Monitoring Client Financial Statement Accounts

Many practitioners review and adjust their clients' QuickBooks data files on a monthly basis. Other practitioners actually post routine transactions (such as purchases and sales) to their clients' QuickBooks files using source documents provided by the clients. The following provides guidance on reviewing and adjusting clients' QuickBooks files rather than posting routine transactions.

Although the types of transactions encountered may vary with each client, the basic steps necessary to review the transactions generally do not vary significantly from client to client or from period to period. First, the practitioner should verify that the client has reconciled any bank statements and credit card statements for the preceding month. Alternatively, the practitioner may reconcile such statements. Next, the practitioner should record any recurring journal entries (such as depreciation expense and interest expense). The practitioner then should review the client's general ledger or review the "Working Trial Balance."

Working Trial Balance
After recording any recurring journal entries, the practitioner should review the client's trial balance. QuickBooks Premier-Accountant includes a "Working Trial Balance" window. This window presents the client's data in a columnar format and allows the practitioner to review balances, drill down to the source detail, make adjusting entries, enter workpaper references, and print the data from within the window.

Practitioners can open the "Working Trial Balance" window by selecting "Working Trial Balance" from the "Accountant" menu (the "Working Trial Balance" can also be accessed through the "Client Data Review" feature) and view the following information.

1. Selected Period. Practitioners can specify the period by selecting a period (such as "Last Month," "This fiscal quarter," or "Last fiscal year") from the drop-down list. Alternatively, practitioners can enter the beginning and ending dates for the period in the "From" and "To" fields.
2. Basis. Practitioners should verify that the appropriate accounting basis is selected.
3. Account. The account column lists all of the accounts in the same order as they appear in the chart of accounts. Practitioners can edit an account by double-clicking on the account name, which opens the "Edit Account" window.
4. Beginning Balance. The beginning balance column shows the beginning balance for each account. Practitioners can "QuickZoom" on any amount to view the "Transactions by Account" report for that account as of the "From" date. Practitioners also can "QuickZoom" on the "Total" amount at the bottom of the beginning balance column to view the "Transactions by Account" report for all accounts as of the "From" date.
5. Transactions. The transactions column lists all transactions made between the "From" date and the "To" date. Practitioners can "QuickZoom" on any amount to view the "Transaction Detail by Account" report for that account for the selected period. Practitioners also can "QuickZoom" on the "Total" amount at the bottom of the transactions column to view the "Transaction Detail by Account" report for all accounts for the selected period. Practitioners should scan the transactions posted to each account to detect unusual entries.
6. Adjustments. The adjustments column lists all adjusting journal entries made between the "From" date and the "To" date. Practitioners can "QuickZoom" on any amount to view the "Transaction Detail by Account" report for that account for the selected period. Practitioners also can "QuickZoom" on the "Total" amount at the bottom of the adjustments column to view the "Adjusting Journal Entries" report for all accounts for the selected period.
7. Ending Balance. The ending balance column shows the ending balance for each account. Practitioners can "QuickZoom" on any amount to view the "Transactions by Account" report for that account as of the "To" date. Practitioners also can "QuickZoom" on the "Total" amount at the bottom of the ending balance column to view the "Transactions by Account" report for all accounts as of the "To" date. The practitioner should scan the ending balances to detect unexpected ending balances.
8. Workpaper Reference. Practitioners can click in the workpaper reference column for any account and type a reference. The reference is saved with the account until it is changed or deleted from the "Working Trial Balance" window.
9. Net Income. The net income for the selected period is shown in the bottom right corner of the window.
10. "Only show accounts with transaction activity" checkbox. Practitioners can click the checkbox if they only want to see accounts that had transaction activity for the selected period. The checkbox can be cleared to view all accounts.
11. Make Adjustments. Clicking on the "Make Adjustments" button opens the "Make General Journal Entries" window, in which practitioners can make adjusting entries.
12. Print. Practitioners can print the working trial balance by clicking on the "Print" button.

Note: The "Working Trial Balance" window is available only in QuickBooks Premier-Accountant.

General Ledger
If practitioners do not have QuickBooks Premier-Accountant, they should review the client's general ledger by selecting "Accountant & Taxes" and then "General Ledger" from the "Reports" menu. The general ledger lists the beginning and ending balances, as well as the transaction activity for each account, for the specified time period. The practitioner should scan the ending balances and the transactions posted to each general ledger account to detect unusual entries or unexpected ending balances.

Some common "red flags" that may indicate a problem in a specific account include the following:

• Debit versus Credit Balance. Some accounts typically have debit balances (assets and expenses) and others have credit balances (liability, equity, and revenues). If an account has an unexpected debit or credit balance, the practitioner should investigate the reason.
• Debit versus Credit Postings. Some accounts typically have debit postings (expenses) and others have credit postings (revenues). If credit entries are posted to an expense account or debit entries are posted to a revenue account, further investigation may be warranted.
• Unusually Large or Small Amounts. Most accounts have a normal range of transaction amounts. Unusually large or small amounts may indicate transaction posting errors.
• Unexpected Posting Source. Some accounts primarily consist of postings from specified "types" within QuickBooks. For example, postings to accounts receivable generally are from "invoice" and "payment" types. If postings are from other "types," the transactions may have been posted incorrectly.
• Beginning and End of Period Balances. Balance sheet account balances often are comparable from one period to the next. If the ending balance for an account differs significantly from the balance at the beginning of the period, the transactions posted to that account may need to be investigated.
• Absence of an Entry. Many accounts have journal entries posted to them each month. The practitioner may need to investigate if a journal entry posting is missing.

The practitioner should prepare journal entries to correct any errors (such as miscodings or missed entries) detected in the general ledger review.

In addition to reviewing the general ledger or the "Working Trial Balance" for "red flags," practitioners also may want to perform the following steps on a monthly basis:

• Agree ending general ledger cash balances to ending bank reconciliation balances.
• Agree ending general ledger credit card liability balances to ending credit card statement reconciliations.
• Agree the ending accounts receivable general ledger balance to the total of the "A/R Aging Summary" report (under "Customers & Receivables" in the "Reports" menu).
• Agree the ending accounts payable general ledger balance to the total of the "A/P Aging Summary" report (under "Vendors & Payables" in the "Reports" menu).
• Reconcile any significant differences between total monthly sales posted to the general ledger and the "Sales by Customer Summary" report (under "Sales" in the "Reports" menu) for the month.
• Agree the ending general ledger balances for payroll liability accounts to the "Payroll Liability Balances" report (under "Employees & Payroll" in the "Reports" menu).
• Agree the ending sales tax payable general ledger balance to the "Sales Tax Liability" report (under "Vendors & Payables" in the "Reports" menu).
• Adjust uncategorized income and expense accounts.

In addition to reviewing general ledger balances and activity or the "Working Trial Balance," practitioners also may want to review a standard trial balance by selecting "Accountant & Taxes" and then "Trial Balance" from the "Reports" menu. The trial balance lists the ending balances of all accounts in debit and credit columns.

Detail Account Analysis
In addition to the general ledger and trial balance, QuickBooks provides practitioners with numerous other reports for performing detail account analysis. The audit trail report lists detail information (such as who posted a transaction and when) about each transaction posted during a specified period. The report also identifies changed and deleted transactions. When researching detail account information, practitioners also may want to review the following QuickBooks reports:

• Closing Date Exception Report. This report is available in QuickBooks Premier and Premier-Accountant. The report lists detail transactions entered or modified after the closing date and is almost identical to the audit trail report.
• Transaction Detail by Account. This report lists the account activity and ending balance for each general ledger account with activity during the specified time period. It does not list accounts with no activity during the specified period.
• Journal. This report lists transactions chronologically for the specified period. The debits and credits for each affected account are listed separately for each transaction in the report. The report may be customized and filtered to help identify changes to prior-period balances. (Set the transaction dates as dates on or before the prior period ending date. Click the "Modify Report" button and the "Display" tab. Select "Entered/Last Modified" from the "Columns" list. Click the "Filters" tab, select "Entered/Modified" from the "Filter" list, and specify the "Entered/Modified" dates after the prior period ending date.)
• Transaction List by Date. This report lists transactions chronologically for the specified time period. The report summarizes each transaction into one line item on the report. Each account affected by the transaction is not listed separately.
• Voided/Deleted Transactions Summary. This report lists transactions that were voided, deleted, or unvoided during a specified period.

Practitioners can generate the preceding reports by selecting "Accountant & Taxes" from the "Reports" menu. Practitioners also can see the history of certain transactions by opening the applicable account register (by double-clicking on the account in the chart of accounts), clicking on the selected transaction, and selecting "Transaction History" from the "Edit" menu. The "Transaction History" window displays transactions that are linked to the selected transaction. If a particular transaction cannot be located in an account register, practitioners can select "Find" from the "Edit" menu to locate the transaction.

Uncategorized Income and Expenses
QuickBooks allows users to process transactions without assigning general ledger accounts to them if the "Require accounts" preference is not turned on. QuickBooks automatically posts all transactions processed without an account to the "Uncategorized Income" or "Uncategorized Expenses" accounts. Practitioners should review the "Uncategorized Income" and "Uncategorized Expenses" accounts each month and transfer amounts from those accounts to the appropriate general ledger accounts. Practitioners can review the accounts by selecting "Chart of Accounts" from the "Lists" menu and double-clicking on the "Uncategorized Income" and "Uncategorized Expenses" accounts. Practitioners then should enter the applicable date range for the resulting "Account QuickReport" and click the "Refresh" button. Practitioners then can determine the account(s) to which the amounts in the report should have been posted by double-clicking on the amounts to view the details of the transactions.

QuickBooks automatically creates the "Uncategorized Income" and "Uncategorized Expenses" accounts when a user sets up a company file and enters an opening accounts receivable balance for a customer or an opening accounts payable balance for a vendor. (However, we believe that users should not enter outstanding balances at that point. Instead, they should enter the individual invoices that make up the outstanding balances when they enter other historical transactions. Those balances represent receivables and payables as of the QuickBooks start date. If the QuickBooks start date is the first day of the client's current fiscal year (or the last day of the client's prior fiscal year), the receivables and payables represent transactions generated in the prior fiscal year. In that case, the practitioner should reclassify the related uncategorized income and expense amounts to the QuickBooks opening balance equity account. If the QuickBooks start date is in the client's current fiscal year, the receivables and payables may represent transactions generated in the current fiscal year as well as in the prior fiscal year. In that case, the practitioner should reclassify the related uncategorized income and expense amounts to the appropriate current year income and expense accounts or opening balance equity, depending on when the related transaction was generated. Practitioners can identify the uncategorized income and expense amounts related to opening accounts receivable and accounts payable balances as follows:

• Double-click on the "Uncategorized Income" and "Uncategorized Expenses" accounts in the chart of accounts.
• Select "All" from the "Dates" drop-down list in the resulting "Account QuickReport" for the "Uncategorized Income" and "Uncategorized Expenses" accounts.
• Locate transactions identified with "Opening bal" in the "Memo" column of the "Account QuickReport." Alternatively, filter the report by clicking the "Modify Report" button and the "Filters" tab. Select "Memo" from the "Filter" drop-down list, and enter "Opening bal" in the "Memo" field.

Practitioners should need to perform the preceding steps only in the first fiscal year that a client uses QuickBooks.

"Ask My Accountant" Account
QuickBooks users must assign an account to a transaction if the "Require accounts" preference is checked. QuickBooks automatically creates an "Ask My Accountant" expense account when setting up a new chart of accounts. Practitioners should instruct their QuickBooks clients to assign transactions to the "Ask My Accountant" account when they are unsure which account to assign. The practitioner then can review the transactions posted to the "Ask My Accountant" account and assign those transactions to the correct accounts.