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Caesar's Brook Babblings
QuickBooks News You Can Use 
December 2008 - Vol 1, Issue 4
 
In This Issue
Tis the Season - A Holiday Quiz for Bookkeepers
QuickBooks Date Warnings
Year End Cash Basis Accounting in QuickBooks
A Cash vs Accrual Primer
Caesar's Brook
 
Greetings! 
Holiday Banner
 
Welcome to the December issue of Caesar's Brook Babblings. 
 
I'm pleased to announce that we've added a Newsletter Archive 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 Shroff Designs for both the website updates and the banner.
  
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 Bookkeepers
 
How savvy are you on these common year-end holiday issues?  gift boxes
Here's a quick quiz.  Good luck!
  1. A gift of a fruit basket, wine, turkey or ham _____ (is/is not) treated as wages subject to all taxes.
  2. A gift certificate for a fruit basket, wine, turkey or ham  _____ (is/is not) treated as wages subject to all taxes.
  3. Your firm gives one party each year at Christmas to which all employees are invited. Is it income to employees?
  4. 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
 
2008-2009 QuickBooks Date Warnings

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.

 
FeatureFeature Article
   
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 end. 
 
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 Balance Sheet, contact us.

 
TimingIt's 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 incurred.
 
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?Timing the Money
 
Cash Basis
Income in February - when you receive the payment
Expense in December - when you pay the vendor
 
Accrual Basis
Income in January - when you complete the job
Expense in November - when you take delivery of the material 
 
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.
 
AnswersTis the Season...Answers 
Here are the answers to the quiz.  How did you do?
  1. is not
  2. 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
    200437030]
  3. No
  4. No

This information provided courtesy of The American Institute of Professional Bookkeepers

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.
 
Sincerely,
 
Susan Dugdale
Caesar's Brook Business Solutions, LLC
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