What Your CPA Wants You to Know

42. Mastering QuickBooks: Avoid Common Mistakes and Prep for Tax Time with QB Wiz Kaylee

• Carson Sands, CPA & Teran Sands, MBA. • Episode 42

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Imagine entering tax season with confidence, knowing your books are in order. Does that sound too good to be true? 

Our QuickBooks Wiz, Kaylee, is here to prove it isn't. Drawing from her wealth of experience, she guides us through the crucial practice of categorizing and reconciling transactions monthly, ensuring no income or expense gets overlooked. She also emphasizes the importance of updating your books with any new assets or loans within the year. 

In the episode we cover the common pitfalls in QuickBooks and the secrets to avoiding. Are you making the most of your balance sheet and profit-and-loss statements? Discover the answer as we delve into the essential details of these financial statements. Kaylee also enlightens us on what it takes to keep your QuickBooks reconciled throughout the year and the most neglected practices in QuickBooks that could significantly impact your finances. We also tackle why you should always consult a CPA or accountant before using QuickBooks Live Bookkeeper and what could go wrong if you don't. Tune in for a practical guide to maintaining a clean set of books and achieving seamless tax preparation.

For more details on reading your financial statements that we discuss in this episode, check out episode 26 of this podcast! Click the link below to listen
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Speaker 1:

So if you aren't sure, don't guess. Put it to ask my accountant or send an email, but please don't guess.

Speaker 2:

Welcome to what your CPA Wants you to Know.

Speaker 3:

A podcast for business owners and those planning to make the jump into entrepreneurship. If you're thinking, I've got a great business idea, but what's next? This podcast is for you.

Speaker 2:

I'm Carson Sands.

Speaker 3:

And I'm Taryn Sands, and together we started our CPA firm. We've grown exponentially over the past six years.

Speaker 2:

I'm a CPA with over 10 years of experience helping people start and grow their businesses.

Speaker 3:

And I'm an MBA with a specialization in marketing and entrepreneurship.

Speaker 2:

Follow along as we share the ins and outs of running a business while keeping your family and sanity intact.

Speaker 3:

And how to save tax dollars without breaking any IRS rules or triggering a painful audit.

Speaker 2:

We're here to share everything your CPA wants you to know In a fun and easy to understand way. Let's get started.

Speaker 3:

Let's do it. We have a very special treat today. We have our QuickBooks with Kaylee with us to share all about her QuickBooks knowledge, tips and tricks. If you don't know Kaylee, she joined us last year after we had worked with her for a few years, but we loved her work in QuickBooks and her attention to detail and knowledge of accounting. She is the best one we've ever worked with. She does such a great job and she's really good at teaching our clients how to navigate their QuickBooks. So tell us a little bit about yourself before we get started, kaylee.

Speaker 1:

Way to talk me up, no pressure. So my name is Kaylee and I've worked for the Sands for about a year. I worked for a client of theirs for four years prior to coming on board with them. The reason why I took this position is because I wanted to spend more time with my family. I have a son and my husband is a business owner, so I wanted to be able to devote time to my family without making the sacrifices that are involved with Accounting.

Speaker 1:

Accounting worlds yeah, incorporate America. So I've been doing QuickBooks since 2006. I started out pretty much doing just reception work and I learned really quickly that I enjoyed it, but not necessarily the CPA side of doing taxes, so I stuck with accounting. I got my degree from Tarleton in Human Resources but I minored in accounting so that I could have a fallback plan in case I decided that I hated public accounting. I stumbled upon the Sands. I actually went to grade school with Taryn, so her mom Pernuer aspect of life was very appealing to me. So whenever they asked me to come on, I kind of thought I would be crazy not to even entertain the idea of being able to be there for my family as well as do the things that I enjoy. I spend a lot of my time doing cleanup on QuickBooks and helping Carson with business tax returns and anything that is necessary for our clients.

Speaker 3:

As far as day-to-day accounting work, so we added a lot of QuickBooks training in the last year and that's been huge for our clients, as we'll talk about a little bit more in the episode.

Speaker 3:

There's just not a lot of good resources for people if you run into a QuickBooks problem. So Kailia has been training and teaching and fixing QuickBooks issues for all of our clients, and everyone loves Kailia just as much as we do, so I finally convinced her to do an episode. She's not keen on the whole podcasting, but she's going to offer a lot of good advice and things for you to do as you're wrapping up the year. So we knew this episode would be perfect for business owners as you are getting close to the end of the year, doing all of your books, wrapping it up for tax time, and we want to share all the things that we see that our clients do that we're like nope, everybody needs to hear this so that we can have cleaner books, better financials, moving forward, and the last QuickBooks episode was great, so I know you guys are going to love this one even more. The first thing I wanted to ask Kailia was what things should business owners do to get their books ready for tax time?

Speaker 1:

So, in order for you to get ready for the end of year, I would definitely make sure that all of your transactions are categorized and then, once they're categorized, make sure that it's reconciled on a monthly basis. This helps to ensure that you haven't missed any expenses or any income or catch any duplicate income. I've came across several instances where imported transactions are not matched to current deposits if you are doing invoices through your QuickBooks, which duplicates your income and can cause you to have to pay twice the amount of tax. Once you've reconciled, I would definitely review your books to make sure that you have added any assets or any loans that have occurred in the year when you've added your loans. I would make sure that your interest is recorded and that your loan's balanced to whatever the loan statement shows for year end.

Speaker 3:

So that's a lot of information. But what we see when people don't do this is that they email us or call us saying hey, I'm ready for you to do my business tax return. Kaylee jumped into QuickBooks and it hasn't been reconciled through the year, or loans haven't been put in there, or nothing has even been categorized for like three months or something. So that's step one is what your CPA is going to see is if you've actually done your bookkeeping, because your CPA will not do your bookkeeping for you. They're just actually going to look at the numbers. Also, it's really good for you to look at your profit and loss statement and just make sure it makes sense to you. So I know we've had a couple this year where we did the whole tax return and then the person was like, hey, I didn't make it even we're close to that much money it was like quadrupled or something and they were the ones that had given us the profit and loss statement. So they clearly hadn't even taken a look at it before giving it to us.

Speaker 3:

So that means that we've done the tax return. Now the books need to be redone because they're not even right, and then we have to do the tax return again. So all of these things are things that need to be done before tax time. Also, like Kaylee was saying about the assets, that's something that most people forget to put in because it's not going to automatically come into your QuickBooks. If you are not good at putting in your assets and then separating out the interest from the principal payment, that is something that your CPA can do for you, as long as you let them know. These are the assets that I purchased during the year. So if you're not comfortable with that which correct me if I'm wrong, kaylee most people don't do that, right.

Speaker 1:

Majority do not, not until they've been told by a QuickBooks person or somebody that's helping them with their bookkeeping that, hey, this is something that you definitely need to be doing on a regular basis. I mean, a CPA doesn't mind doing those things, but we usually don't have access to each annual statement. So if you give that statement, they're able to do the journal entry for you. But I would definitely recommend, when you're getting your tax documents together, to include any loan document, your end statement, so that they can see, hey, let's record this interest for them if it's not up to date on your balance sheet.

Speaker 1:

If you see negatives on your balance sheet, that's questionable. You see negatives on your profit and loss? That's questionable. There's reasons that you should start to ask questions. Hey, I think I have everything right, but I see these negatives. What can I do to fix this? And is this even correct? There are some areas of the balance sheet that it's okay to have negatives, but majority no. So you need to start asking questions, just getting used to what is the balance sheet stand for, what is the profit and loss for, and understanding what's the best way to categorize and simplify your life.

Speaker 3:

And we do have an episode that is all about the financial statement, so I'll link that in the show notes. So if you aren't sure what a balance sheet is, or profit and loss or anything that we're talking about in this episode, you can go back and listen to that first, but definitely reviewing it once you have done all those things. Like she said, categorize and reconcile everything. If the numbers don't look right to you, that's definitely when you can ask your CPA or your bookkeeper to investigate it a little bit more if you're not familiar with how to fix it. Categorizing would be making sure that when the year ends, you have everything done through December 31st. So that's what your CPA is going to be looking at for your tax return. You really should be keeping up with it monthly, but most people do not.

Speaker 1:

The perks of having it done monthly is, come September, october, when you're ready to get an idea of how much money should you be spending before the end of the year, you're able to take it to your CPA and say let's do a projection, how does my numbers look? Am I going to owe Uncle Sam money? So it's definitely beneficial to do it on a monthly basis for more than one reason of not having to rush at the end of the year, at the beginning of the year, to get all of these things done.

Speaker 3:

Yes, if you're listening to this episode right now, now is a good time to get everything that we're talking about done so that you can do a projection, because once we hit January, it's too late to make any changes. When done is done and you can't do anything else, make any different purchases. So it's definitely now is the time to start wrapping all of this up.

Speaker 1:

We're scheduling with your CPA to get your books up to date or get on their books to have them review it.

Speaker 3:

Right. So what we'll tell our clients is yeah, november is a great time if you have some issues in your books, schedule time with Kaylee. She can help you get through those. But come January we're going to turn those meetings off because we don't have the capacity to take on any of those bookkeeping meetings and most CPA firms don't even offer that. So it's definitely not something your CPA is going to be willing to do whenever it's tax season. The second biggest question that came in was what should someone do with a transaction that they don't know where to put it? Don't guess, don't guess. Carson said the same thing Do not guess and put it somewhere.

Speaker 1:

You can create an account that either says ask my account. Putting it in there is a huge red flag for us. If we're able to go and look at your books when we pull the reports, or it gives you a notification like you'll see it as a one off on your account and you're able to say, oh, I need you to look at these with me, or call your CPA or send an email and say, hey, I'm not really sure where I should put this, but that way you're not making mistakes, because we've had clients that have put entire assets on the books and if we're not drilling down into those accounts, we're not able to see those, and so we don't even know that they exist until after the fact and we're like, huh, that's not proper accounting. We need to fix that. So if you aren't sure, don't guess. Put it to ask my accountant or send an email, but please don't guess.

Speaker 3:

Yes, and I think what most people don't understand when they're guessing is that your CPA is not looking at every single transaction through the year. That would be quite impossible for all the tax returns that they do. So if you put it into a category, they're going to assume it's right Now. If you put the ask my accountant and there's like 10 transactions in there, they're going to assume that those transactions are the ones that you just weren't sure about. So definitely use that. It's usually automatically loaded on QuickBooks online, right, Correct? It's already there.

Speaker 3:

Usually, if it's something that you're just not quite sure about, if you stick it somewhere, then we're not going to find it. But if you put it in that ask my accountant, that will definitely be looked at whenever they're looking at your books for the tax return. So that's a great place to stick it. And if it's middle of the year and you have a bunch of those, that's a good time to give them a call and book a meeting just to get those resolved before the end of the year. But if you have a few in there whenever it's tax time, that's no big deal at all. Okay, the next question that came up was what should you do if you need?

Speaker 1:

QuickBooks help. Do not see quick books into it help. I have had to clean up so many quick books accounts after they've reached out to quick books into it, for the quick books live. Majority of the time they just do one large journal entry and they are not taking into account the issues that run with one big journal entry. It's fine to do a journal entry to fix you know an asset or to add a loan, but when they do one large journal entry and they're not giving breadcrumbs to the CPA or giving the opportunity to like actually correct it the right way, then it becomes a bigger mess for your CPA to fix. I have a client that I'm actually still working with that spent thousands working with books online.

Speaker 1:

I think it's called quick books, live bookkeeper or something of that nature. Yeah, he had seven different bookkeepers that worked with him and none of them did them correctly and now he's having to pay us to fix it, which is it's disheartening because they're advertising these this good service that in the end, it's really not. You need to consult with a CPA or your CPA or your accountant of somebody that they work with hand in hand or that they would recommend, because nine times out of 10, they're going to be able to say I would recommend this person or I would not recommend this person, because they've seen their work and they're able to say they actually understand it and they know what they're doing and they're not going to make it worse.

Speaker 3:

Right, that is the best way to find someone to help is ask your CPA. They may not have in house quick books help but they will definitely know whose quick books work is good and can give you a recommendation. And I think that was like our second or third client who had spent thousands of dollars with quick books help, only to not only take it months and months for them to do a terrible job but for us to have to go back and fix it and charge them to fix all of that work. So definitely here is your little PSA not to use the quick books into it support that they offer, because it has been nothing but terrible from what we've seen. And the million dollar question what is the number one thing that most people do wrong in quick books?

Speaker 1:

You make me limit it to one. No, that's okay.

Speaker 3:

You can say more than one.

Speaker 1:

So the number one issue that I see would be not reconciling. I will. That's usually the first thing I check is to see if each account has been reconciled. Not reconciling means that you could be missing out on expenses or deductions, or you could be missing the fact that mistakes have happened with your income.

Speaker 3:

Now I have to stop cursing a lot because, okay, say, someone doesn't know what reconciling is, can you explain what that is to someone that doesn't know? Because they're not doing it. They just are clicking transactions and quick books and they don't know this step.

Speaker 1:

So when I say reconciling the account, I do not mean going through the register and clicking on the C in the transaction and saying that you've reconciled. I mean going to the option of reconciling the account within with quick books online. It's, you know, under the accounting tab or banking transactions tab, and it allows you to put in the beginning and the ending balance. If you've never done it, I guess it won't give you the beginning balance, but it'll give you the ending balance option. So you would put in the ending balance. You would put in the date of what you're reconciling it, so the month end date. It should be a direct replication of your bank statement. So if you're looking at your bank statement, it should automatically, if you're importing your transactions, should calculate what your total deposits are and what your total transactions are. Those numbers should match your bank statement. If they don't, you're not going to get a green checkmark and it's not going to say that you have Z row discrepancies. If you're doing it correctly and everything is imported and everything is right, then you're going to get a zero and a big green checkmark. When doing this, you're able to determine do I have duplicate transactions in here? Do I have duplicate deposits If it's not being imported, and say you have Shopify attached to your QuickBooks online, you're importing in those transactions from your POS system and then you're also importing your bank statement. If you're not matching those deposits, then you're duplicating your transactions. So when you go to Reconcil, you're able to catch those duplicate deposits and go in there and decide which one should I keep.

Speaker 1:

My recommendation would be to keep the Shopify, because that's going to have your detailed information. You can exclude the import and then it should make everything match. One of the biggest issues that I've noticed with Shopify or any other import, such as PayPal, is that there are fees that are associated with it. So you have to make sure that it's set up correctly. Otherwise you're going to have to do a lot of journal entries or changes to those transactions to make them match what's actually hitting the bank account. So when you're reconciling you're able to determine is everything in here, is it accurate? Are we missing any income? Are we missing any transactions? So I would definitely recommend, on a monthly basis, doing this and then, once you hit reconcile, then you can go to the next month. Doing this ensures that there's accuracy and you're able to ensure that you have correct books.

Speaker 3:

So, very layman's terms, you're going to take your bank statement and you're just going to make sure that it matches your QuickBooks, and a lot of times something will come up and you'll be like, oh, I didn't notice, there were these duplicate transactions, and that's going to allow you to see when there's any mistakes in your QuickBooks it happens. So that's definitely why we need you to reconcile those accounts, and it's not just for your bank account. If you do have a credit card linked to your QuickBooks, then you definitely need to reconcile that too. So it doesn't take that long.

Speaker 3:

Once a month, go ahead and categorize everything, then reconcile and, like Kaylee was saying, with putting in your POS system like Shopify or Square, anything like that, where you're collecting money on a different platform and then you're pulling that into QuickBooks, you're going to need to make sure it's set up properly. So what we would suggest is, if you're doing something big like that, getting help to make sure it did it correctly, because we've had to go back and correct lots of mistakes with that, because it's double counting income a lot, so then your P&L is like way off and then you would pay more taxes if you move forward with those financials. We see that a lot and that's definitely one of the biggest mistakes. I would say that is reoccurring.

Speaker 1:

Absolutely. Another example would be categorization, consistency and making sure that your payee is in there. So one of the great things about QuickBooks online is if you put in the payee and you go to the vendors later on you're able to see all the transactions. It also is in QuickBooks desktop, but you're able to see all of those transactions in one place. If you don't add a payee, then you can't determine how much you've paid a particular vendor. It also makes your life easier when you get ready to make corrections or your bookkeeper gets ready to make corrections. So if you've coded all of your AT&T bills to the wrong category and your CPA or your accountant's looking to try to fix these for you, they're not having to search each transaction. They can just go directly to the particular vendor and do pretty much a copy and paste down the account line versus going one by one, and it saves a ton of time.

Speaker 1:

Consistency is key making sure that your utilities are all in the same place, making sure that your cost of goods are all in the same place. I've found a lot of like duplicates. So say, you've got an accounts set up for fuel, but then you also have a vehicle expense trying to condense those chart of accounts so that there's less is more. Yeah, when we get ready to do tax returns, we have to pretty much condense it down so that when we are putting in the numbers, we're able to tie it back. So if you've got 16 different vehicle expenses, we, when we're doing the tax return, we're going to add all of those numbers up together. So it just makes more sense. If you need that detail, make them sub-accounts and we can collapse them, but understanding the reason behind each one of those categories and really what's the best accounting system for your business. If you need the detail, that's great, but understanding that you don't need 16 different kinds of vehicle expense and understanding that you don't need 16 different kinds of utilities and things like that.

Speaker 3:

Right, we see that a lot Gas, then fuel, then car and truck, and it's like for one. What is the difference here in your head, and is there any, or are you just going and like selecting one that sounds good? So when you're doing categories, that you're making sure you're consistent with them and trying to have as little as possible.

Speaker 1:

That works for your business A great way to avoid miscategorization and ensure accuracy is creating rules.

Speaker 1:

So if you add the vendor and you add a rule within transactions being imported for your bank, if you will set those rules up, it makes life easier. One, you're not having to touch those on a monthly basis because if you set it up for auto, so every time AT&T comes across and we know that it's a telephone expense or a utilities expense, it'll automatically put it into that bucket for you and you're not having to go in there and match it or add it. It will do that for majority of the stuff. I wouldn't say do that for the one off, so like it could be cost of goods or it could be office expense, so like you know if you're going to Walmart could that be you know office expense or could that be a you know shop supplies. So I would just make sure that you're doing consistent reoccurring transactions on that. But it definitely helps to have that because you're one being consistent in your vendors and your category and it also keeps you from having to touch each one of them.

Speaker 3:

Exactly. The easier that you can make it on us also makes it easier on yourself. I know this was a lot of information thrown at you, so feel free to rewind and listen again. If you are new to QuickBooks, this might be a little overwhelming, but the most important thing is that you keep trying to learn and keep trying to teach yourself, because it definitely is a learned and acquired skill. Also, I think one of the main reasons Kaylee is so good at QuickBooks is that she understands the accounting side of it. So the more that you're familiar with that and your statements and why they look the way they do and what each of those shows, the more you're going to understand QuickBooks.

Speaker 3:

As we wrap up this year, you want to make sure that you categorize and reconcile every single account through December. You should start doing that right now so that you can get an idea of what your revenue and your profit is for the year, and then you could do a tax projection with your CPA or just yourself, trying to estimate how much you're going to pay in taxes, if you are actually prepared to pay that much in taxes and if you need to purchase anything before the end of the year, and just make sure that you're timing it correctly to reduce your taxes if you need a new asset. All of these things need to be done before you tell your CPA okay, I'm ready for you to follow my tax return because many times, if they have to redo it multiple times, they're going to charge you for an extra tax return and nobody wants to pay that.

Speaker 1:

No, nobody does.

Speaker 3:

No, give Kaylee some love. I made her do podcasting today. This is not her typical job, but she did great and I think this episode is going to be super helpful. We're going to be sending it to our clients as well and get everybody on the same page for the end of the year. Thanks for having me, until next time. Thank you so much for listening to what your CPA Wants you to Know. Podcast.

Speaker 2:

This podcast is intended to provide accounting and tax information for educational purposes only. All tax situations are unique and should be handled with the assistance of a tax professional.