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bill/bill credit

What Is the QuickBooks Attached Documents Service?

Chief Mechanic · September 18, 2010 ·

QuickBooks Attached Documents is a new extra-cost service introduced with QuickBooks 2011 and Enterprise Solutions 11.0 that allows users to attach documents to QuickBooks lists or transactions from within QuickBooks. It replaces the Document Management service introduced with QuickBooks 2010.

Versions of QuickBooks prior to QuickBooks 2010 don’t support attaching documents to list items or transactions from within the QuickBooks program itself.

The storage-based limits used by the older Document Management service have been replaced by limits on the number of items that can be attached to a list item or transaction. Users of the older Document Management service can continue to use that platform at pricing levels previously agreed to, even if they upgrade to QuickBooks 2011.

Pricing for the QuickBooks Attached Documents service is:

  • $9.95/month for 1 attachment per list item or transaction
  • $14.95/month for up to 5 attachments per list item or transaction
  • $19.95/month for unlimited attachments per list item or transaction

The principal advantage that Attached Documents provides is the direct integration from within the QuickBooks program. For example, a PDF copy of a vendor bill can be attached to the transaction that records the bill in QuickBooks. Documents are stored on Intuit’s secure servers and are accessible over the internet. For organizations conducting business in multiple locations or that need to exchange documents with an accountant, such as during an annual audit, the direct association of an attached file with an accounting transaction can provide significant productivity improvements because the association is made once and saved. Other storage systems, even cloud-based systems, require a user to independently maintain the linkage between a file name in a folder and an accounting transaction, something that becomes progressively harder with changes in personnel and increases in the number of filed documents.

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How Can I Close Transactions With a Customer Who Is Also a Vendor Who Only Paid the Net Balance On an Invoice?

Chief Mechanic · September 13, 2010 ·

For some businesses, another firm is both a customer and a vendor.  If you’ve invoiced that firm (as a customer) while they have billed your company as a vendor, they may opt to pay the net amount owed for simplicity and to preserve their own cash balance.  In that case, you’ll need to find a way to process the net payment and at the same time close both the customer invoice and the vendor bill.

In QuickBooks, there are 2 methods to accomplish this:

  1. Use a clearing Bank account
  2. Use General Journal entries

We favor the second method because it’s more consistent with normal workflow and it more fully documents the transactions recorded.  To mirror Intuit’s own discussion of these methods in their knowledge base article on this topic, we’ll follow their example transaction, where your firm has invoiced a customer/vendor for $100, and that customer/vendor has billed your company $75.  We’ve given this customer/vendor a name, Newco Llc.  QuickBooks doesn’t permit identical names in lists.  For that reason and to better distinguish between the customer account and the vendor account, we’ve appended “(customer)” and “(vendor)” to the company’s name.

Method 1 – Use a Clearing Bank Account

This method involves creation of a clearing account (if you don’t already have one set up) and recording the vendor credit through the Make Deposits function.  Screen shots that illustrate what takes place in important steps follow the description of the steps.

  1. Create a new Bank type account, which in our example is named Clearing Bank Account
  2. Receive the payment from your customer/vendor to pay the customer/vendor’s outstanding invoice in full, which in our example is a payment of $100, and select Undeposited Funds as the Deposit To account if it’s not already set to that by default
  3. Click on the Banking->Make Deposits menu selection and select the payment you recorded in Step 2 in the Payments to Deposit window and click Ok
  4. In the Make Deposits window, add a new line item and enter the customer/vendor’s vendor account in the Received From field, your Accounts Payable account in the From Account field, and the amount of the vendor bill that the customer/vendor deducted from his payment as a negative number, which in our example is -75
  5. Add a second new line item and enter the customer/vendor’s customer account in the Received From field, the bank account to which you’ll deposit the customer/vendor’s net payment, and the amount of the net payment as a negative number, which in our example is -25
  6. Set the Deposit To account to the clearing account created in Step 1, which in our example is the Clearing Bank Account and click Save & Close or Save & New to record the net deposit
  7. Click the Vendors->Pay Bills menu selection and select the customer/vendor’s bill to be paid
  8. Once the bill is selected, click the Set Credits button, choose the vendor credit that you created in Step 4, and click Done to return to the Pay Bills window
  9. Set the Account from which to issue the payment to the clearing account, which in our example is the Clearing Bank Account, and click the Pay Selected Bills button
  10. QuickBooks will display the Payment Summary window, advising you that the bill was paid by a credit only, so it won’t be associated with a bill payment check; click Done to complete paying the vendor bill

In a typical use of the Make Deposits function where there is 1 entry for the deposit amount from Undeposited Funds as a positive number, QuickBooks credits (reduces) Undeposited Funds and debits (increases) the bank account selected in the Deposit To field.  Positive amounts on the Make Deposits window represent credits; negative amounts represent debits.  Thus, Accounts Payable is debited (reduced) by the amount of the vendor bill that the customer/vendor deducted from his payment, and the regular bank account is debited (increased) by the amount of the net payment received from the customer/vendor.  Intuit incorrectly describes the entry made in Step 5 as a credit; it’s not – it’s a negative amount, so it’s a debit.

After completing Step 6 above, you’ve recorded the net amount of the deposit to your regular bank account.  Note that the Deposit Subtotal made to the clearing account is 0.00, reflecting its purpose to serve purely as a clearing account to close transactions.  QuickBooks will not allow setting the From Account to your Undeposited Funds account when recording the net amount being deposited in Step 5.  If you combine this deposit item with others, you’ll complicate reconciling your regular bank account.  That’s why it’s a good idea to make each customer/vendor transaction processed through the clearing account a separate deposit.  The need to separate deposits is one limitation of the clearing account method.

QuickBooks Premier 2009 Clearing Bank Account Make Deposit
QuickBooks Premier 2009 Clearing Bank Account Checking

After selecting the vendor bill in Step 7, you’ll be able to apply the credit that you created in Step 4 by clicking the Set Credits button.

QuickBooks Premier 2009 Clearing Bank Account Pay Bills 1

In the Discounts and Credits window, select the credit.

QuickBooks Premier 2009 Clearing Bank Account Discounts

After selecting the credit, there are no other credits available.  The total of the bills to be paid is 0.00.

QuickBooks Premier 2009 Clearing Bank Account Pay Bills 2

As described in Step 10, QuickBooks will display the Payment Summary window.  However, because the bill was paid entirely by a credit, it won’t be associated with a bill payment check, even one with a zero amount.  The vendor’s balance will be reduced by the amount of the payment and the bill will be marked Paid, but there won’t be a transaction recording the payment in the vendor’s transaction list in Vendor Center.  The fact that the transaction list in Vendor Center presents an incomplete record of what was recorded is another limitation of the clearing account method.

QuickBooks Premier 2009 Clearing Bank Account Payment Summary

Because there’s no bill payment check to delete or void, if you want to undo this process, you’ll need to start by deleting the deposit from the clearing account.  That will leave funds in the Undeposited Funds account and return the vendor bill to an unpaid or open status.

Method 2 – Use General Journal Entries

This method involves making 2 General Journal entries and then processing the customer/vendor’s net payment in your normal workflow.  Screen shots that illustrate what takes place in important steps follow the description of the steps.

  1. Click on the Company->Make General Journal Entries… menu selection and record a debit (decrease) to Accounts Payable for the amount of the vendor bill that the vendor/customer deducted from his payment, which in our case is $75; in the Name field for the debit, enter the vendor account name
  2. On the same General Journal entry, enter a credit for an equal amount to another account, such as the expense account used on the vendor bill, and click the Save & New button
  3. Enter a second General Journal entry with a credit for $75 to Accounts Receivable, and in the Name field for the credit, enter the customer account name
  4. On the same General Journal entry, enter a debit for $75 to the same account you used in Step 2 and click the Save & Close button
  5. Click on the Customers->Receive Payments menu selection and enter the customer account name in the Received From field; after doing so, you’ll see the message that this customer has available credits
  6. Click the Discounts & Credits… button to apply these credits
  7. In the Discounts & Credits window that appears, select the credit for $75 that you recorded in Step 3 and click the Done button to return to the Receive Payments window
  8. Select the customer invoice being paid and enter the net amount paid by the customer/vendor, along with other payment information such as the Pmt. Method and Check #
  9. Click Save & Close or Save & New to record the customer payment

The account you enter in Steps 2 and 4 doesn’t matter as long as it’s the same account, because the debits and credits reverse each other.  In fact, if you already have a clearing account set up, you can simply use that clearing account in these steps.  These 2 General Journal entries are an effort to post a debit to Accounts Payable and a credit to Accounts Receivable.  Because QuickBooks imposes a restriction that only 1 Accounts Payable or Accounts Receivable account can appear on a General Journal entry, it’s necessary to make 2 entries.

Here are the 2 General Journal entries:

QuickBooks Premier 2009 Vendor Customer 1
QuickBooks Premier 2009 Vendor Customer 2

Here’s the process at Step 5:

QuickBooks Premier 2009 Vendor Customer 3
QuickBooks Premier 2009 Vendor Customer 4

And finally, here’s our completed Receive Payments screen just before saving the transaction:

QuickBooks Premier 2009 Vendor Customer 5

We favor the second method – using General Journal entries – for 2 reasons.  First, after completing these steps, you can process the customer/vendor’s check with other checks in your Undeposited Funds account as you normally would.  You won’t need to make a separate deposit for each payment from a customer/vendor in order to maintain your bank reconciliation process as you would if you used the clearing account method.  Second, because General Journal entries appear on the transaction list in both the Customer Center and Vendor Center, you’ll have a well-documented trail of what took place.  On the vendor account, you’ll see a bill for $75 and a General Journal debit for $75 that pays the bill; on the customer account, you’ll see the $100 invoice, the $75 General Journal credit that reduced the amount owed, and the $25 payment.  In contrast, in the clearing account method, you’ll only see the vendor bill marked Paid.  You won’t see the transaction that actually paid the vendor bill, which can lead to confusion after the details of how the transaction was recorded are forgotten.

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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:

  1. You can’t use more than 1 A/R or A/P account in a single journal entry
  2. 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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What Are Sources and Targets?

Chief Mechanic · September 11, 2010 ·

Sources and targets are important concepts to understand reporting in QuickBooks and use of the Advanced Find function.

Sources and targets are terms assigned by Intuit to describe transactions.

In most instances, the source of a transaction is the summary or total of the transaction.  For example, the source of a check includes the amount of the check, the payee, and the bank account from which the check was written.  The target of a transaction is the distribution of the source into 1 or more other accounts.  For example, a check might be used to pay expenses in 2 different General Ledger accounts, which appear on the Expenses tab below the check payee information.  The targets of this check include the information on these 2 lines.

A transaction can have 1 source and 1 or more targets.  In most instances, the source is equal to the sum of the targets.  Forms or windows in QuickBooks determine what information will be the source and what will be the target.  Your only control over what is the source or target is what you enter (subject to validation) in the appropriate area of the form.  In the check example below, the top part of the check form is always the source, and the bottom part always contains the target information.  However, don’t extend too far the thought that the “sources are on top of the form and targets on the bottom.”  That only applies to A/R & A/P transactions.

General Journal Entries are one important exception to the discussion of sources and targets.  The first line of a general Journal Entry is the source, and all other lines are targets.  Depending on how one enters a general journal entry, the source may not be equal to the sum of the targets.  Since you have direct control over the order of lines in a general journal entry, you do control what the source and targets are for general journal entries.

Payments, statement charges, and transfers don’t follow the model that the source is on the top of the form and targets on the bottom.

Here are the source and targets for QuickBooks transaction types:

  • Invoice: A/R is the source; income accounts associated with the line items are the targets
  • Bill: A/P is the source; expense accounts on the line items are the targets
  • Deposit: The Deposit To account is the source; the accounts on the line items are the targets
  • Payment: The Deposit To account is the source; A/R is the target

To learn the source and targets for any transaction, click the Journal button or use the keyboard shortcut Ctrl + Y.  The source is the first line listed.  The targets are the lines listed after the source.

QuickBooks Enterprise Solutions 10 Check
QuickBooks Enterprise Solutions 10 Check Transaction Journal

In this example, the source is the first line of the report that shows the payee and check amount.  There is 1 target, the second line that contains the distribution information.  We’ve added Source Name as an additional column to the standard Transaction Journal report to better illustrate sources and targets. Note that the Name field for the target is the Customer:Job name, but the Source Name is the check payee.  Reports that show target information won’t show the check payee in the Name field.

That leads to confusion among QuickBooks users that aren’t familiar with sources, targets, and the type of information that appears on a report.  A report that shows check information in an expense account is reporting target information.  The report is not indicating that a check was written to the information shown in the Name field.

According to Intuit:

  • sources and targets are database concepts and have nothing to do with debits or credits
  • a source can be a debit or credit, just as a target can be a debit or credit
  • most reports display a mixture of source and target data
  • the Inventory Valuation Summary and Inventory Valuation Detail reports are examples of exceptions in that they display only target data

This Intuit knowledge base article offers additional information on sources and targets.  When reading it, don’t forget the general journal entry exception to statements about sources and targets.  Some of the statements in Intuit’s own materials don’t repeat that exception, and they’re only true with that exception noted.

Issues involving confusion about sources and targets are fairly common.  To address these issues, Intuit also offers explanations of the source and target data sets, the report set, where reports get their data, and how conflicting report filters produce unexpected results.

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Are Licensed Recordings of Music an Asset of My Company?

Chief Mechanic · September 11, 2010 ·

Maybe.  Under US GAAP, the accounting for recorded music is governed by Financial Accounting Standards No. 50, Financial Reporting in the Record and Music Industry.

FAS No. 50 says in part that:

The portion of the cost of a record master borne by the record company shall be reported as an asset if the past performance and current popularity of the artist provides a sound basis for estimating that the cost will be recovered from future sales. Otherwise, that cost shall be charged to expense. The amount recognized as an asset shall be amortized over the estimated life of the recorded performance using a method that reasonably relates the amount to the net revenue expected to be realized.

If you believe that the performance provides a “sound basis” for an estimate that the cost will be recovered from future sales, you can treat the cost as an asset.  Otherwise, you’ll need to expense it.  The real question is not whether you have the right to use the recorded music on future projects; it’s whether there is a reasonable expectation that you can produce future revenue by doing so.  If you purchased a sound clip for a very specific project and aren’t in the business of regularly making commercials for similar projects, there’s probably not a reasonable basis to estimate that you can produce future revenue from the clip.  If you purchased a clip of car sounds and are in the business of making automobile commercials, you probably do have a “sound basis” to estimate that you can use the clip to produce future sales.

In QuickBooks, if you treat the cost of this recorded music as an asset, it would be a non-current asset.  You would not use a tool such as the Fixed Asset Manager to account for it.  The non-current asset account you enter when you write a check or enter a vendor bill to pay for the recorded music would be debited (i. e., increased).  Later, you’ll need to amortize the cost of the recorded music over the useful life consistent with FAS No. 50. QuickBooks uses the term other current asset in place of non-current asset. See our article on general ledger account types used by QuickBooks for more information.

If you opt to treat the cost as a non-current asset, be conservative in estimating the useful life of the music.  If you over-estimate the useful life, you’re inflating your assets and net income until you’re finished amortizing the asset.

If you determine that there isn’t a basis to estimate that the cost of the recorded music will be recovered from future sales, you’ll need to treat the cost as an expense.  In that event, the expense account you enter when you write a check of enter a vendor bill to pay for the music would be debited.

Of course, if you have any doubt about applying an accounting standard like FAS No. 50 to your business, it’s a good idea to consult a CPA.

For more information, read the entire text of FAS No. 50 at FASB’s web site.

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