GL & Journal Entries

Can I Merge 2 General Ledger Accounts?

Chief Mechanic · September 5, 2010 ·

You can merge two General Ledger (GL) accounts in QuickBooks, but there are a few important considerations:

merging accounts can only be performed in single-user mode;
the reconciliation status of each transaction in a balance sheet account is preserved in the merge;
once you merge 2 accounts, you can’t reverse or undo it;
you can only merge 2 accounts in a single step;
both accounts must be on the same hierarchical level if you’d like to merge accounts based on the account name;
both accounts being merged must be of the same type; and
neither account involved in the merge can be mapped to a 1099 category.

To merge one account with another, start with the account that you want to remove from your GL chart of accounts and edit that account.

You can change either the name or the account number of the account being removed to match the name or the account number of the account into which the account will be merged.

If you are merging one account into another by editing the account number, you’ll see this window:

If you’re merging by editing the account name, you’ll see this window:

Remember that merging based on name only works for accounts that are on the same hierarchical level. If you change the name of a top-level account to match that of a sub-account, you won’t be asked if you want to merge the accounts because they’re not on the same hierarchical level. Instead, you’ll end up with a top-level account with a name that is identical to a sub-account.

For balance sheet accounts, the reconciliation status of each transaction in the account being removed will be transferred to the destination account, so that any unreconciled transactions in the account being removed will remain unreconciled after the merge. Therefore, before you merge accounts, consider the impact on reconciling the destination account after the merge, which will then include the transactions from both accounts. Often, performing a reconciliation is easier when there are fewer transactions to reconcile.

Merging accounts is also discussed in this Intuit knowledge base article.

(+1 rating, 3 votes)

What Are the Procedures and Journal Entries To Record a Customer’s NSF or Bounced Check?

Chief Mechanic · September 4, 2010 ·

If you process enough transactions, sooner or later you’ll have to account for a returned check. A check that is returned unpaid is given many labels (such as NSF or bounced check) but the accounting treatment is the same.

The procedures outlined below work effectively for POS users in both single stores and chains. Activities such as receiving bank notices of fees and returned items typically take place at the headquarters rather than the store level, so these tasks are performed in QuickBooks financial software rather than POS. However, in POS a payment can be accepted by clicking the Take Payment button at the bottom of the New Sales Receipt window. This allows a customer to replace a returned check at any store in a chain. When POS exchanges data with QuickBooks, the customer’s account will be updated.

For this example, let’s assume we received a returned check for $50 from a customer named Customer with check returned unpaid. For handling the returned item, the bank charged a $25 fee, and we’ll only seek to recover from the customer the actual bank charges. Rather than investigating each fee separately, some firms set a fixed fee to charge customers. Hopefully, this customer will replace the unpaid check with another one, but we’ll need to record the activity in our cash account before that takes place.

Here are 2 methods to account for the returned check:

create a new invoice to the customer for the amount of the returned check and fees your firm adds and a general journal entry for the expense of the fees the bank charged
use 1 general journal entry for the entire process

Although the second method appears simpler, we recommend the first method because it preserves normal accounting procedures and provides a better paper trail by creating an invoice that can be sent to the customer to assist collecting the bounced check.

Method 1 – Re-invoice the Customer

Before accounting for this specific returned check, set up 2 new Other Charge Items on the Item List. These Items will only be set up once.

The first other charge will be used to invoice the customer for the amount of the returned check. At this point, it should be set to a $0.00 amount and have a Tax Code that is non-taxable. An Item Name of Returned Check will serve as a reminder for how this charge will be used. The Account must be set to the bank account into which the original returned check was deposited. Later, the amount of the returned check will be entered when the customer is invoiced for the returned check, along with any applicable bank charges. If you make deposits into multiple bank accounts, you’ll need a separate item for each bank account; in this case, include a reference to the bank account in the Item Name.

QuickBooks Premier 2009 New Item Returned Check

Next, add a second other charge for possible bank charges. Like the other charge for the check amount itself, this charge should have a Tax Code that is on-taxable. The amount can be set to either $0.00 (to indicate it varies depending on the situation) or a fixed fee representing a firm’s standard returned check fee. An Item Name of Returned Check Bank Charges will be a good reminder of how this charge will be used. The Account should be set to either an other income account or the expense account used for the original bank charge. In this example, we created an other income account for reimbursed bank charges.

With the other charges properly set up, make a general journal entry for just the charge the bank deducted from your bank account. To do that, click the Company->Make General Journal Entries… menu and enter the actual bank charge as a credit to the bank account and a debit to bank charges expenses as follows:

QuickBooks Premier 2009 GL Make General Journal Entries NSF 1

Next, click on the menu Customers->Create Invoices (or use the keyboard shortcut Ctrl + I) to invoice the customer for both the amount of the returned check and the fee charged by your firm. In our example, the returned check was $50, and the bank charges are $25.

Here’s the Create Invoices window:

QuickBooks Premier 2009 Create Invoices for Customer NSF Check

This invoice will be reflected on the customer’s account and will provide a document to present to the customer to collect payment. Hopefully, the customer will replace the returned check. At that point, use the normal procedure for recording a customer payment (Customers->Receive Payments) to record the replaced payment and depositing the funds (Banking->Make Deposits).

QuickBooks Premier 2009 Receive Payment for NSF Check

This approach has some important benefits. It creates an invoice to help collect both the unpaid amount and the bank charges. It also preserves the normal work flow for processing payments and making deposits. It’s also the approach recommended by Intuit in the documentation for QuickBooks.

To review the debits and credits of each step, press the Journal button (or Ctrl + Y). The general journal entry we first entered accounted for the actual bank charge. When we recorded the invoice, we produced a debit to AR in the amount of $75, a credit to our bank account for the $50 check, and a credit to an other income account for $25. The invoice in effect reduced the bank account by the amount of the returned check, so at this point, our bank balance is accurate.

Method 2 – Make 1 General Journal Entry

Some prefer to accomplish all of the above in just a single general journal entry. To do that, click on the Company->Make General Journal Entries… menu and make these entries:

AR: debit of $75 with the customer’s name entered in the Name field
Bank account: credit of $50 to reduce the bank balance
Bank account: credit of $25 to reduce the bank balance
Bank service charges (expense): debit of $25
Reimbursement income: credit of $25 to record the revenue (optionally enter the customer’s name in the Name field)

Ideally, although it’s not shown in the screen shot below, the debit to AR should be entered on the first line of the general journal entry.

QuickBooks Premier 2009 GL Make General Journal Entries NSF 2

The steps outlined above for recording a customer payment (Customers->Receive Payments) and depositing the funds (Banking->Make Deposits) are then used to complete the accounting when the customer replaces the returned check.

(+1 rating, 7 votes)

How Does QuickBooks Calculate and Record a Home Currency Adjustment?

Chief Mechanic · September 2, 2010 ·

In QuickBooks the home currency adjustment is calculated based on the difference between the exchange rate recorded with each transaction and the exchange rate as of the home currency adjustment. It’s calculated on:

Open Accounts Payable transactions in a foreign currency
Open Accounts Receivable transactions in a foreign currency
Balance sheet account balances for which transactions in a foreign currency are supported (i. e., bank accounts and credit cards)

It’s important to note that income and expense accounts, as well as other asset and liability are always recorded in the firm’s home currency. Therefore, home currency adjustments do not apply to these account types.

Home currency adjustments are recorded on the Company->Manage Currency->Home Currency Adjustment menu selection.

A home currency adjustment represents the unrealized gain or loss from holding balances in a foreign currency after the original transaction date (for open transactions) or after the date the transaction was closed. For example, if a firm did not extend credit to customers (i. e., it has no Accounts Receivable), did not receive credit from vendors (i. e., it has no Accounts Payable), and had no bank or credit card balances, its home currency adjustment would be zero.

From the Home Currency Adjustment window, QuickBooks automatically posts home currency adjustments by a General Journal entry to the Exchange Gain or Loss account that is automatically created by QuickBooks as an Other Expense account type. Therefore, debits to this account will represent exchange losses and increase this expense; credits will represent exchange gains and decrease this expense.

Home currency adjustments are normally recorded to prepare financial statements, so that balances held in foreign currencies can be converted to the exchange rate as of the financial statement date. If foreign balances were not adjusted to current exchange rates, the balances reported on the balance sheet could materially mis-state a firm’s financial position. The home currency adjustment records an exchange gain or loss to reflect the change in the value of a firm’s balance sheet accounts.

Transactions in a foreign currency involve both realized and unrealized gains/losses. For closed Accounts Payable and Accounts Receivable transactions in a foreign currency, the difference between the exchange rate recorded with each transaction and the exchange rate at the time the transaction was closed (i. e., the vendor bill or the customer invoice was paid) represents a realized gain or loss. Thereafter, holding foreign account balances (i. e., bank and credit card balances) that result from closing such foreign transactions produce unrealized gains or losses. Holding open Accounts Payable and Accounts Receivable balances similarly produces unrealized gains or losses.

The Exchange Gain or Loss account automatically created by QuickBooks records both realized and unrealized gains/losses.

A few examples will better illustrate how QuickBooks calculates and records home currency adjustments. In all cases, the home currency is the US Dollar (or simply, USD).

Example 1 – Home Currency Adjustment for an Open Customer Invoice

An customer is invoiced for 10,000 € (Euros, or simply EUR) on 12/15/2012 and the invoice is unpaid. The exchange rate recorded with the transaction is 1 EUR = 1.5 USD.

The exchange rate later became 1 EUR = 1.75 USD; after this exchange rate change, the open customer invoice was more valuable in USD. The result would be an unrealized gain of $2500, or the difference between the converted value as of the home currency adjustment date ($17,500) and the converted value as of the transaction date ($15,000).

QuickBooks Premier 2009 Multicurrency Home Currency Adjustment 1

The Home Currency Adjustment records a General Journal entry as a debit (increase) to the foreign balance Accounts Receivable asset account and a credit (decrease) to the Exchange Gain or Loss other expense account.

QuickBooks Premier 2009 Multicurrency Home Currency Adjustment General Journal

Example 2 – Home Currency Adjustment for a Closed Customer Invoice

An customer is invoiced for 10,000 € (Euros, or simply EUR) on 12/15/2012 and the invoice is initially unpaid. The exchange rate recorded with the transaction is 1 EUR = 1.5 USD. A short time later, the customer paid the invoice in full after the exchange rate changed to 1 EUR = 1.6 USD.

Immediately upon recording the customer payment at the new exchange rate, QuickBooks records a realized exchange gain for $1000, or the difference between the converted value as of the date the transaction was closed ($16,000) and the converted value as of the original transaction date ($15,000). This realized gain is not the home currency adjustment. Because both realized and unrealized exchange gains/losses are recorded in the Exchange Gain or Loss account, that’s where we’ll find this gain. Here’s a QuickZoom report of the Exchange Gain or Loss account after recording the customer payment.

QuickBooks Premier 2009 Multicurrency Home Currency Adjustment Realized

After the customer payment, the company’s foreign bank account transacting in Euros has a balance – the funds just received from the customer. If the exchange rate then changed to 1 EUR = 1.75 USD, this would represent an unrealized gain that occured as a result of holding a foreign bank balance. However, only part of the overall gain is unrealized: the difference between the converted bank balance as of the home currency adjustment date ($17,500) and the converted value of the transaction as of when it was closed ($16,000). The home currency adjustment is only the unrealized portion of the overall gain, or $1500.

QuickBooks Premier 2009 Multicurrency Home Currency Adjustment 2

The overall exchange gain from this series of transactions is the same as the first example – a gain of $2500, because in both examples the exchange rate changed from 1 EUR = 1.5 USD to 1 EUR = 1.75 USD. Here’s the QuickZoom report for the Exchange Gain or Loss account showing the overall exchange gain/loss:

QuickBooks Premier 2009 Multicurrency Home Currency Adjustment Report

The first line is the realized portion of the exchange gain; the second line – the General Journal entry – is for the unrealized home currency adjustment.

This second example illustrates another aspect of foreign exchange gain/loss reporting: if every transaction were recorded using the same exchange rate, there would be no realized gains or losses. All exchange gains or losses would be unrealized and result from the difference between the converted value on the financial statement date and the converted value as of the transaction date for each foreign balance on the balance sheet. These foreign balances can include Accounts Payable, Accounts Receivable, bank accounts, and credit cards. If you do not record transactions using accurate exchange rates as of the transaction date, you’ll magnify the amount of the unrealized exchange gains or losses shown on financial statements when you do decide to perform a home currency adjustment.

(+5 rating, 5 votes)

How Do I Enable Automatically Invoicing Customers For Reimbursable Expenses?

Chief Mechanic · September 1, 2010 ·

The first step to automatically invoice customers or clients for reimbursable expenses is to set a QuickBooks preference.

For more information on handling reimbursable expenses, see our related articles on what distinguishes a reimbursable expense from other expenses, invoicing a customer for reimbursable expenses, removing expenses from the list of billable expenses to be invoiced to a customer, and finding out which reimbursable expenses haven’t been billed to a customer.

Click on the Edit->Preferences menu selection to open the Preferences window. On the Company tab, click on the Time & Expenses sub menu. Be sure that under the Invoicing options block, the preference to Create invoices from a list of time and expenses is checked. This preference must be set before entering vendor bills for which you plan to seek reimbursement from a customer or client by issuing an invoice.

QuickBooks Premier 2009 Preferences Time & Expenses Invoicing

If you select the preference Track reimbursed expenses as income, then the income – but not the markup – associated with billing a customer for each reimbursable expense can be sent to a specific income account as discussed below.

If you don’t specify an income account for each expense account, the income associated with invoicing a customer for a reimbursed expense will be sent to the expense account itself. The Default Markup Percentage is the percentage that the reimbursed expenses will be marked up. If your markup is a positive percentage – that is, you’re charging your customer more than the actual expense to account for administrative or handling charges – the markup is sent to the Default Markup Account. The amount charged to a customer excluding the markup is either sent to an income account you specify or to the expense account.

If you specify a positive Default Markup Percentage, QuickBooks will automatically create a new Item in your Item List – a Group named Reimb Group. With a positive markup, QuickBooks will automatically subtotal reimbursable expenses on an invoice and display the markup and the total of the markup and the reimbursable expenses themselves.

For each General Ledger Expense account that you’d like to match to a corresponding Income account, edit the General Ledger account by clicking on the Company->Chart of Accounts menu selection or using the keyboard shortcut Ctrl + A. Select the Expense account you’d like to match to an Income account and edit the account by clicking on the Account button at the bottom of the Chart of Accounts window or using the keyboard shortcut Ctrl + E. Click the checkbox for the Track reimbursed expenses in Income Acct. setting and specify the Income account in the pulldown list.

QuickBooks Premier 2009 GL Add Account Track Reimbursed

You must assign a different Income account to each Expense account. Otherwise, you’ll receive this warning:

QuickBooks Premier 2009 General Ledger Warning 7

Enabling the preference and setting the relationships between income and expense accounts for reimbursable expenses is just the first step in automatically invoicing customers or clients for these types of expenses. Other steps include marking expenses as reimbursable, finding uninvoiced reimbursable expenses, and removing an expense from the list of those to be billed to a customer.

(No Ratings Yet)

How Does Quickbooks Handle Voiding a Check Dated In a Closed Period?

Chief Mechanic · August 30, 2010 ·

When you void a check, QuickBooks:

changes the original amount of the check to 0.00
adds the text VOID: to the beginning of the Memo
sets the cleared flag, Clr

When you’ve specified that your books are closed through a given date, in addition to performing the above steps, QuickBooks gives you the option of automatically adding reversing general journal entries so that accounting reports for the closed period are not affected. However, this option to automatically add a reversing general journal entry comes with a big stipulation: the accounts associated with the check must be expense accounts. If they’re other account types, you’ll have to construct reversing general journal entries on your own.

A bill payment check is similar to a check, but it is actually a different transaction type. QuickBooks only provides the option to automatically reverse voided checks, not bill payment checks. Later in this article, we’ll describe how to manually make the reversing general journal entries when voiding a bill payment check from a closed period.

To see this process in action, first verify your Closing Date. You can find it by clicking on the Company->Set Closing Date… menu selection.

QuickBooks Enterprise Solutions 10 Closing Date

For our sample company, the Closing Date has been set to 11/30/2013. If you void any check dated on or before this date, QuickBooks will give you the option of automatically creating well-documented reversing general journal entries that will maintain the accuracy of your accounting reports for the closed period.

To void a check, you can either right click on the check in the bank account register to invoke the context menu and select Void Check or you can select the check in the register and choose Void Check from the Edit menu. Both paths take you to the same destination.

QuickBooks Enterprise Solutions 10 Void Check

Since check # 5244 is dated before the Closing Date, voiding it will bring up this warning:

QuickBooks Enterprise Solutions 10 Void Old Check Warning

You have the option of simply voiding the check and not having QuickBooks create the reversing general journal entries. Just click the No, just void the check button. However, unless you manually create reversing general journal entries, financial reports from the closed period will no longer be accurate, since the check amount was just changed to 0.00. Even if you intend to modify the reversing general journal entries (such as to add more information to the Memo), it’s a good idea to click the Yes (Recommended) button.

Clicking the Yes (Recommended) button causes QuickBooks to automatically perform these steps:

create a reconciled general journal entry on the date of the original check
create a reconciled, reversing general journal entry on the date you voided the check
add additional text to the Memo of the voided check to refer to the journal entries made

The general journal entry on the date of the original check:

QuickBooks Enterprise Solutions 10 Void Check Reversing Journal Entry 1

The reversing general journal entry on the date the check was voided:

QuickBooks Enterprise Solutions 10 Void Check Reversing Journal Entry 2

The updated memo on the voided check that refers to the general journal entries:

QuickBooks Enterprise Solutions 10 Void Check Memo

Note that QuickBooks automatically sets the Clr flag for both journal entries, just like it does for the voided check. By doing so, voiding the check and recording the reversing journal entries will not interfere with your bank reconciliation.

Recording these journal entries preserves the accuracy of your financial statements for the closed period. If you simply voided the check and didn’t record these entries, rent expense for the closed period would be lower than previously reported on your financial statements or tax returns. That inconsistency can lead to questions about the reliability of accounting information and cause time to be spent trying to reconcile the difference. Well-documented general journal entries eliminate the potential for inconsistency.

The reversing general journal entry puts a credit to rent expense in the current period. If you were voiding the original check because it was never cashed and you now plan to issue a replacement, the credit and the replacement check will offset. That way, your expenses (or the accounts on the original check) are not overstated in the current period. If you were voiding the check and you don’t plan to reissue it, expenses for a closed period were overstated, and they’ve been adjusted in the current period – when the overstatement was discovered.

QuickBooks did a lot of work once you clicked on the Yes (Recommended) button. But don’t forget that the entire process is triggered by setting your Closing Date. If you haven’t done that, QuickBooks won’t go through these time-saving steps because it lacks the information to do so.

For bill payment checks, QuickBooks won’t automatically perform the steps described above, so you’ll have to go through them manually when voiding a bill payment check in a closed period. Those steps are:

void the bill payment check, noting the vendor; voiding the bill payment check will turn the bill into an outstanding A/P balance
record a general journal entry on the date of the original bill payment check with the first line on the journal entry as a debit to accounts payable; record the vendor in the Name column on this line; the second line of the journal entry is a credit to the bank account from which the bill payment check was written
record a general journal entry on the date the bill payment check was voided with the first line on the journal entry as a credit to accounts payable; record the vendor in the Name column on this line; the second line of the journal entry is a debit to the original bank account
use the Vendors->Pay Bills function to use the older general journal entry to pay the original bill
pay the newer general journal entry in the normal course of business

It’s important to note that the procedures described here cover voiding – but not re-issuing – a check. If you need to re-issue a check, you’ll have to do so in the current accounting period. Voiding a bill payment check leaves a current accounts payable balance for you to pay in the current period. If you want to void a bill payment check in a closed period and cancel the original bill, you’ll need to record a bill credit in addition to the steps outlined above.

(+8 rating, 16 votes)

GL & Journal Entries

Accounting

Developer

Intuit