Paying & Reimbursing Yourself in QuickBooks

Yesterday, Vickie Ayres, The Countess of QuickBooks, hosted our free monthly QuickBooks webinar and discussed the topic of how to pay and reimburse yourself in QuickBooks. She also demonstrated clever ways of making sure everything is tracked in QuickBooks properly. Below is an article from Vickie based on the webinar. The recording of yesterday's webinar will be available for purchase in our shopping cart next week.

Paying and Reimbursing Yourself in QuickBooks

by Vickie Ayres

How to decide to pay and reimburse yourself can be a difficult question, especially when you first open your business. Almost all new businesses have to re-invest most of their profit back into the business. Think about how much it would cost to replace yourself doing the tasks you do. If you hired someone to do your job, what is the going rate in your area? That is the minimum base rate you should choose to pay yourself. Some business owners pay themselves based on a percentage of the job, sometimes that is easier in the beginning when cash flow is tight.

After deciding how much, let's look at how to enter that in your QuickBooks company file. You will want to discuss this with your accountant of course, as everyone's entity and personal situation will vary. If you create payroll for employees, you can make yourself an "Employee" and pay yourself, letting payroll taxes accrue as you go along. This is how I have paid myself for years. Pay as you go and even it all up at the end of the year on your tax returns.

You need two accounts in your Chart of Accounts to show money drawn and money invested. Depending on your entity type there will be different account names for each entity. Essentially, whether it is a Partner Draw or an Owners Draw, the name is different but the concept is the same. Your company has money, it isn't taxed yet, and you want to put it in your pocket. That's OK, it's your money.

Below are three examples of Chart of Accounts's set up as three different entity types, notice how they have similar names for the money drawn and money invested equity accounts?

Owner Draw


Partner Draw

Corporation

What your accountant and the government care about is that when you take or put money into your company, you record that information correctly. Show how much you take and how much you put in, so the accountant can arrange it all on your tax return at the end of the year and assess the proper payroll and income taxes on it.

If you don't create payroll you can write yourself a "Draw" check, remember to use the equity account in your Chart of Accounts that is for draws, don't get hung up on the difference in names in the different types of entities. Here is an example of a check written to the owner of the company for $1000.00 as a salary.

The other thing you need to account for is business expenses that you make with personal funds or credit cards. Very, very important to keep track of these. You can do them as you go but most people let them pile up in a file and reimburse these expenses periodically. This money that you "invest" in your company is money you can take out of your company with no payroll or income taxes assessed; it is money the government has already taxed. Let's look at two ways to get that expense posted in QuickBooks and/or pay yourself back.

If you want to pay yourself back just write yourself, a check and use the appropriate expense account. If you used your personal credit card to buy some paper at Office Max, below is a check showing how to pay yourself back.

Now here is the really cool trick, how to enter the expense and NOT pay yourself back right now. We are going to create a "Zero Sum Transaction in a Clearing Account." Won't you look smart at your next tax appointment throwing that fancy phrase out on the desk? It's very easy!

• Create a new bank account called "Clearing Account" (List > Chart of Accounts > right-click, select "New" > Type, Bank > Save & Close.
• Now create a check and make sure you choose the "Clearing Account this time, the example below shows the same copy paper expense, but it makes an expense number for Office Supplies and an Investment entry for the amount invested.
• Notice there are two entries on the expense tab. The second entry uses the Owner's Capital: Investments account and the exact same amount in negative format was entered.
  

You can stack numerous transactions on the same check here. Simply list all of the transactions with explanations and make just one entry with the negative number for the investment, like this...

If you use QuickBooks in your design business you need Minutes Matter QuickBooks & Quoting! Included with your purchase is a free one-on-one set up with Vickie, The Countess of QuickBooks, to make sure you're off to the perfect start with our QuickBooks & Quoting.

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Paperwork Housekeeping Tip

By now you should have all of your taxes filed, unless you filed an extension. Now is a good time to consider what records and files you should keep and what you can discard. The paperless office is still a distant dream to me, but we can try to cut down on how much paper we keep by following a few basic guidelines.

The IRS website (www.irs.gov) offers official several informative publications on record retention. For example, Publication 552 is for individuals and Publication 583 is for for businesses. Most states also have easily accessible websites that provide guidelines and recommended record retention policies.

The list below is a general list of documents along with suggestions regarding how long to retain them. Of course, you should always consult your own accountant for specific information related to your particular business situation.

I use a rolling system of record keeping. I keep the current year and last year's records in file drawers in my office. For older records, I have a set of six large totes in my attic. Five of these are labeled by the year, while the other one is labeled Returns - Keep Forever. Despite what the government guidelines say, there are some records that I like to keep forever. I have this ridiculous idea that my great-grandchildren might find reading my old tax returns interesting when they clean out my attic some day in the far off future.

Using January 2010 as an example, here is what I do. In January of 2010, the 2003 tote came down from the attic. I then shred or burn the 2003 records and re-label the tote for 2008. I take the 2008 files from my office and load them into the tote, then the tote makes a return trip to the attic. Lastly, the 2009 records get shifted from the current year drawer to last year's drawer and we start all over again with 2010.

Year-End Checklist for QuickBooks

The checklist certainly does not cover everything required to put 2010 to rest, but it's a good general start.

Reconcile

Reconcile all of your bank and credit card accounts with your December statements to ensure all of the balances in your QuickBooks accounts are correct and ready for tax preparation. If you reconcile every month, this task is 99% done by the end of the year. When making loan payments, be sure to check that the amounts going to principal and interest are accurate when you enter the payment every month. The result is that at the end of the year it takes only a minor adjustment, if any, to get the principal balance to match your bank's loan statement balance.

Report

Print and proof reports for your files: Profit & Loss and Balance Sheet reports are essential. In addition to your digital records, have file copies of your year-end business reports printed. These printed records are a good quick reference if you want to compare one year to another. Natural disasters, fires, and thefts of computer equipment, all of these things make our computer records vulnerable and having that printed information could be very important to you in the future. Giving your accountant copies is also a good backup plan.

Backup

Make two backups of your QuickBooks company file. Store one copy off-site in a secure location. You should definitely have a backup procedure in place for all of your computer records. To determine how far you will want to go with your backup procedures, think about how painful it would be to lose all of your data and then backup accordingly. One method I recommend is to purchase multiple thumb drives and label them for different days of the week, to give you a series of "rolling backups" in the event one of your storage devices fail. Another method to use is an online backup service. I use Mozy.com to backup my computer files online. Each morning Mozy leaves me a screen open to confirm that my files were backed up to a website while I slept. Mozy also leaves a reassuring green checkmark next to every backed up file and folder. Using multiple storage devices and having some type of off-site storage are the main components of a good backup program.

Taxes

Print and mail your W-2/W-3, 1099, 940/941 and 1096 tax forms. Go through your Vendor list and double-check that all of your vendors who require 1099s are set up with 1099 vendor status and that you have their social security numbers. QuickBooks will print all of your 1099s and the 1096 reporting form for you. You can purchase the government required forms for a nominal price from any office supply store. QuickBooks does an excellent job with all of your payroll reporting forms also.

Data Integrity

Ensure your data integrity. As your data file gets large (in excess of 50 MB), you might encounter corruption. Problems are much easier to fix when they're caught early and still small, so follow these easy steps to check the integrity of your data. It's a great idea to do this when backing up your files. Close all windows, then use File > Utilities > Verify Data to verify your data integrity. If verification fails, it will give you instructions on the screen for how to proceed.

If you are instructed to run the Rebuild, go to File > Utilities > Rebuild (this will require you to make a back-up). After the rebuild finishes, run Verify again. Recently, we have had several customers have issues with some of their lists looking incomplete even after verifying their data. Running the Rebuild corrected the lists even though QuickBooks did not indicate their data was corrupted. I suggest running the Rebuild tool monthly after a backup just to keep your data in good shape.

File

A complete printed set of file folder labels is available from your QuickBooks Company File. Simply click File > Print Forms > Mailing Labels to set up the specifications. I set up my file folders right away with these labels for the companies I know I will need and then store the rest in a folder at the front of my files for companies I am not sure I will be using that year. I keep two years of folders in my office for easy access. I have seven large plastic tubs in my attic for previous year's records. At the end of each year, I empty the oldest tub, retaining tax and payroll records, and put the most recently retired records in it and send it back to the attic.

QuickBooks 2010 is now available

QuickBooks 2010 has been released! We will be sending an ezine out soon letting you know what features we think are new and cool. You can purchase QuickBooks using the links below to take advantage of special pricing, compliments of Minutes Matter.

To purchase QuickBooks 2010 Premier Edition, click HERE.

To purchase QuickBooks 2010 Pro Edition, click HERE.

The Danger of Rash Clicking!

If you have ever heard me speak during a webinar or live at a seminar you have probably heard me warn against rash clicking. The reason I warn you guys about rash clicking is that I have succumb to that temptation many times myself.

I feel that I have to share my story and tell on myself. I don't want you guys to think I am perfect. Yesterday, I was doing payroll and paying bills; I thought that I would go ahead and pay my 941 payroll taxes. I am setup for E-Pay with IRS. So I can pay these taxes within a matter of minutes. Love those words "Minutes Matter." Here is what happened:

1. I was listening to "Lucky" by Jason Mraz on my iPhone, (mistake #1).
2. After I completed payroll I noticed that I had an upcoming 941 payment due by August 15th. I thought I would go ahead and pay it. (Seemed to be such a smart move on my part and I have paid it ahead so many times in the past.) So I clicked the View/Pay button. (no mistake yet)
3. Here it comes; I was singing with the music (so happy and feeling so lucky; no pun intended) I went ahead and clicked the "E-Pay" button without looking at all the fields. (Big Mistake #2)

Now because I didn't carefully look at all the fields my payment will be deducted from my checking account tomorrow instead of 8/15/09. I always post date the IRS payment and have funds withdrawn out of my account on the 15th of the month. I never like giving the government money before it is due and I am usually so careful about changing the dates on the payment.

I was so mad at myself, I turned my iPod off; I decided no more happy music for me for at least one hour. Sat there for a few minutes thinking of my options. My first impulse was to go and void the payment. Luckily, I had gotten hold of my rashness. I did a bit of research before I made what would have been the biggest Mistake OF ALL. E-Payments go instantly to Intuit, I checked my email and sure enough I had already received an email saying the payment was accepted. If I had of continued with my RASH CLICKING I would have been in a mess with my payroll taxes and that could have added another hour or more to my workload on Monday. I could have called Intuit and try to void the payment before it goes to IRS but I decided to let it go and not let it take "Rent any more space in my head."

The moral of this story don't try to sing like Jason Mraz when you are scheduling an E-Payment and look at all the date files before click the final E-Pay button.

If you have a "Rash Clicker" story you would like to share post a comment below. We would love to hear your story.

Quickbooks ~ Duplicating Group Items

If you have taken any of our webinars that demonstrate quoting then you know that the secret ingredient for quoting quickly is the Group Item. If you own QuickBooks & Quoting your Item List contains over 700 individual items. Everything you buy or sell in the course of business should be listed in your item list. QuickBooks allows you to use special items called Group Items that are collections of individual items. QuickBooks & Quoting includes a group item for virtually every kind of window treatment, service or product you offer. We have "Sub-Contracted Window Treatments" for Designers; in addition to Drapery, Shades, Hard Treatments, and many more. When you choose a Group Item the collection of individual items flows onto your proposal all ready for you to start quoting. Think of it as a "basket" full of the items that we assume you will use almost every time you do that type of proposal. (Note: The ability to duplicate items is only available in QB 2009, Pro & Premier)

A group item will contain several individual items you typically use in certain type of quote. In your Item List scroll down to the bottom and all of the Group Items are clustered together. Right-click on one of the Groups and select edit. Here is a screen shot of a group item setup screen looks like:

You can edit the default description here or on the fly in the proposal, we recommend that you begin all group items with "G-" to make it easy to retrieve on an estimate. You can see that all of the individual items are listed in the bottom of the setup screen. By clicking on an item you have the option to delete it from the group, change it to a similar item or insert a line so that you can add additional items to your group. I demonstrate editing groups in this video clip.

In addition, to editing groups you can duplicate groups to save time. Let's say you would like to create a group especially for furniture sales and deliveries outside of your normal delivery range. You would want to add an item to the group that would have a mileage surcharge appear automatically. Duplicate an Item: Right click on the group item, select duplicate, then edit the name of the item to reflect what you want it to be, as in my screenshot below. I have edited the name of the group by adding "LD" for long distance delivery. Also, notice I have inserted a line by pressing CTRL + Insert to add the mileage item.