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COMPANY NAME & LOGO HERE

Accounting Procedures & Policies Manual 2013

© Copyright by Robert Ricco and Property of “Company Name Here”. All rights reserved.

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Table Of Contents
I. II. III. IV. V. VI. VII. VIII. IX. X. XI.

Creating and Configuring Customers and Jobs................. 3 Creating Different Types of Items for Invoices.…..……….. 6 Invoicing Customers and Collecting Payment..…………... 9 Making Deposits and Managing Bank Accounts................ 14 Reconciling Bank Accounts……………………………........ 16 Creating and Configuring Vendors…….…………………… 19 Managing and Paying Vendor Bills.……………….……….. 22 Managing and Reconciling Credit Card Accounts.............. 25 Managing Employees and Processing Payroll................... 27 Creating and Customizing Reports.................................... 30 Routine Maintenance of the Company File........................ 32

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Chapter 1 Creating and Configuring Customers and Jobs

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The Customer Center is where all your customers and jobs, and detailed information about them, are kept. It’s also where you go to create, edit, and get reports about customers and jobs. To open the Customer Center,  Click the Customer Center icon or Press CTRL – J The left pane shows all of your customers and their respective balances. It’s important to notice that some of our customer records stand alone as single-line entries and some appear to have sub-names or some form of bulleted listing below them. In the image below, Maria Cruz is the customer and Branch Opening is a job for that customer.

In QuickBooks, customers and jobs are handled together. You can create a customer and consider anything and everything you invoice to that customer a single job, or you can create multiple jobs for the same customer. Some businesses don’t worry about jobs; it’s just the customer that’s tracked. But if you’re a building contractor or subcontractor or some other kind of service provider who usually sends an invoice based on a project (which we are), we should track jobs. If you look at our own XYZ Construction Customer Center, you’ll notice that there are multiple jobs for many of our customers. My recommendation is that if there’s a fairly decent chance that a new customer will result in repeat business, it’s best to set this up from the beginning and create a new customer, then create a new job for that customer’s specific project. When additional projects come up in the future, you’ll already have the correct template set up without needing to go back and do revisions. To create a new Customer and then a new Job for that customer,  Click New Customer and Job, Select New Customer  Enter the Customer’s Name and any additional information you want to have a record for in the tabs labeled, Address Info, Additional Info, Payment Info, and Job Info  Click OK
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Now, with the customer selected (and to create the new job)  Click New Customer and Job, Select Add Job  Enter the Job Name (i.e.. Kitchen Repair)  Click OK It’s entirely up to you on how much detailed information you want to fill in with respect to specific jobs. By default, QuickBooks will take whatever customer contact information you’ve set up and that, generally, is all I would recommend as necessary. The Job name should be specific enough for a customer to know what project your invoice pertains to, and in that regard, it’s important to recall that whatever you name your job, that same name and formatting will be visible on invoices and statements you send your customers. Once you’ve saved a job, you’ll notice that it is indented in the same manner as discussed previously. If you’re uncertain on whether or not it’s been saved correctly, see the image on the prior page. Your job should appear in the same formatting as Branch Opening, under Maria Cruz’s customer record.

Quick References for Customers and Jobs
• What if I want to edit or make changes to customers and/or job information? o Select the customer or job you want to edit on the Customer Center window o Press CTRL – E What if I want to delete a customer and/or job? o If and only if it’s never been used in a transaction, select the customer and/or you want to delete on the Customer Center window o Press CTRL – D o If you’ve ever posted to the customer and/or job, you cannot delete it. In these cases, it’s best to search for the transaction(s) posted and if not relevant to the current or a recent tax year, you may want to consider “hiding” it from standard view. See next. What if want to hide the customer and/or job from other users or to prevent anyone from posting to this customer and/or job? o Select the customer and/or job you want to hide on the Customer Center window o Right-click and Select, Make Customer: Job Inactive o If you ever want to show hidden customers and/or jobs or reactivate them, Select View all Customers at the bottom of the Customer Center window What if I accidentally created two customers and/or jobs for the same purpose? o Select the customer and/or job that you DO NOT want to keep on the Customer Center o Press CTRL – E o Change the customer name and/or job name to match identically the one you want to keep o You will see the prompt: This name is already being used. Would you like to merge them? o Select Yes o If you don’t receive the prompt above, then check the spelling of the customer and/or job name. They must be identical.

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Chapter 2 Creating Different Types of Items for Invoices

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An Item is any component that you use when you create a sales transaction (i.e. customer invoice). It can be a product, a service or any other necessary entry in a sales transaction. The following is a list of the different items found within QuickBooks. • • • • • Service Item – a service you provide to a customer; charged by the job or per hour Inventory Part – a product you purchase for the purpose of reselling. These costs are posted as you sell them rather than when you write a check to purchase them. Non-inventory Part – a product you sell but don’t track as inventory Other Charge – other items that don’t fit into a service or product item; for example, shipping charges can be other charges Group – used to enter a group of items all at once, rather than entering each individual item that includes those two items; for example, if you sell online only, you could sell a product that always includes a shipping charge…the group in this case would likely be an inventory part and an other charge. Discount – discounts given to customers; you may have more than one item that falls into this item type, such as discounts for wholesale customers and discounts for volume purchases…in this case, the discount item applies more specifically to what you’re selling rather than who you are as a customer, as we saw in the previous chapter concerning price level lists. Payment – payment received from customers, either in total or as a partial payment (deposit) Sales Tax Item – used for each sales tax authority you collect for Sales Tax Group – used for multiple sales taxes (state and local) that apply to a product to be purchased by a customer

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Not all items are necessary for every business and in our case, we’ll utilize only Service Items, Other Charge Items, and Discounts. Before working our way through the three of these, I’ll briefly make an attempt to explain why the others aren’t necessary. We carry no “inventory” and though it’s true we do carry materials needed to carry out fulfillment of specific jobs, because we have made the decision not to directly bill back these materials, non-inventory parts are also not necessary. Remember, items are used to create sales transactions and are necessary only if you intend to include purchased materials as a separate and visible line item on an invoice. Many businesses choose to simply lump services and materials into one line item, accompanied with a notation in the description field, and bill it to the customer. For that purpose, a Service Item is sufficient. Because every job is very different in scope, Groups aren’t really helpful to our business. There aren’t very many “pre-set” services we can definitively say to a customer, “this is what we can do and this is how much it costs.” While the Payments item may look important, we will apply payments in a very specific way, which will be discussed in a later chapter. Sales Tax Items and Sales Tax Groups are not applicable to our business, as we are not in the business of selling a product that requires sales tax. With regard to the items we will use, Service Items will be used almost exclusively for all regular and ordinary sales of services and/or inclusion of costs billed back to a customer for a specific job. To create a Service Item,  On the top toolbar, Select Lists, Item List  Press CTRL – N, Select Service  Enter the Item Name  Leave the Description blank  Leave the Rate field blank  Select the appropriate income account (i.e. Construction Income)  Make sure the Tax Code is Non We’ve already discussed lumping both our service and the materials for that specific job into a single Service Item to be billed to the customer. For that reason, having a very specific service “name” on our invoice doesn’t really mean much if we’re throwing a little bit of everything in that single line item. That’s not to say we don’t provide a lot 7

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of different services but we want to make sure we’re creating items that make sense. We have emergency services and regular services. Those should be two separate items. The description field should be left blank. You will use the description field on the actual invoice to notate what services were provided and materials used for that particular project or phase of the project. The rate field should be left blank. One reason is that there is no “set” rate for the services we provide. Maybe for some, not for others, particularly when we make use of materials - whose purchase price cannot always be readily determined. The other reason relates to the first. Having a pre-filled amount appear in that field can result in an incorrect amount being sent to a customer. By leaving it blank in the set-up, it will appear as zero on an invoice and will catch our attention before anything is sent out to the customer. The income account can be Construction Income or whatever the general income account appears on our Chart of Accounts. We’re not as focused on what income account all of these items go as much as we are on profitability of the entire job, something we’ll take a look at in a later chapter. With regard to Other Charge items, it’s entirely possible we won’t make use of these on most of our invoices. The benefit of having an Other Charge item is to include something on an invoice that merits separate disclosure or attention. One example could be if you had to special order something and you wanted the customer to see this separate from your normal “service.” It’s entirely up to you on whether to use them or not. To create an Other Charge item,  On the top toolbar, Select Lists, Item List  Press CTRL – N, Select Other Charge  Enter the Item Name  Leave the Description blank  Leave the Rate field blank  Select the appropriate cogs account (i.e. Direct Materials)  Make sure the Tax Code is Non The rationale for the above guidelines follows the same reasoning as for Service items. With regard to Discount items, these are items that we will use on customer invoices, in addition to Service items. It’s important to use these with Service items so your customers know what exactly you’re discounting. They should always come last on an invoice. To create an Discount item,  On the top toolbar, Select Lists, Item List  Press CTRL – N, Select Discount  Enter the Item Name  Leave the Description blank  Leave the Amount field blank  Select the appropriate cogs account (i.e. Discounts)  Make sure the Tax Code is Non (though it doesn’t really matter)

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Chapter 3 Invoicing Customers and Collecting Payment

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In this chapter, we are going to cover how to invoice customers and how to receive payment. Neither are particularly challenging but it’s extremely important that you do the sequence of events correctly the first time or you’ll find yourself in a mess quickly. We’ve already created customers and jobs and creating an invoice is very straightforward. To create an invoice, first open up the Customer Center (shown below)

 Click New Transactions  Create Invoice On the invoice, select the appropriate customer. If you have a job set up, select the job for that customer and not the customer. Select the appropriate items and quantities to populate your invoice. Make sure the rates are correct, terms should be Net 30 or whatever has been decided by management. Net 30 tends to be considered reasonable in your industry. Some of the other fields, such as P.O. Number, Rep, Customer Message are not important unless management has taken a policy of providing data on these. The Class field near the Customer:Job field is not important but make sure you select the Class that appears on each item you’ve populated on your invoice. For example, if you use the “Emergency Service” Service item and a Discount, each of those should have a class on their respective lines and each of those classes should be assigned their correct class, which in our case pertains to insurance carriers. In every case, all classes on any one particular invoice will be the same as one another, since they are assigned respective to the customer and the insurance carrier that customer carries. Nonetheless, if your customer has, for example, Farmer’s insurance, every item on the invoice must be assigned a class that reflects that designation. The reason for this is that every item on your invoice is a transaction and is therefore, reflected on your Chart of Accounts. Service items go to some income account, Other Charge items likely go to some type of cost of goods sold account, and Discount items go to a discount account. Again, each item is a transaction and therefore, each item needs a class designation. Assigning one class for your customer at the top of the invoice will result in incomplete reports and will need reclassification to obtain accurate reports for each of your insurance carriers. An example of the Class area can be seen on the image provided below. Again, these classes pertain to insurance carriers and anything that doesn’t fit in one of these designations (i.e. general office expenses, rent, etc.) should be assigned to the XYZ class selection. No other classes should exist, nor be created.
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Check Figure After we’ve created and sent out our invoice to the customer, the customer may remit full or partial payment on that invoice. To record and apply payment to an invoice, open up the Customer Center and then  Click New Transactions  Receive Payments Select the appropriate customer, the amount received, the date payment was received, the payment method and document #, if applicable. Notice that if you select the job as the Received From, the invoices outstanding for that job populate on the list and if you select the customer as the Received From, all invoices outstanding for all jobs populate on the list. Partial payments are done in the exact same manner as full payments are done. When you do a partial payment, QuickBooks will ask you if you want to leave it as an underpayment or write off the extra amount. Select leave it as an underpayment, which is the default choice and save. You’ll do this with every payment that comes in. If by some chance, you decide that you do want to write off the leftover amount, you can select Discounts & Credits near the bottom of the window and select the amount you want to discount. For the Discount Account, use the same discount account you’re using for your Discount item. In fact, using a Discount item on an invoice and using the Discounts & Credits button in the Receive Payments window work in a very similar way. The only major difference usually comes up in the timing of the discount. It’s very possible that you may invoice a customer, and only after some later event or correspondence with the customer, may you decide to apply a discount to their balance. You can revise the invoice with the adjusted amount but this is an alternative to that. You keep the original invoice with the original total and after the fact, you can give the customer a discount when payment is received. This alternative is also good when a discount is awarded to a customer only when payment has been received. For example, you call the customer and agree to discount their $1,000.00 invoice by 10% if you receive payment in 10 days. They send you a check for $900.00 and you apply the $900.00 to their open invoice and use the Discounts & Credits button to mark down the other $100.00, which in effect closes out the entire invoice as paid-in-full. This also allows you reflect events as they “really happened” and retain the invoice in its original form, at the gross $1,000.00 amount, before certain events transpired.

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Something also very important to take note of is that if you receive a payment, it needs to be applied to an invoice. Do not receive a payment and forget to apply it to an open invoice. When you do this, it distorts the accounting and reflects that a customer is, in essence, making a deposit on account - in other words, they’re prepaying you for work to be done in the future. Accounts receivable becomes a negative. Now, this can be considered correct if, and only if, they actually do make a deposit on account. However, when the time comes for you to finally invoice them for work done, you will have to go back to the payment record and then apply it to the invoice that you created after the payment was originally remitted. The point remains the same, all payments absolutely must be applied to an invoice either in the present or at some definite time in the future if a customer makes a deposit on account for services to be invoiced in the future. One of the most important things you can do in your business is properly manage the collections process. This process begins with regularly sending customers statements, which show all of their activity. Invoices should be sent when appropriate or when the job is ready to be billed. Statements should be sent on the first of every month, in addition to any invoices that were sent previously. Statements should not offer the customer any “new” information but should seek only to support correspondence the customer has already received or would be aware of (i.e. any payments made against outstanding invoices). An example of the create statements window is displayed below. It is intended to be only a sample illustration and specific directions on what selections to make are provided below.

 Select Customers, Create Statements  Change the appropriate Statement Date to the 1st of the following month of relevant customer activity  Change the Statement Period to reflect the first and last day of the prior month or relevant month of customer activity  Select All Customers  Under the Do not create statements, Select with a zero balance  Select Preview  Review  Select Print In order for you to understand what we’re doing here, we are running a statement for the prior month. For example, our January statement will be dated on January 1 and by selecting the appropriate Statement Period, our statements will include all activity for the preceding December. The reason I pick January 1 instead of December 31st as the statement date is it better reflects the idea of a “closed” month. The customer sees January 1 and understands this as well. The reason we go with a 30 day period is that ideally, if you’re sending monthly
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statements, you only need to reflect the last month’s of activity. There may be some customers that have activity that dates much further back than 30 days. It’s appropriate to change their statement period to reflect a much broader date range. The instructions above are meant to apply to the norm and again, should be done on at the beginning of every month for the prior month’s customer activity.

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Chapter 4 Making Deposits and Managing Bank Accounts

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Making deposits and managing bank accounts should be a relatively straight forward process. That said, you should never make a deposit on a payment from one of your customers without first running it through the Receive Payments window that we overviewed on pages 11 and 12. Depositing a check without running it through the Receive Payments window will result you failing to apply proper credit to the customer for that payment. The invoice to which that payment relates to will remain outstanding and the customer statement will not reflect a payment made by your customer. Simply put, it’s not good business if you “lose” your customer’s payment. After you’ve received payments on all of your customers who have sent payment in. you can make a deposit.

 Select Banking, Make Deposits  Select the appropriate payments  Click Ok Any payments that have not already been deposited in your register should appear on this list when you go to Banking, Make Deposits. If for some reason they don’t, the most likely scenario is that you already had the Make Deposits window open before you went through the process of receiving payments. Simply close the Make Deposits window and then re-open it, using the process above. The payments to deposit list should appear. Once you’ve selected your payments to deposit and clicked OK, you should simply be able to Save & Close. All of the information you entered when you received the payment, such as check # and any memo on the payment, have automatically been transferred to this Make Deposits window. In the course of business, you will inevitably receive payment of currency, in the form of a rebate or refund, from one or more of your vendors. We will address vendors soon but for now, know that since invoices are not associated with vendors, no special rule exists for depositing their checks. You may simply put it through the deposit window.  Select Banking, Make Deposits  Enter the “to be deposited”, Click Save & Close 15

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Chapter 5 Reconciling Bank Accounts

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One of the most important tasks connected with financial record keeping, reconciling your bank isn’t only a way to make sure your own records are correct and match that of the bank statement’s but it’s also to ensure the bank doesn’t make a mistake. It’s more common than you might think.  Select Banking, Reconcile If you’ve never reconciled your bank account in QuickBooks, you won’t have a beginning balance. In our case, we should have a beginning balance. The Beginning Balance SHOULD ALWAYS EQUAL the Ending Balance of your previous period’s reconciliation. That is the point of performing the bank reconciliation in the first place; to maintain an accurate, running total of your bank balance against your check register. If these two are not the same number, then one of the following probably occurred. •You changed the amount of a transaction that had previously cleared. •You voided a transaction that had previously cleared. •You deleted a transaction that had previously cleared. •You removed a cleared check mark from a transaction that had previously cleared. •You manually entered a cleared check mark on a transaction that had not cleared. If you do any of these, QuickBooks has a tool to help you fix the reconciliation. It can be found under Banking, Reconcile, Locate Discrepancies. Assuming none of these errors have occurred and for the most part, they shouldn’t, select the appropriate Statement Date and enter your ending balance from your bank statement. You can include any interest or service fees in this same window. Select the appropriate accounts for each of these respective items (i.e. bank service charges expense account and interest income account) Then click Continue. You should then see a running list of outstanding checks/payments and deposits/credits, similar to the one shown below.

Your task is find the transactions that both your bank statement and this “reconciliation” list have in common and clear them from the list. 17

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A few helpful things...First, since we are working retroactively, it is helpful to check the box Hide transactions after the statement’s end date. Those transactions dated after the closing date have no effect on this reconciliation but their absence might help because it reduces the number of transactions you have to search through to find what you really want. Additionally, you can take two different approaches to your reconciliation. You can either •Clear every transaction on the page, find the difference, and then uncheck that transaction. The transaction you uncheck (deposit in transit or outstanding check) will in all likelihood clear next month unless someone really doesn’t want to cash your check. •Go through each transaction individually, checking them against the Bank Statement and using the information on the bottom right against the Bank Statement (which took straight off the Bank Statement) If you’ve entered an amount in QuickBooks different than you should have, the first option is not going to help you much. The first option is helpful in finding the transactions that haven’t yet cleared but if you haven’t entered all the other transactions in correctly, then the difference at the bottom of the reconciliation will be a number you cannot immediately account for. That said, it’s usually worth trying the first method because it’s quick and it will tell you immediately if you’ve entered something incorrectly along the way. Once you’ve gone through your bank statement and checked off everything in this window that also shows on your bank statement, you should arrive at a Cleared Balance that matches your Ending Balance. The Difference should also show as zero. If you do not arrive at a difference of zero, then something has not been accounted for. You will need to review your bank statement and see if a service fee or something posted that have not accounted for, as this is often the case when there is a difference. When you arrive at a Difference of zero, Click Reconcile Now. You’ll follow the same procedure next month, where this month’s ending balance becomes next month’s beginning balance. If this is not the case, Select Banking, Reconcile, Locate Discrepancies to help you determine what error may have been made since the last reconciliation.

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Chapter 6 Creating and Configuring Vendors

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The Vendor Center is where all your vendors, and detailed information about them, are kept. It is only important to enter vendors who you want readily accessible and detailed information on. For example, vendors on our list warrant being added to the Vendor Center because they are entities that we regularly conduct business with. To open the Vendor Center,  Click the Vendor Center icon The left pane shows all of your vendors and their respective balances. On the right is all the activity associated with each vendor.

To create a new Vendor,  Click New Vendor  Enter the Vendor’s Name and any additional information you want to have a record for in the tabs labeled, Address Info, Additional Info, Account Prefill  Click OK One thing you may want to consider is creating names for your vendors that make it easy for you to track, in-house. For example, if you have 3 phone lines, rather than have one vendor named AT&T, consider creating 3 different vendors, with AT&T - XXXX (AT&T, following by the last 4 numbers of the line). You can then open the vendor record and on the field Print on Check As, you can simply put AT&T. The phone company will only see the latter designation but for running reports, you’ve taken steps internally to separate the various lines. This may become a key procedure as you accumulate various accounts and/or are provided various services by the same vendor.

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Quick References for Vendors
• What if I want to edit or make changes to vendor information? o Select the vendor or job you want to edit on the Vendor Center window o Press CTRL – E What if I want to delete a vendor? o If and only if it’s never been used in a transaction, select the vendor you want to delete on the Vendor Center window o Press CTRL – D o If you’ve ever posted to the vendor, you cannot delete it. In these cases, it’s best to search for the transaction(s) posted and if not relevant to the current or a recent tax year, you may want to consider “hiding” it from standard view. See next. What if want to hide the vendor from other users or to prevent anyone from posting to this customer and/or job? o Select the vendor you want to hide on the Vendor Center window o Right-click and Select, Make Vendor Inactive o If you ever want to show hidden vendors or reactivate them, Select View all Vendors at the bottom of the Vendor Center window What if I accidentally created two vendors for the same purpose? o Select the vendor that you DO NOT want to keep on the Vendor Center o Press CTRL – E o Change the vendor name to match identically the one you want to keep o You will see the prompt: This name is already being used. Would you like to merge them? o Select Yes o If you don’t receive the prompt above, then check the spelling of the vendor name. They must be identical.

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Chapter 7 Managing and Paying Vendor Bills

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While the last chapter very briefly overviewed creating and setting up vendors, this chapter is dedicated to the transactions associated with those vendors. It’s important to take a moment to understand what we hope to accomplish from an accounting standpoint. It’s also important to recognize that this is new territory from the standpoint of XYZ Construction & Technologies, Inc. One of the keys to reengineering our accounting system is to properly classify costs between fixed and variable and ultimately be able to determine how profitable, if at all, each job is that we elect to take on. It’s almost exclusively through accounts payable and payroll that we can classify these costs. To overview the difference between fixed costs and variable costs, the question ultimately becomes: “If business were to stop, what costs are unavoidable, in the SHORT-TERM?” The phrase, short term is key, as all costs are ultimately unavoidable, if we decided to close the business. However, it’s in the short-term we have to ask ourselves, which bills would we continue to pay as part of keeping our doors open, and which bills would cease on their own as those vendors aren’t necessary when business is slow? Commons fixed costs include rent, telephone, office supplies, general and administrative salaries, insurance, professional fees such as accounting, legal. These are, for the most part, necessary expenses that we incur regardless of how much business we have coming through the door. Variable costs fluctuate with the volume of business we receive. For example, subcontractors, job materials, fuel for our trucks, and our job labor. These are all variable costs and are listed on our Chart of Accounts as cost of goods sold accounts. We take these costs and direct them towards the jobs they relate to so we can determine the true profitability of each job. To better understand this, let’s say we bill out a job at $10,000.00 but spend $11,000 on labor. Unfortunately, this $11,000 is lumped in with labor from 10 other and completely separate jobs. It’s virtually impossible for us to determine that we 1) had a lost on this job and 2) that these costs were completely avoidable, as we could have made a determination early on that, based on the the fees we would receive and the labor necessary to complete the job, we never should have taken the job. When you’re entering a vendor’s bill, it will be important to understand this designation. If we’re entering in a Home Depot credit card bill, you should be posting to the Direct Materials cost of goods sold account. If we’re entering in a subcontractor’s bill, we should be posting to the Subcontractors costs of goods sold account. However, if we receive a telephone bill for the office, we should be posting to the Telephone expense account, not to a cost of goods sold account. Inevitably, one might ask, “Can’t you argue that the telephone is a variable expense if it’s say a cell phone and as business slows down, the number of minutes used goes down? Or “Isn’t our insurance based on a certain amount of business a year and if that goes down, our liability insurance also goes down? Don’t over think it. It’s either clearly variable or it’s fixed. These two examples, for instance, are fixed costs. They are costs of doing business, regardless of how they might or might not fluctuate given different conditions. The only gray area lies in things like tools, fuel, some general job supplies, things that definitely go to jobs but that are difficult to trace to specific jobs, or are too time consuming to track to separate jobs. For these things, assign them to the cost of goods sold account notated Overhead Applied, select the XYZ job and move on...for now. While assigning the appropriate cost of goods sold account or expense account is extremely important, it’s also the less important of a two-step process. The more important is assigning the correct job to the vendor’s bill that you’ve entered. In some cases, this will entail dividing up one vendor’s bill into several “parts”, with each “part” being allocated to the appropriate job it pertains to. This can be a frustrating (but necessary) task, as it’s often timeconsuming and that’s with the assumption we have the all the information necessary to make these allocations. In many cases, we may have to follow up with Tony or Devin on what certain costs were purchased for. It’s almost impossible to stress how important this step is because if we don’t allocate our costs appropriately amongst the jobs they pertain to, the actual account they’re posted to is almost meaningless. Remember, the key to this entire process is to determine how profitable our jobs are. We can only accomplish this by accounting for all of our costs. Lets look at the image below and discuss:

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To enter a bill, you’ll first go to the Vendor Center, Select New Transactions, and Click Enter Bills On the bill, similar to above, you’ll assign the accounts, with fixed costs being in the “expense” section of your list and variable costs being in the “cost of goods sold” section of your list. I suppose it’s possible that one vendor could have both cost of goods sold accounts and expense accounts being used but I can’t think of many. One might be with reimbursements. You reimburse an employee for both something related to the office and something for a job. With regard to any cost of goods sold accounts, you’ll also need to select the appropriate job that these costs go with. If they fall into the Overhead Applied account, select XYZ. If they fall into any expense account and are thus, fixed costs, you should assign them to the XYZ job. The trickiest part of this process will be that you will also see Class show up on each of your bills. You will need to look up each job used in the Customer Center and see what insurance carrier pertains to that specific job. In other words, in the same way you assigned classes to your invoice items, you will also need to assign classes to each line item on your bill that relates to any job. For fixed costs, you should assign them to the XYZ class. While it may not seem important to assign your expense account line items to a class (since these are fixed, internal costs), it will be important when we look at our classes to know that everything has been accounted for. Any line item that goes unassigned will end up in a group called, you guessed it Unassigned. We do not want to make the assumption that all Unassigned transactions are unrelated to jobs, as some might be and will need to be cleared from this group - something we’d prefer to avoid, if possible. Once you’ve appropriately allocated your bill to its appropriate 1) accounts, 2) jobs, and 3) classes, you can save the transaction. Paying bills is a much easier task.  On the top toolbar, Select Vendors, Pay Bills  Select the bills you intend to pay (partial payments where desired or appropriate)  Confirm the Payment Date  Click Pay Selected Bills 24

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Chapter 8 Managing and Reconciling Credit Card Accounts

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Managing credit card accounts is very similar to managing vendor bills. The main difference will be that most of your credit card transactions will not be broken up into various jobs. For the most part, each charge will have only one job attached to it. You will still need to designate the appropriate account but for most of the credit card transactions, you will be looking at cost of goods sold accounts, as most activity on the credit card relates specifically to job materials. To enter a credit card charge (or credit)  Select Banking, Enter Credit Card Charges  Enter the vendor  If the transaction is return, make sure to Select Refund/Credit  Select the appropriate account (most likely a cost of goods sold account)  Select the appropriate job  Select the appropriate class  Click Save & Close, Yes For guidance on job and class designation, see pages 23 and 24 For reconciliation of credit card accounts, it will be almost identical to reconciling bank accounts. The only difference is that instead of Checks and Payments, you have Charges and Cash Advances, and instead of Deposits and Other Credits, you have Payments and Credits. The goals is still to arrive at a difference of zero.

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Chapter 9 Managing Employees and Processing Payroll

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We’ve already discussed how important it is to record our vendors’ bills to properly reflect the appropriate account, job designation and class designation. With respect to properly allocating costs, no other area is as important as payroll and the reason lies simply in the total dollar amount reflected in payroll. Payroll is often a company’s largest expense and since ours is manpower-heavy, we should be particularly sensitive to allocating payroll to those jobs to which it applies. If you press and hold the CTRL button on your keyboard and while holding the button, also press the letter “T”, a memorized transaction list should appear on your QuickBooks screen. While I’ve set up each employee, it’s a very general set-up and before we get too much into allocating each employee’s salary amongst the various jobs, we should first discuss the basics on how a payroll service company works and how best to record it on a company’s books. The way a payroll service company generally works is that it withdraws funds via your payroll bank account in three separate transactions. One withdrawal is for the net paychecks, one is for all the payroll taxes withheld, and the final is a service fee paid to the payroll service company for processing payroll. The final withdrawal is the simples to account for and needs only a debit to your bank register.  Select Banking, Write Checks  Enter ADP for your vendor  Select the appropriate check run date  Unselect the To be Printed and where the check # usually would go, type DEBIT  Enter the appropriate $ amount  Select Payroll Service Fees or something similar for the expense account  Select Save & Close The other two transactions are a bit more complicated. What we want to do is try and create a mirror image of what the payroll service company does and our memorized transaction list gives us an idea of how to do that. Each employee is already set up. What we want to do is on their check, start at a gross, similar to what ADP shows on their report. We then want to use a negative number on the next line to reduce the gross by the appropriate taxes to be withheld. This is also given on the ADP report. When we do this in QuickBooks, we should arrive at the same net that ADP shows the employee as having been paid. If mileage needs to be added to the employees check, this must also be done or you will be off by that amount. You should see something like this in QuickBooks for each employee Account Labor Payroll Taxes $2000.00 -$500.00 (negative amount)

The net check should show $1,500.00 based on the above entries. Keep in mind we are doing nothing other than creating a placeholder in our register to reflect ADP withdrawal of our funds to cover payroll. When you do this for every employee, these net checks, dated with the appropriate check date, will cumulatively total one of the debits to your bank account. The final debit relates to payroll taxes. In the scenario above, we took out $500.00 in payroll taxes from this employee. We obtained this figure from the ADP report. Also on the ADP report should be a payroll detail that shows all of these taxes adding up to a total, but also with an employer portion added on to this total. Part of the benefit of being employed is that your employer pays in on your FICA and Medicare (in addition to Unemployment, etc.). The final transaction you’ll need to create will take care of all of these payroll taxes, both the employee’s portion and the employer’s portion. This also should be created in QuickBooks in a very basic form Account Payroll Taxes Payroll Taxes 500.00 (positive amount - same amount you took from above employee but this time, add up everyone’s on this check - should be given already for you on report) ? (positive amount - should be given already for you on report)
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These three transactions make up the transactions that hit your bank account for the payroll processing. Unfortunately, there’s a catch. We have to take each employee’s gross salary, $2000 in the above scenario for that particular employee, and divide that $2000 into hours and allocate that amount among the jobs he worked on during that payroll period. Therefore, he will likely have “Labor” several times with several amounts that, when added together, equal $2000.00. This is only necessary for workers who work in the field. For administrative salaries, simply do the above procedure, using a salary expense account for the entire salary. For the sake of efficiency, allocate all the payroll taxes associated with any job related employees to Overhead Applied, and select the XYZ job. While more correct to also allocate payroll taxes proportionate in the same way gross salaries were allocated, most of the payroll will result in a wash and the very little left over as the “employer portion” will be allocated fairly accurately through a journal entry later. Please note that allocating payroll is perhaps the most error-prone of all the job costing procedures and also the most important. There’s just no way to give it its due with paragraphs of text. It’s essential that whoever performs this function understand exactly what they’re doing and why they’re doing it.

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Chapter 10 Creating and Customizing Reports

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In this chapter, we are going to use the Report Center and discuss some of the various reports we’ll need on a regular basis. If you open up the Report Center, you’ll see a long list of available reports. The ones we should be primarily focused on running on a regular basis are: The Balance Sheet is designed to show only the totals of your Balance Sheet accounts (assets, liabilities, equity). It’s a more accurate report of your financial health because it considers the company past the short-term with regard to income accounts. The Profit & Loss is probably the one report you’ll run most often. It’s natural to want to know if you’re making any money. It shows your income accounts, expense accounts and then gives the difference between the two. You can sort by a date range or for a specific date to provide Devin with his daily activity report. The Profit & Loss by Job is one you’ll want to run almost as often as you run the Profit & Loss. It’s the most effective report at providing job profitability and is the direct result of job costing through our bill entry and payroll entry processes. These costs, taken from the amounts we billed through our invoices, give us our net profit for each job. The Profit & Loss by Class is one you’ll want to run every so often to ensure that all transactions are being posted to their correct classes. If numbers populate to the far right in a class called “Unclassified”, those transactions that make up that group need to be gone through and reclassified to their appropriate insurance carrier or the XYZ class designation. The Open Invoices report is one you’ll want to run frequently to know what is owed to you and how many different things you have outstanding. This report should also be run in conjunction with A/R Aging Summary & Customer Balance Summary The Unpaid Bills Detail is the most useful report in providing the bills we have outstanding. This report is similar to the screen you see when you go to Vendor, Pay Bills but here, you can open and edit your bills. You cannot do these functions in the Pay Bills screen.

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Chapter 11 Routine Maintenance of the Company File

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We need to ensure we’re doing what we need to be doing to get the information we need to make decisions. In order to do that, we need to maintain the company file and put certain procedures in place to ensure everything’s being properly accounted for. A couple reports we should run on a weekly basis are the Profit & Loss by Class and the Profit & Loss by Job. When we run these reports for maintenance, we’re focusing less on the bottom line and more to see if everything makes sense. In the case of a Profit & Loss by Class report, we should not see a column titled “Unassigned”. The mere appearance of this column means there are things that need reclassified somewhere. If they are related to a specific job, they belong in one of the insurance carriers. If they are job related but are for general purpose, they are likely Overhead Applied designated transactions and should be classified to the XYZ class. Likewise, all fixed expenses should also be classified to the XYZ class. No fixed expenses should appear in one of insurance carriers classes. In the case of a Profit & Loss by Job report, we should see amounts only in the cost of goods sold accounts, as only these accounts are used to post our variable costs - and variable costs are associated with jobs. Fixed costs should be posted to the XYZ job only. No fixed costs should appear in any other job. We also need to empty out the Overhead Applied “bucket”. The easiest way to do this is with a journal entry once a month. You can create this journal entry by going to Company, Make Journal Entries. For example, for December 31, the entry should look something like this: Date: 12/31/12 Account Overhead Applied Overhead Applied Overhead Applied Overhead Applied Overhead Applied

Debit XXX XXX XXX XXX

Credit XXX

Memo To empty bucket To apply overhead To apply overhead To apply overhead To apply overhead

Name XYZ Job #1 Job #2 Job #3 Job #4

Class XYZ Put carrier here Put carrier here Put carrier here Put carrier here

What we’re doing in this journal entry is emptying or reversing what we’ve accumulated in the Overhead Applied account for XYZ at the end of the month and re-allocating it to the Overhead Applied for each job according to each job’s share of this Overhead Applied. How do we determine each job’s share? By looking at each job’s share of “Labor” for that same month. For example, let’s say we had 4 jobs last month. Let’s also say after doing our payroll, we ran a Profit & Loss by Job and for Job #1, our cost of goods sold account called “Labor” had a total of amount of $10,000.00 Job #2 had $12,000.00, Job #3 had $18,000.00, and Job #4 had 10,000.00. If you total all of that labor for the month, it totals $50,000. Job #1’s percentage of all labor costs is 20% or $10,000/50,000 Job #2’s percentage of all labor costs is 24% or $12,000/50,000 Job #3’s percentage of all labor costs is 36% or $18,000/50,000 Job #4’s percentage of all labor costs is 20% or $10,000/50,000 The reason we are using “Labor” is because labor is a significant driver of costs for our jobs. Because of this fact, we are using it to make a reasonable estimate on what each job’s share of Overhead Applied might be. It’s not an exact science but can give us as good as estimate as anything else, since we’ve already determined that costs in this bucket are difficult to trace directly to our jobs. This procedure will attempt to provide a reasonable method of allocating these costs. Again, looking at the above journal entry, let’s suppose we have $10,000 in Overhead Applied for December. Date: 12/31/12 Account Overhead Applied Overhead Applied Overhead Applied Overhead Applied Overhead Applied Debit 2,000 2,400 3,600 2,000 Credit 10,000 Memo To empty bucket To apply overhead To apply overhead To apply overhead To apply overhead Name XYZ Job #1 Job #2 Job #3 Job #4 Class XYZ Put carrier here Put carrier here Put carrier here Put carrier here 33

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You’ll notice we used the percentages we calculated for each job’s share of labor and applied those percentages to reallocate our applied overhead. Again, all we’re doing here is using a procedure we’ve deemed reasonable to apply overhead to our jobs.

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