GL & Journal Entries

Are There Restrictions On Making General Journal Entries To A/R and A/P Accounts?

Chief Mechanic · September 13, 2010 ·

Yes, there are a few restrictions on making General Journal Entries to Accounts Receivable (A/R) and Accounts Payable (A/P) accounts.

Normally, the preferred way to change the balance in an A/R or A/P account is by recording transactions, such as customer invoices or vendor bills. However, sometimes it’s more convenient to make a General Journal Entry. A common use of General Journal Entries to A/R or A/P accounts is to set up customer or vendor balances in a new QuickBooks company file.

If you opt to make a General Journal Entry to an A/R or A/P account, such entries are subject to these restrictions:

You can’t use more than 1 A/R or A/P account in a single journal entry
You must enter a customer name for a General Journal Entry to an A/R account and a vendor name for a entry to a A/P account

Here are some of the warnings you’ll see if you attempt to violate these restrictions:

QuickBooks Premier 2009 General Ledger Warning 1

QuickBooks Premier 2009 General Ledger Warning 2

QuickBooks Premier 2009 General Ledger Warning 3

Here’s an example of a General Journal Entry to 1 A/P account that meets the restrictions:

QuickBooks Premier 2009 GL Make General Journal Entries Accounts Payable

While not an absolute requirement, QuickBooks prefers that transactions involving A/R or A/P accounts have that account on the first line of the General Journal Entry. The first line of a General Journal Entry is the source of the transaction. Sources and targets are an important concept in QuickBooks. For more information, see our article on sources and targets.

When you record a General Journal Entry to an A/R or A/P account, the General Journal Entry will appear in the transaction list for the customer or vendor specified in either the Customer Center or Vendor Center – provided that the A/R or A/P account is on the first line of the general journal entry and is therefore the transaction source. General Journal Entries that debit (increase) A/R will be similar to a customer invoice and can be paid in a similar fashion. General Journal Entries that credit (increase) A/P will be similar to a vendor bill and likewise can be paid just like other vendor bills. However, some data fields are not filled in when recording transactions for a customer or vendor via a General Journal Entry. For example, the Terms and Due Date fields on a General Journal Entry for a vendor are left blank, as shown below. (Note: The single screenshot below shows a customized Vendor Center with the separate Pay Bills window placed on top of it to illustrate several of the points discussed in this article.)

QuickBooks Premier 2009 Vendor Center Plus Pay Bills

Beyond restrictions on making General Journal Entries to an A/R or A/P account, there are other restrictions that apply to making General Journal Entries, such as currency restrictions in multicurrency environments.

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How Do I Record a Debt Refinancing Where I Use a New Loan To Pay Off Several Other Loans?

Chief Mechanic · September 12, 2010 ·

A common business situation is to use a new loan to repay one or more existing loans, possibly raising cash in the process. This is commonly referred to as a refinancing.

QuickBooks includes a Loan Manager which can be run from the Banking->Loan Manager menu selection. It’s important to understand that Loan Manager is primarily a tool to calculate payment schedules and to simplify the process of distributing interest and principal payments to the appropriate GL accounts. When you create a new loan in Loan Manager, the outstanding balance for that loan will start as $0 – until you record a transaction in the liability account in QuickBooks itself. Once the liability account is increased to reflect the loan’s principal, Loan Manager can assist you to record the regular payments. Likewise, when you remove a loan from Loan Manager, you are not making changes to the liability account balance.

Therefore, the simplest way to account for a refinancing is to use GL journal entries. To make these functions, access the Make General Journal Entries window from the Company->Make General Journal Entries menu selection.

QuickBooks Premier 2009 GL Make General Journal Entries

Let’s consider this example: a company is refinancing a building for $200,000, and is using the settlement proceeds to repay 3 other mortgage loans, pay the settlement expenses, and increase cash. Each of the 3 other mortgages has an outstanding balance of $50,000, and there are 2 settlement charges that total $4,000. That produces a net increase in cash of $46,000. Here are the conceptual debits and credits to record:

Enter a credit of $200,000 to the new mortgage liability account
Enter a debit of $46,000 to the cash or checking account in which the net proceeds were deposited
Enter debits to the expense accounts to reflect the settlement charges; in our example, there are 2 debits to expense accounts, 1 for $3,000 and 1 for $1,000
Enter debits of $50,000 to each of the 3 existing mortgage accounts that were paid off with the settlement proceeds
When you’ve entered all your debits and credits, click either Save & Close or Save & New to save your work

Here’s another look at those debits and credits:

General Ledger Distribution for a Mortgage Refinancing

The order that these debits and credits are entered on the Make General Journal Entries window does not matter provided that total debits equal total credits.

Once you’ve recorded this general journal entry, you can now run Loan Manager and delete the 3 loans that were fully repaid and set up the loan payments for the new loan. Note that Loan Manager reads your GL chart of accounts when it loads, so if you’ve added any accounts while Loan Manager was already running to record the journal entries discussed, you’ll need to close and re-start Loan Manager before recording the new loan. It’s a good idea to have a separate account for each loan to simplify reconciling that account in the future, so the new loan should get a new account. The GL accounts must be active to be recognized by Loan Manager, so don’t make the GL accounts for the 3 paid-up loans inactive until after you’ve deleted them from Loan Manager.

The Account Name in Loan Manager is the liability account for the new loan, which in our example is “New mortgage liability account.” When you select this account from the pull down menu in Loan Manager, it will automatically recognize the principal balance that was created with the GL journal entries you recorded. Continue to set up the new loan and delete the repaid loans.

Once completed, your financial statements are correct, and you’re ready to use Loan Manager to calculate and distribute your loan amortization.

For more information on using Loan Manager, see our related articles on adding a new loan and deleting an existing loan.

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How Do I Change an Onscreen Form Such As Create Invoices To Show More Line Items?

Chief Mechanic · September 12, 2010 ·

Making changes to the windows of QuickBooks is easy.

Let’s use the Create Invoices window as an example. By default, this window shows just 2 invoice lines. In this article, we’ll change the default look. An important point to keep in mind is that you should not close the Create Invoices window until you’ve completed all the steps in this article. Otherwise, you’ll lose your work and need to start over.

Here’s the Create Invoices window in its smallest form. Pay close attention to the right border. We’ve positioned our mouse pointer directly on the border, and it’s now turned into a left-right arrow. It only provides this functionality when your mouse is positioned directly on the border; if you move it off the border, your pointer shape and function will change.

QuickBooks Premier 2009 Create Invoices Right Border

With your mouse pointer positioned directly on the border, make the Create Invoices window bigger by dragging this border to the right. To drag something in Windows, hold down your primary mouse button while moving it to the desired position. Since we started with the smallest form, we can’t drag it to the left. Next, drag the bottom border down and watch more invoice line items immediately appear. Re-size the window to fit your needs.

Let’s carry our customization 1 step further. Position your mouse directly on the fine line between any 2 columns, such as the one between U/M and Rate. Your mouse pointer will change to another type of left-right arrow.

QuickBooks Premier 2009 Create Invoices Column

To change the width of a column, drag the pointer when it’s positioned directly on the line between 2 columns and is in the shape shown above. Again, it only provides this functionality when your mouse is positioned directly between 2 columns; if you move it away from this position, your pointer shape and function will change. One common need in re-sizing a window such as the Create Invoices window is to increase the width of the description field. With this knowledge, that’s now an easy task. Re-size any column to suit your needs.

Once you’ve completed customizing the look of your Create Invoices window, you need to save your work. To do that, do not close the Create Invoices window. Instead, go to the Edit->Preferences menu, and choose Desktop View from the submenu shown. Since QuickBooks can store different desktop settings for individual users, be sure you’re on the My Preferences tab.

QuickBooks Premier 2009 Preferences Save Current Desktop

Click the radio button Save current desktop and click OK. Your changes to the Create Invoices window are now saved. To confirm that, close the Create Invoices window and re-open it. It should now open to your customized size and layout. Since you’ve just saved your desktop with the Create Invoices window open, that window will open the next time you start QuickBooks. If you want different windows to open by default, simply open them and save the desktop in that state.

This same technique can be applied to most, if not all, data entry screens in QuickBooks.

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How Do I Record the Sale of a Fixed Asset On a Lease?

Chief Mechanic · September 12, 2010 ·

If you’ve already accounted for a leased asset as a fixed asset, you’ve accounted for that asset as a capital lease, sometimes called a finance lease, as opposed to an operating lease. We’ll assume that the capital lease determination is correct and proceed from that point.

Capital leases impact a firm’s balance sheet, and the gain or loss from the disposition of these items flows through to the income statement. However, the gross amount from the sale of fixed assets is not revenue or income and should not be recorded in accounts that record results from operations.

Let’s imagine a company with a computer that had an original cost of $1000 and has accumulated depreciation of $500. The company is selling the computer for $200 and will use the $200 to reduce the lease liability. In effect, the firm has a computer that has a net carrying cost of $500 ($1000 cost less $500 accumulated depreciation) that is being sold for $200, or a loss of $300. Conceptually, here are the journal entries that should be made:

Step 1: Record the Asset Sale

General Journal Entries for Sale of Leased Asset Step 1

Step 1A: Record the Asset Sale and Use Make Deposits Window to Record the Cash Receipt

General Journal Entries for Sale of Leased Asset Step 1a

Step 2: Record Using the Sale Proceeds to Repay the Lessor

General Journal Entries for Sale of Leased Asset Step 2

Step 1 removes the computer (the fixed asset) from the balance sheet and reverses the accumulated depreciation against that asset. It also records the cash receipt and the resulting loss. If you elect to enter the cash receipt in the Make Deposits window (Banking->Make Deposits), you would select your computer asset account as the From Account. In that case, since QuickBooks would automatically debit cash for $200 and credit your asset account by $200 (of the $1000 total), you’d make the alternate journal entries in Step 1A to complete recording the asset sale. Note that the “Loss on sale of assets” account is an Other expense account. To create an account of this type, use the Other Account Types selection and choose Other expense from the pull down menu.

The journal entries in Step 2 do not need to be directly entered. Those are the journal entries that QuickBooks will create when a check is written to the lease liability account.

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How Do I Resort Lists?

Chief Mechanic · September 11, 2010 ·

Lists are one of the foundations of QuickBooks, and from time to time they can become out of order. That’s when they need to be resorted. Some common indicators that it’s time to resort your lists include:

the list itself is out of order
an element is missing
new entries in a list appear at the top of the list instead of in their sorted order
you can’t turn on the account number preference
selecting a Customer:Job, Vendor, or Employee in a Center fails to display existing transactions for that name
Names don’t properly auto-fill when entering a Name filter on the Advanced tab of the Edit->Find… function

Resorting any list will undo any special order you’ve applied to the list, and this activity can’t be done in multi-user mode. It’s always a good idea to backup your company file before undertaking an action that can’t be undone.

There are 8 lists that can be resorted. They are:

Customers:Jobs
Vendors
Employees
Other Names
Accounts
Items
Memorized Reports
Memorized Transactions

Since this technique is often used to address possible data corruption, we’ll outline the most efficient technique to resort multiple lists, but you can also choose to resort an individual list by opening up a Center and right clicking on a list element.

The first 4 lists are collectively referred to as Names or Entities, and there’s an easy way to resort these 4 lists:

Open the Write Checks window by clicking on Banking->Write Checks or using the keyboard shortcut Ctrl + W
In the Pay to the Order of field, click Ctrl + L
Opt to include inactive list entries by clicking the Include Inactive checkbox
Click the Name button and choose Re-sort List from the menu
Click Ok to resort the lists
Uncheck the Include Inactive checkbox

The screenshot below shows the combined Name list in Step 4:

QuickBooks Enterprise Solutions 10 Resort Name List

Our related article explains how to provide easy access to this combined list of all Names.

Resorting the Chart of Accounts and Items lists follow similar procedures, except each of these lists will have to be resorted individually. To access the Chart of Accounts, click the Lists->Chart of Accounts menu selection or use the keyboard shortcut Ctrl + A. To access the Items list, click Lists->Items. Opt to include inactive list entries, resort the list from the button in the lower left of the window, and uncheck the Include Inactive checkbox before proceeding to the next list.

Resorting Memorized Reports and Memorized Transactions are similar to the above steps, except there’s no need to include inactive list entries since they’re not allowed on these lists. To access Memorized Reports, click the Reports->Memorized Reports->Memorized Report List menu selection; to access Memorized Transactions, click Lists->Memorized Transactions or use the keyboard shortcut Ctrl + T.

After resorting lists, close and reopen your company file (.qbw) to insure that all changes are successfully written to disk.

Resorting lists is discussed in this Intuit knowledge base article.

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GL & Journal Entries

Accounting

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