Category Archives: QuickBooks

How to record retention in QuickBooks?

Retention is money withheld by the customer of a contract (project); protect the customer against incomplete or defective works. The retained sum is usually released to the supplier once the project ends or after the warranty period.

Assuming the sum withheld is at every stage of the progress claim. For a progress claim of $100,000 with 5% retention, the journal behind the sales invoice will be:

DR. Accounts Receivable $101,650
DR. Retention Receivable $5,000
CR. Sales $100,000
CR. GST Payable: $6,650

To record the retention in QuickBooks Online, first, you create a retention item (can be a service item) and link it to the retention receivable (a current assets account). Then, use it in the invoice with a negative value to reduce the invoice total (the objective is to reduce the receivable and not the revenue).

To view the retention receivable, you may run a report for the retention receivable account (from the Chart of Accounts) and group it by the customer to check the retained sum by the customer or for a job (if you are using the project feature in QuickBooks Online).

QuickBooks Retention Report
Retention – Quick Report

You may then issue an invoice to the customer for the retained sum once the project ends. The journal for the invoice:

DR. Accounts Receivable $5350
CR. Retention Receivable $5000
CR. GST Payable $350

QuickBooks Online is a small business account system suitable for small businesses and SOHO. Although it does not have a complex project accounting feature, it should be sufficient for basic project tracking.

Note:

  1. The letter of claim is not a tax invoice, and the retained amount has to account for the GST upon payment received or invoice issued, whichever earlier.
  2. To create an account in QuickBooks Online (QBO):
    • Click on the Gear icon and select Chart of Account from the list.
    • Click on the New button in the Chart of Account list to add an account.
  3. To create an item in QuickBooks (QBO):
    • Click on the Gear icon and select Products and Services.
    • Click on the New button in the Products and Services list to add an item.

Record Credit Card Surcharge

Credit cards and other electronic payments (e.g. PayNow or bank transfer) are payment methods used these days among businesses, especially during the COVID pandemic. It won’t be easy to prepare documents and get the authorised signatory when working from home. Electronic payment, on the other hand, is convenient. The accountant can arrange the payment remotely, and the management or business owner can do the approval seamlessly online. Going digital does improve productivity.

Although electronic payments are convenient, it comes with a price. Usually, there is an annual fee for using the electronic payment service and a surcharge on each transaction.

PayNow and Giro will be easier to manage than a credit card. PayNow and Giro charges are usually shown in the bank statement separately from the amount received from the customer, whereas the credit card only remits the net received. Besides, special promotions or cashback will also sometimes add to the complexity of accounting.

Assume the credit card charge is 3.5% on each transaction. The surcharge incurred will be $35 based on a $1,000 invoice. That is, you received $965 instead of $1,000 if the customer paid via credit card.

How to record the payment received from the customer?

Try not to use the discount feature in the Receive Payment transaction of the QuickBooks Desktop for surcharges incurred when the customer paid via credit card (unless you are not sending the monthly statement to the customer). The QuickBooks discount feature is for a sales discount given to the customer, not surcharges or bank fees associated with the payment.

Discounts and Credits in the QuickBooks Receive Payment

A sales discount is a discount given to the customer to accelerate payment. Assuming the payment term of an invoice is 30 days. The customer enjoyed a 5% sales discount if they paid before the invoice was due. A sales discount is to encourage early payment and ease the cash flow.

The surcharge incurred shows as a ‘Discount’ on the statement if you used the discount feature in the Receive Payment transaction for credit card charges. It will be odd to see a discount and confusing.

QuickBooks Statement

A better way is to hold the payment received in the undeposited fund account. Since the credit card company will remit to you a few days later (depending on your arrangements with the finance company) and the customer has indeed paid in full, holding the fund in the undeposited fund account could be a better option.

Record deposit.

After receiving the payment into the undeposited fund account, use the Record Deposit feature to transfer the fund received (less the surcharge) to the ledger bank account when the financial company transfer the money to your bank. The net amount shown in the ledger bank account will facilitate the reconciliation later.

Alternatively, you can deposit multiple transactions at one go if you find that recording deposits one at a time is tedious. Follow the credit card statement, select those transactions from the Record Deposit window, and deposit them with all the surcharges added up into a single line. Although this method is faster, you need to spend more time reconciling; and the credit card statement will be the supporting document.

Journals behind the transaction.

If you use the discount method for a surcharge in the receive payment transaction, the journal behind debits both surcharge expense and bank and credit the receivable account.

The journals behind the two transactions in the undeposited fund method:
Receive Payment:
Debit Undeposited fund
Credit Accounts receivable

Record Deposit
Debit Surcharge
Debit Bank
Credit Undeposited fund

Although either method gives the correct ledger, I would prefer using the undeposited fund to the discount method since the statement format is my concern and the accounting flow is clearer.

What’s your budget?

Happy new year!

We wish you all have a great 2022.

After being disrupted by the COVID pandemic for two years, it’s time to regroup and plan for your next move.

The world ahead of 2022 could be bright and sunny.
It is a recovery phase for many businesses.
But, are you ready?

Will your customer come back after this pandemic?
Will the operational costs increase?
Do you need to cut back on expenses?
Or increase the marketing spending?
Any change in the product line?
Do your customer still need your product?
Or is it better to switch business models?

The pandemic has changed how a business operates.
Consumer buying behaviour has changed.
Goods may no longer supply the way they used to be.

Being a small business, you may have to change to meet the changes.
Do you have sufficient financial muscle to change?
What should be a realistic projected sales revenue?
What is the new operational cost?
You need a budget.

The business costs changed when the business environment changed. The cost changes can be range from distribution, marketing, direct cost, finance cost, etc. With an appropriate cost allocation (fixed and variable) and desired margin to achieve, you derive a realistic sales revenue and input the budget into the accounting system.

Create a budget in the accounting system

Most of the budgeting feature in a small business accounting system is simple to operate. Budgeting is usually a wizard or form-based, easy for an accountant to follow and create.

QuickBooks Online (QBO)


Click on the Gear icon and select Budgeting from the list. Then, click on the Add Budget button from the budget list to start a budget.

QuickBooks Online (QBO) budgeting

Follow the budgeting wizard, enter the name (e.g. Budget 2022) and select the date range, budget interval (monthly, quarterly or yearly), building the budget from scratch or based on last year’s actual data, etc. Finally, enter the budget figure into the appropriate budget cell.

You may “alter” the budget from time to time to reflect a more realistic goal or create a new budget if the actual has deviated too much from the ideal, and print a Budget vs Actual report to compare your budget against the actual performance.

QuickBooks Online Budget vs Actual report

QuickBooks Desktop and Reckon Accounts Desktop

Reckon Accounts (formerly known as Reckon QuickBooks) has a similar feature and program layout as Intuit QuickBooks.

If using Intuit QuickBooks Desktop or Reckon Accounts, go to the Company menu, Planning and Budgeting sub-menu, and select Setup Budget.

QuickBooks Budget

Click on the New Budget button from the budget list page to create a new budget. Then, follow the wizard to set up the budget year, budget for Profit & Loss, or Balance Sheet, any additional criteria for the budget, etc.

Besides copying the budget figure across the months, you can adjust the row amount based on a percentage increase or decrease in QuickBooks Desktop (or Reckon Accounts).

QuickBooks and Reckon Account budget

Then, measure the performance with the Budget vs Actual report.

MoneyWorks

MoneyWorks’ budget feature is under the Show menu. It provides a list of accounts (both Balance Sheet and Profit & Loss account) and the sub-ledger if you have switched on the departmental accounting.

MoneyWorks budget

Enter the budget figure into the cell and filling down, duplicate the data or distribute the value across the months.

MoneyWorks Profit Budget Report

Then, monitor your progress with the Budget Profit report, comparing the budget against the actual.

We don’t plan to fail but often fail to plan

Small businesses are usually more concerned about cash flow and day-to-day operation, but having a budget is extremely important when moving towards a new normal. With limited resources, it is more crucial to monitor the performance in an uncertain market.

Budgeting is like a compass, helping the business navigate, achieve the revenue and costs as planned.

Good luck!
Stay safe and healthy.