QuickBooks 2022 All-in-One For Dummies. Stephen L. Nelson

but you’d never have to make this journal entry in QuickBooks. When you use QuickBooks to record a $1,000 check that pays Acme Supplies for some paper products that you purchased, QuickBooks automatically debits supplies expense (as long as you indicate that the check is for supplies) and then credits cash.

      Similarly, in the case of journal entries 7 and 8, when you produce an invoice that records a sale, QuickBooks makes these journal entries for you. If you sold $13,000 worth of hot dogs and buns, and those hot dogs and buns actually cost you $3,000, QuickBooks debits cash for $13,000, credits sales revenue for $13,000, debits cost of goods sold for $3,000, and credits inventory for $3,000. In other words, for most of your routine transactions, QuickBooks handles the journal entries for you behind the scenes.

This doesn’t mean, however, that you can always avoid working with journal entries. Any transaction that can’t be handled through a standard QuickBooks form — such as the Invoice form or the Write Checks form — must be recorded by using a journal entry. If you purchase some fixed asset by writing a check, for example, the purchase of the fixed asset gets recorded automatically by QuickBooks. But the depreciation that will be used to expense the asset over its estimated economic life — something I talk a bit about in the next chapter — must be recorded with journal entries that you construct yourself and enter a different way.

      One other really important point: I note in the preceding paragraphs that the trial balance information shown in Table 2-19 provides the raw data that you need to prepare your financial statement. I don’t want to leave you with a misunderstanding, however: You don’t have to use this sort of raw data to prepare your financial statements. Predictably, QuickBooks easily, quickly, and effortlessly builds your financial statements by using this trial balance information.

      Just to put these comments together, then, QuickBooks automatically creates most journal entries for you, builds a trial balance by using journal entry information, and — when asked — produces financial statements. Most of the work of double-entry bookkeeping, then, goes on behind the scenes. You don’t worry about many journal entries on a day-to-day basis. And if you don’t want to ever see a trial balance, you don’t have to. In fact, if you use QuickBooks only to produce invoices and to write checks that pay the bills, almost all the information that you need to prepare your financial statements gets collected automatically. So that’s really neat.

      

Not all the information that’s necessary for producing good, accurate financial statements gets collected automatically. You’ll encounter a handful of important cases that should be handled on a special basis through journal entries that you or your CPA must construct and enter.

Chapter 3

      Special Accounting Problems

      IN THIS CHAPTER

      

Sorting out accounts receivable and accounts payable

      

Keeping track of inventory

      

Figuring out fixed assets

      

Finding out about asset write-downs

      

Recognizing liability

      

Handling revenue and expense account closings

      Even if you understand the principles of accounting (which I describe in Book 1, Chapter 1) and the basics of double-entry bookkeeping (which I describe in Book 1, Chapter 2), you still may not have all the information that you need to keep good records. Tracking the amounts that customers owe you and the amounts that you owe vendors can be a bit tricky, for example. Inventory can also present challenging record-keeping problems — a fact that’s not surprising to you as a retailer. And things like fixed assets … oh, don’t even get me started.

      For these reasons, this chapter describes the most common complexities that business owners confront. You don’t need to be an accountant or an experienced bookkeeper to understand the material in this chapter. You do need to proceed carefully, take your time, and think a bit about how the material I describe here applies to your specific business situation.

Working with Accounts Receivable

      If you read Book 1, Chapter 1, you already know that accounting principles state that sales revenue needs to be recognized when a sale is made and that the sale is made when a business provides goods or services to a customer.

      In other words — and this point is really important — sales revenue doesn’t get recorded when you receive payment from a customer. Sales revenue gets recorded when a customer has a legal obligation to pay you because you have (or your business has) provided the customer the goods or services.

      Recording a sale

This requirement to record sales revenue at the time that goods or services are provided means that accounting for sales revenue is slightly more complicated than you may have first guessed. The first transaction — the transaction that records a sale — is shown in Table 3-1.

TABLE 3-1 Journal Entry 1: Recording a Credit Sale

Account	Debit	Credit
Accounts receivable	$1,000
Sales revenue		$1,000

      Journal Entry 1 shows how a $1,000 sale may be recorded. The journal entry shows a $1,000 debit to accounts receivable (sometimes abbreviated A/R) and a $1,000 credit to sales revenue. To record a $1,000 sale — a credit sale — the journal entry needs to show both the $1,000 increase in accounts receivable and the $1,000 increase in sales revenue.

      Recording a payment

When the business receives payment from the customer for the $1,000 receivable, the business records a journal entry like that shown in Table 3-2.

TABLE 3-2 Journal Entry 2: Recording the Customer Payment

---

Account	Debit	Credit