Mid-Year Setup

This is an excerpt from The Sleeter Group’s QuickBooks Consultant Reference Guide – Version 2009. This book has over 500 pages of tricks and works-arounds for difficult client situations. The QuickBooks 2009 edition is updated with extensive coverage of QuickBooks Enterprise Solutions, third party add-ons, and all the new features with the 2009 version. For more information on this resource, visit www.sleeterstore.com.

As a consultant, you’ll often encounter complex company file setup issues, such as conversions from other accounting software packages or QuickBooks files that were improperly set up. In this section, we’ll present how to set up a QuickBooks File mid-year. 

For calendar-year companies, it is preferable to choose a Start Date of December 31. However, if you must set up a company in the middle of the year, you must include a few additional steps in your setup.

Year-to-Date Adjustment for Income and Expenses

To record the total income and expenses so far during the year, use a journal entry like the one shown below.

Figure 1 Year-to-Date adjustment for total income and expenses

Notice that the Journal Entry above does not record details of sales or expenses (by Customer, Vendor, or Item). It is not possible to affect Items with Journal Entries, but you can allocate income and expenses by Customer or Vendor if appropriate.

To adjust income by Item, see page 65 in The Sleeter Group’s QuickBooks Consultant Reference Guide – Version 2009.

To allocate the year-to-date income and expenses to individual Customers and Vendors, prepare the journal entry as shown below.

Figure 2 To job-cost and classify income and expenses, use names and Classes on the Journal Entry.

Important - Warning - Notice in the last two journal entries, the first line of the journal entries uses the special account called Journal Entries. This is a special Bank account in the Chart of Accounts, used as a clearing account for adjustments. See page 61 in The Sleeter Group’s QuickBooks Consultant Reference Guide – Version 2009.

Mid-Year Setup entry for Cash Basis clients

If the client files taxes on the cash basis, you’ll need to do the following:

Using your previous accounting system, create a cash basis income statement for this year-to-date. Use those numbers for the journal entry that records the total year-to-date income and expenses in QuickBooks.

Enter all of your balance sheet account balances including your open invoices and unpaid bills (AR and AP) transactions (dated with their original transaction dates). Even though AR and AP are not relevant to the cash basis financial statements, you can still use invoices and bills in QuickBooks to manage your AR and AP. QuickBooks will calculate both the accrual and cash basis reports correctly.

Verify that the cash basis Trial Balance matches the Trial Balance from your previous accounting system.

Mid-Year Setup entry for Accrual Basis clients

If the client is on the accrual basis, you’ll need to do the following:

Create an accrual basis income statement for this year-to-date. You can use your previous accounting system or whatever other source data to prepare the report.

Enter all of your Balance Sheet account balances including your open invoices and unpaid bills (AR and AP) transactions.

Create an accrual basis Profit & Loss report in QuickBooks and export this report to Excel.

Create a second column in your Excel spreadsheet and enter the numbers from your previous accounting system’s accrual basis income statement.

Add a third column in your spreadsheet to calculate the difference between the second column and the first. The formulas in this column should calculate the difference by subtracting the first column of numbers from the second column. This subtracts the transactions entered in the opening AR and AP balances from all the transactions entered into the previous accounting system.

Figure 3 Exporting a Profit and Loss report to an Excel spreadsheet for comparison

Use the numbers in the third column for the journal entry that records the total year-to-date income and expenses. The offsetting account will be opening balance equity.

Create an accrual basis Profit & Loss report in QuickBooks and verify that it matches the one from your previous accounting system.

Note: If the client received any money from invoices dated prior to the beginning of the year, this method will not provide accurate cash basis reports for the first fiscal year. If that is important to provide, enter the prior year invoices (dated in the prior year) and then enter the payments. Then, make a deposit, but zero out the deposit by adding a line that goes to Opening Bal Equity.

Allocating Year-to-Date Expenses to 1099  Vendors

When you enter year-to-date income and expenses, you’ll need to allocate all relevant expenses to your 1099 vendors by creating a journal entry that separates the account balances to the individual 1099 vendors (as shown in Figure 2 above). This is necessary so that QuickBooks has the information it needs to print the correct amounts on the 1099s at the end of the year.

Note: The setup shown above is the first step in making your 1099s work. You also need to set up the 1099 preferences and set the “Vendor eligible for 1099” field on each 1099 Vendor’s record. For more information on 1099s, see the 1099 setup section starting on page 493 in The Sleeter Group’s QuickBooks Consultant Reference Guide – Version 2009.

Setting up 1099 Balances in Mid Year

When setting up a company in the middle of a calendar year you will need to take extra steps to ensure that 1099s are accurate. The following example assumes a March 31, 2006 start date.

Enter year-to-date income and expense amounts using Journal Entries and/or zero dollar forms. For the purposes of setting up year-to-date 1099 information, it makes no difference if you enter a single year-to-date entry or if you enter P&L summaries by month or quarter. See page 65 in The Sleeter Group’s QuickBooks Consultant Reference Guide – Version 2009 for more information about using zero dollar forms to adjust income.

Create a cash basis Profit & Loss report. Set the date range to “01/01/2006” through “03/31/2006.” Note the amount of year-to-date subcontractor’s expense (see Figure 4).

This excerpt of The Sleeter Group’s QuickBooks Consultant Reference Guide was written by Doug Sleeter and the members of The Sleeter Group Consultants Network.

Figure 4 The Profit & Loss shows $36,239.00 in Subcontractors expense.

Using information from the client’s records, or reports from their previous accounting software solution, determine how much of the $36,239.00 the company paid to each 1099 vendor. The records for Academy Glass show the following breakdown:

Table 1 Subcontractor Expense by Vendor

To allocate the amounts shown in Table 1 to each 1099 Vendor, use a zero-dollar journal entry as shown in Figure 5.

Notice that Subcontractors Expense is debited and credited for the same amount. This makes it zero out. Enter the year-to-date total of payments to each 1099 vendor in the Debit column, and enter the Vendor in the Name column. Leave the Name column blank on the Credit line.

Figure 5 Enter zero-dollar journal entry to record January-March 1099 totals

Create a 1099 Summary report to confirm that it shows the correct year-to-date 1099 information for each Vendor (see Figure 6).

Figure 6 The 1099 Summary report now shows subcontractor expense for each vendor.

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