June 2000 The Desktop Accountant Newsletter

June 2000

Here is your complimentary copy of The Desktop Accountant, our periodic newsletter with tips and tricks for using QuickBooks and QuickBooks Pro.

Note - Ok, so this "June" newsletter is a bit late. Sorry about that:) I hope it's worth the wait.

News RE: QuickBooks 2000

Since our last newsletter, we've become much more comfortable with QuickBooks 2000. Although I understand your frustrations about how the menus changed etc. (see the March 2000 newsletter), we really don't feel there is any reason to delay upgrading to version 2000. On the positive side, the new payroll reports (Summarize Payroll Data in Excel), the list synching with ACT and Outlook, and the new credit card processing features could really help many of your clients. It's a great program.

Online Accounting - It's Here Today!

As I'm sure you've heard, the new buzz in the small business accounting software business is Online Accounting. QuickBooks is the rave today, but I predict that online accounting will replace QuickBooks and Peachtree in the years to come. The only question is which online accounting program will lead the market and therefore be the focus for the accounting community. It might be NetLedger, eLedger, or quite possibly an online accounting solution developed by Intuit. There are rumors that they are working on an online solution, but they haven't officially announced anything yet.

Online accounting dramatically changes everything about accounting software. Over the next few newsletters, I'll be talking about why I believe online accounting will be the mainstream in the coming years (maybe by the end of 2003). If you're in the accounting software consulting business, you should gain as much knowledge as possible about online solutions and how they can be used to improve your clients business systems. You'll need some new skills so we're creating a variety of new products and services to help you help your clients in this area.

To begin the discussion, I'd like to suggest that the current tools we're using have served us well over the past 5-7 years, but they are quite limited when we try to push them beyond the smallest of companies. I'll lump all of the desktop accounting applications (e.g. QuickBooks, Peachtree, MYOB, etc) into a group and call them "drive c based software" (applications you install onto your Windows computer). Consider the following points about these programs:

1) Safety and Security - If your data is on your local computer, it is NOT safe. This might seem contrary to logic, but consider these questions: Is your computer located in a "secure" environment? Are you sure your network is protected from unauthorized access? Do you have someone on staff specifically assigned to securing data, backing up data, verifying backups, and maintaining the physical security of the building? Are all your data files password protected? How likely is it that your hard drive will crash soon? If it's more than a couple years old, it could crash at any minute. How much data will you lose? Do you keep off-site backups?

2) Scalability - If you use a drive c based program, you will NOT be able to effectively scale your accounting as your company grows. If users in more than one location need to enter data into the accounting system at the same time, you should definitely NOT try to use drive c based software. Large data sets are also not handled well by these drive c programs. For example QuickBooks limits the customer and vendor list to 10,000 names and there is now way to delete old customers or vendors. There is a condense function, but condensing occasionally corrupts the file so I always avoid it. Keep in mind that these desktop programs were never designed for larger companies.

3) Accountant Access - If the accountant needs access to the client's data on a consistent basis, the desktop programs are not great solutions. Accountants must obtain backup files from the client and the client must refrain from entering data while the accountant has the file. Also, if the accountant wants to share the accounting tasks with the client, it's almost impossible.

4) Integration - If you want to integrate other applications (e.g. Point of Sale, Time and Billing) with the general ledger, it's nearly impossible to make things work well with today's desktop accounting solutions.

We should all begin to look critically at how we design systems for our clients, what tools we use to capture data, store data, and integrate with a variety of data sources. Things are going to change quickly, so stay tuned.

The Sleeter Group is now presenting seminars for NetLedger, an online accounting provider. We believe NetLedger will be a central player in the online accounting industry and for this reason, we're developing as much material as possible to help you learn about it and install it for your clients. At our seminars, you'll learn how online accounting software delivers to small businesses the power of wide-area networking, the scalability of an Oracle database, the integration capabilities of XML, the safety and reliability of secure servers, and freedom of choice of operating systems on the desktop. For a schedule of seminars, see our website.

If you haven't attended The Sleeter Group's QuickBooks Consultant's Workshop, you're really missing out. The two-day workshop is filled with tell-it-like-it-is QuickBooks and online accounting information that you need to support your clients. Learn the latest tips, tricks, and shortcuts about QuickBooks. Learn about how online accounting can help you grow your practice and improve your profitability. Earn up to 16 CPE credits! If you've been before, come again. We've got loads of new information for you. If you haven't heard about us before, read the reviews from our previous attendees! For details and registration information, go to our website.

I hope you enjoy our tips! Drop me an e-mail with your comments.

Doug Sleeter

Accounting for Completed Contract Jobs
Using QuickBooks Pro

Introduction

Companies that use Completed Contract to record income and expenses need to recognize special accounting considerations. Using this method, the contractor would not record any income or expenses related to a job until the entire job is completed.

Unlike most businesses, the contractor cannot expense purchases for a job at the time they are purchased or record income at the time cash is received. All income and expenses for the entire job are recognized upon completion of the contract. This article will detail one way this method of accounting for contractors can be supported by QuickBooks Pro. The method described below requires QuickBooks Pro.

Setting up Customers & Jobs

When a new contract is signed, add a new customer record or if this is a new job for an existing customer, add the new job under the customer. Set the Job Type to Open. Do not use Job Status as this will make it difficult to create the reports you will need later. Using Job Type for Open or Closed instead of Customer Type allows you to have multiple jobs under one customer with some jobs Open and some jobs Closed.

You should have a firm definition of the meaning of Open and Closed jobs. For example, you might consider a job open until the final inspection, or perhaps you'll keep jobs open until customers pay their last payment. Also, depending on how you define Closed, you may continue to have income and expense transactions after the job is closed.

If you prefer, you can create an estimate for the job, but this step is not required unless you want reports comparing estimated sales & expenses to actual sales & expenses.

Accounts to Create

You will need to create some accounts to use this method. We are assuming that you already have sales accounts and expense and/or cost of goods sold accounts to record recognized income and expenses. In addition, you will need to create an Other Current Liability account called Contracts to Perform and an Other Current Asset account called Construction in Progress. In this example, you'll see how you can use a second A/R account called Progress Billings to track these transactions. However, you could use your main A/R account if you don't want to complicate things.

Items to Create

You will need to create several Items. You should make these Service or Non-Inventory Part type items. Do not use Inventory type items! Following is a table listing items you may need. Of course, your items will vary depending on the type of contracts you perform.

Name	Account
Contract Sale	Contracts to Perform
COGS:Windows	Construction in Progress
COGS:Subcontractors	Construction in Progress
COGS:Lumber	Construction in Progress
COGS:Permits	Construction in Progress
COGS:Commissions	Construction in Progress

Make these items two-sided items as shown below by clicking on the box directly below the Item Type field. On service items it's called "This service is performed by a subcontractor, owner, or partner."

When a new contract is signed

When a new contract is signed:

Set up the customer as described above.
Create an estimate if desired.
Create an invoice for the entire contract amount dated on the contract date and using the Progress Billing A/R account and the Contract Sale item as shown below:

This invoice will increase (debit) Progress Billings A/R and increase (credit) Contracts to Perform liability.

When you receive a payment from the customer, record the payment in Receive Payments and apply it to the open invoice. Deposit the payment into your bank account as usual. By the time the job is completed, the balance of this invoice should be zero. If the contract amount changes for any reason, enter another invoice (for an increase) or credit memo (for a decrease) using the same Job name, A/R account and item for the amount of the change. You could also edit the original invoice if it’s not too old, but this will affect your accounting on the date of the original invoice.

Recording & Paying Expenses

To record expenses using Enter Bills, Write Checks or Enter Credit Card Charges, follow these steps:

Decide if the expense should be applied to a job (job-costed).
If the expense does not need to be applied to a job, enter the expense normally using Bills, Checks, or Credit Card charges. Use the correct expense account to directly expense each cost.
If the expense must be applied to a job, find out if the job is Open or Closed.
If the job is open, use the items you created to record the expense and assign each line to the appropriate job. These transactions will increase (credit) A/P and increase (debit) Construction in Progress (asset).
If the job is closed, use the Expenses tab to directly expense the cost and assign each line to the appropriate job. This increases (credits) A/P and increases (debits) the Expense or Cost of Good Sold account(s) entered.
Paying bills is no different than normal. Use Pay Bills to create Bill-Payment checks.

Sales Reps Commissions

If you pay sales reps commissions, enter them by job as shown below. If the job is open, use the items to record the commission. If the job is closed, use expense accounts in the Expenses tab.

Closing a Job

To close a job, follow these steps:

Determine the unrecognized income and expenses for the job by running the Open Jobs Unrecognized Income/Expenses report. This report can be created by starting with a Custom Transaction Detail Report. Set the Customize and Filter screens as follows:

Select the following columns: Left Margin, Type, Date, Num, Memo, Item, Account, Debit, Credit, and Balance.

The Selected accounts should be Construction in Progress and Contracts to Perform. Memorize this report.
Enter a journal entry using the numbers from the following report.

Use the numbers in this report to create the following journal entry.
After entering the journal entry, verify it by checking that the balance on the Unrecognized Income/Expense report is zero for that job.
Edit the customer record and change the Job Type to Closed.

Notice that you can now run a Profit & Loss by Job report for this job which includes not only the transactions entered with Items while the job was open, but also includes the $573 in material that was recorded after the job was closed.

Conclusion

In this article we have described one way to track income and expenses for contractors that use the Completed Contract method of accounting. With only minor modifications, this method can also be used by spec home builders. This method accumulates costs for a project in an asset account during construction. Once the project is finished and the property is sold, the revenue from the sale is recorded and the balance in the Construction in Progress account related to that job is closed into the appropriate expense accounts so that the Income Statement reflects all the activity for the project.