages and disadvantages. Your
accountant or tax advisor is the best person to consult
about what is right for your business.
Here are the answers to the quiz. How did you do?
- is not
- is - Gift certificates ("cash in kind") are wages subject
to FIT, FITW, FICA, and
FUTA-even for a de minimis item. For example, a gift
certificate for a turkey is
taxable income, even though the gift of a turkey is not. [26
CFR 1.132-6(e); TAM
This information provided courtesy of
The American Institute of Professional Bookkeepers.
hope you found these babblings useful. Your feedback is
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