Podcast WSW Drawing the Line
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[00:00:00]
Welcome to Workshop Wednesday
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Dan DeLong: Well, welcome to another workshop. Wednesday brought to you by school bookkeeping. com, which is all about. Casual Conversations for Serious Workflows. It's nice to see you, Rachel, in your School of Bookkeeping uniform.
Rachel: Yeah, yeah. Well, it's more of a t shirt than a uniform, [00:01:00] but,
Dan DeLong: yeah. Well, you know, we start off small here and and grow with you as as you grow your practice and your firm.
Yeah.
Earmark CPE Credit Details
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Dan DeLong: A couple of things about the, the earmark CPE credit we're super excited to, to now being able to offer that just for joining us on the, on, on a weekly casual conversation. There are channel is, is now live at earmark. So we do have three prior, Workshops that are that are there and have eligible for for CPE credit.
I did put them in the chat. So that should be Circulating to the to the social channels, as well so you can
Rachel: thousands of people are clicking on it right now
Dan DeLong: Yeah, I can see
Rachel: Earmark is so awesome though. I love it
Dan DeLong: Yeah. Yeah. And and the way it works is that you can, you can do a free, [00:02:00] a free level, which allows you to I believe you can do one, one a month. There. But if you, if you subscribe to earmark, wait that one a
Rachel: week? I think it's one a week.
Dan DeLong: One a week, one a month.
I dunno, I have free version.
Rachel: Lemme, lemme check. Let me check.
Dan DeLong: Nancy Nancy's on on YouTube. Maybe she can she can tell us. 'cause we were talking a little bit about on the last time we talked on the QB power hour, about earmark. But I know it was. There's a free level, which, which gives you, you know, a certain amount or a paid level, which gives you unlimited, right?
When you're, when you're at that CPE crunch and you, and you just need some CPEs, Earmark is really great for that because, you know, you don't always need to go to school of bookkeeping to do that. You can just listen to anything that. Tickles your fancy.
Rachel: Yes, it's one a week you get one a week.
Dan DeLong: Okay,
Rachel: or you can [00:03:00] subscribe for 149 a year Endless, you get, and there's a million zillion podcasts on here and it's awesome because a lot of different people in our industry need CPE.
It's very important.
Dan DeLong: Yeah. Nancy McClelland is the dancing accountant is on, is on there as well. So if you, if you don't like what you hear from Rachel and myself. You can just pop on over to Nancy and listen to her.
Rachel: Yeah, CPA. Cause that's her, that's her specialty.
Dan DeLong: That's her jam. All right. Well today we are going to be speaking of asking a CPA, She says we click page not found.
Oh, well, I'm right there on the, on the school of bookkeeping earmark channel. So I'm going to try that, try to copy and paste that again. So let's see here. Who knows? This is the dangers of doing a live [00:04:00] webinar and sharing links, but we'll, we'll, we'll, we'll be sure to update the link if it, if it's not.
But I'm, I just copied it from, from our channel. So, okay.
Rachel: Or you can just hit the earmark app on the search for
Dan DeLong: school bookkeeping and
Rachel: and then
Dan DeLong: you're there.
Introduction to QuickBooks and Tax Returns
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Dan DeLong: So today we're going to be talking about tying QuickBooks online to, to a tax return. And this is something that we've had at school bookkeeping for a while as far as a a utility or download that's that's available.
You do have access to it. If you're a member of school bookkeeping even the free level because we like to, you know, give, give things away here. So let me just make sure I've got the QR code up here in the corner there. So there's there. is the QR code to be able to scan that and access the template.
[00:05:00] I'm going to be sharing and walking through because we've made some tweaks to the template to be able to do that. But let me go ahead and do that.
There we go. All right. So there's in our, in our section called downloads and resources. When you subscribe to school bookkeeping, you'll have a library of things that you can access. One of them will be downloads and resources. And then you can go in there and take a look at this one, how to make the balances agree a starting point is the topic there.
And the use case here is, you know, if you're starting, You know, bringing on a new client that has a mess. , they have made a mess of their QuickBooks. Never happens, right? Rachel?
Rachel: Never .
Dan DeLong: A lot of times, I mean, my, my brother-in-law is a, is is a prime example, right? Like, he's a, he's a painter. [00:06:00] And he paints and, you know, he is the face of the business.
He's wearing a lot of hats. He's, he primarily uses QuickBooks online too. Bill his clients, right? Like and that's typically where they, they, they want money coming in, but they're not necessarily too concerned about the money that's going out. Right. They just make sure that they can pay for their stuff.
They don't necessarily connect their bank accounts or, you know, categorize things appropriately. But you know, they do file their taxes every, so every year or so. So this, this allows you to, to come in to. A, a mess of a, of a situation and draw that line in the sand, right? Or maybe you've done a, a migration from QuickBooks Desktop to QuickBooks Online and some things, you know, garbage in, garbage out, you know, when it comes to, to those types of things.
So if they've been playing [00:07:00] around in the garbage and don't, don't expect QuickBooks online to sort sift through that and put the recycling where it's supposed to go. The compost, you know, it, it doesn't. I had one, one client who had a sales tax agency of Citibank, right?
Rachel: Yeah.
Dan DeLong: It put all of their sales tax payables to to their vendor Citibank and, rather than go.
Rachel: Sometimes the things I see are funny. Usually what I've kind of come across the most is, you I would say people just, you know, very well meaning, just don't really understand. They use QuickBooks more of as an invoice machine rather than a comprehensive, for the entire financial picture. So that's something that I've [00:08:00] definitely stepped in a few different times,
Dan DeLong: or they've done this mixture of the two, they've connected their bank account and they've, they're using QuickBooks to invoice and receive payments and those types of things.
Cause of all the cool things that. That QuickBooks allows them to do mm-hmm . But there's a disconnect between the bank feed and the bank deposits. Yeah. And the workflows that should have been matching to that bank to said bank feed, right? Yeah. I mean that's, that's the, that's the, the crux of your business name, right?
The, the, the whole net deposited is where they're just accounting for their revenue on a deposit as opposed to the workflows of. estimate leads to invoice, leads to payments, leads to, leads to the deposit and then the fees and whatnot. Which is not, I mean,
Rachel: not necessarily the worst thing in the world if they really just kind of want to look at it like cash in, cash out.
But you still have to kind of think about We're [00:09:00] recording all these transactions for financial statements. So we want to make sure that everything is going in correctly.
Dan DeLong: All right.
Using the Excel Template for Adjustments
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Dan DeLong: So you'll want to have two things handy when you're, when you're ready for this is one, there's the last file tax return because that's the date that you're just gonna draw that line in the sand, because that's the last thing that.
The government knows about, and then you want to pick up moving forward from that. And this template, this Excel template that we've put in School of Bookkeeping, will allow you to to do that pretty, pretty, pretty smoothly. And I'm not going to make a claim that it's going to blow your mind, but it is just a nice tool to have, right?
Now, there's some things to consider here when you're before you get all, get too excited about this template you know, there's, there's going to be. You know, a lot of times there's you're, you're changing tires on a moving vehicle, right? [00:10:00] So if you're going to make that line in the sand as of the end of the filing period, there's been, there's probably going to be some things that were lingering in that tax year that you may want to account for as part of that line in the sand, right?
And one of that would be your bank balances and reconciliations if you have some outstanding transactions. And I'm not talking about, yay, these transactions are. are super cool. They're outstanding. No, they're, they haven't,
these are great transactions. They're better than that. They're outstanding. Thanks for the courtesy laugh. Heard that all the way from Michigan. But those outstanding transactions, you want to make sure that those are entered in, before you make this adjustment. Otherwise, if you add them in after you make the adjustment, then you need to adjust the adjustment.
So keep that in mind open receivables and [00:11:00] accounts payables, right? You want to make sure that those are, those are entered in. This is all prior to that date that you're making that line in the sand, right? So make sure that those are there. And then of course, some inventory you know, issues, you know, same verse, same as I put in here, a different verse, same as the first, right?
Making sure that inventory is accurate as of that start date before you make that, that adjustment, you can make the adjustment. But just bear in mind that if you go back to that, you know, prior to that. Starting date, then that that's gonna, that's gonna cause some adjustments to your adjustment. So you, you'll want to make sure that that, so about that, right?
Practical Demonstration in QuickBooks
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Dan DeLong: So here's the steps here, and I'm going to walk you through and we're going to try this in a, in a, in a sample QuickBooks online file, right? But. The steps are in here. Once you have access to the, to the template, you'll have access to these steps as well. And I'm going to, we're going to take this video and put it at the [00:12:00] top here to update it on the new one here.
So the videos here, you'll have everything you need to be able to do this. So hopefully it will come
Rachel: in handy. Can you explain why anybody would even have to enter starting balances? What's, what's the purpose for that?
Dan DeLong: Well, The whole idea of a balance sheet, right, is a, is a, is an ongoing balance from the beginning of time, right?
So, a lot of times people will just say, well, can I just pick up from today and, and move forward? Well, the last thing that you need to you know, what, what, especially with a balance sheet, you want to make sure that that balance is accurate as of a certain point, because any change, anything you enter into those balance sheets, dictates the ending balance, right?
So when you if you told the government that your, [00:13:00] that your, your, your, your overall balance of a particular account is X. Right? Then you wanna make sure that as of that date, it is the same, the same date. Now, profit and loss accounts, you know, income and income and expenses, those are, I'm gonna use a, an accounting term transitory , right?
Meaning that once that year ends, they're, they're, they're moved or adjusted into retained earnings or net income, and then you, you move on because those are the balance sheets that roll forward. Yeah. Did I get that right? Is that what you were. Yeah, yeah,
Rachel: exactly. I, I usually use the word temporary.
So they're temporary. I think it closed out at the end of the year where a balance sheet sort of rolls along in perpetuity as long as you have assets, liabilities and equity. So it just is always going from year to year to year, hopefully increasing [00:14:00] in retained earnings.
Dan DeLong: That's always a plus if you, if you increase over time or if you decrease, then you're Your expenses are, are reflective of that, that you're not spending more than you're, than you're making.
So this is nothing more than an Excel template that will have multiple things, multiple tabs on it that you can, that you can utilize, right? So the, the form on the first tab is really. It's got the instructions right here again but really all you want to do there is put in the company name and the adjustment date, the date that you, that you want to make this adjustment, which would be, you know, the, the closing of the period of the tax return that you have, right?
So if it's 2024, great you're a little ahead of the game, but let's just for giggles here, we're just going to say this is 2023, right? Which would typically the case, right? Not filed tax returns because this is, 15 [00:15:00] days into 2025. If you filed your tax returns already and you're aligning to it, you wouldn't need this to begin with.
So 2023
Rachel: is our, you know, when you're gathering all that information from a potential, you know, new client, or if you know, you're,
Dan DeLong: I missed the first part of what you said there.
Rachel: Yeah. Oh, I just said, make sure, you know, you, you understand when the ending of their fiscal year is, because I just took on a new client.
They're July to July. And so you know, it's not always going to be December 31st. So that's, that's really, really important to know.
Dan DeLong: Good point. If, if, if you need to ask a CPA.
Rachel: Yes.
Dan DeLong: Another nod there to Nancy. Okay. So the first this is where you would do the majority of your of the magic career.
Right. This white area is, is, is stuff that you're going to get from QuickBooks and the green area is stuff that you're going to be entering in. So [00:16:00] I'm going to swipe on over here to, I mean, Craig's Landscaping, which is just the, the, the test drive company. And what do you want to do is find the trial balance report.
I like to just search for it rather than trying to find it. So here's the, the the trial balance and you want to run this. for the year of your tax return, right? So whatever year that tax return is ending, that's that's the date that you want to run it through. So we chose 12 31 2023. So we're going to do 12 1 1 2023 to 12 31 23.
Here we go. Hopefully there's data in here. No, there's not. Damn it. Okay. So. For this purpose, for the purposes of the, of this year, we're just going to choose last year. There we go. Which means I got to go over here. Whoops. [00:17:00] I scrolled too far and changed my, my date here.
Back here. Okay. So I've got my, I've got my, my trial balance, which is the sum of all of my balance sheets up until the end of this year, as well as the balances of my profit and loss. For that year, right, which would essentially be, you know, the other numbers on, on the tax returns, things that gross receipts and, you know, cost of goods sold and, and all of the things that you reported on that tax return should be in, in some way, shape, or form mentioned here in.
In this trial balance, right now, if you're using right tool, which we love, right tool, then you can just go over here to this. Here we go. This guy and choose this export to CSV, [00:18:00] which gets rid of all of the formatting and whatnot of this report when it sends it to Excel. Or you could just copy it to the clipboard, which ultimately what we're, what we're going to do anyway but let me just choose the export to CSV.
So you can see it. It downloads the CSV file. Of course, puts it on the other screen and you're saying
Rachel: R I G H T right tool and it's a little extension. There's a free version. You can just get it and yeah. It goes on the right side of your QBO.
Dan DeLong: And we've had them on the, on, on as well. And we also have a discount code for you for the, for the pro, which we're going to talk to, talk to you about why you might want the pro just in this tool.
Let's see here. We're going to I got to get rid of the top lines here, which is probably a good use case of [00:19:00] why you would want to just copy it to your clipboard, right? But here's our, here's our accounts. And our debits and credits and all we want to do is copy from a little surgery here. Copy from the first account all the way down to above the total, right?
So this grand total here, so we're going to copy that and then back in our Excel spreadsheet here. Put your cursor in the first account and paste it. Right. So that has now put your trial balance into this, this spreadsheet. Right. Now what's happening here is it's got the debits and credits and then this debits and credits in the green is the difference between what you've mentioned over here.
So then there's a debits and credits column in this. To the right of the, of the [00:20:00] account in the green area, right? And you can make some comments in here as well. And there's also a tab here for, you know, just general notes for, for this particular situation. So we go back in here and then, so what you're going to be doing is just aligning the tax return to what QuickBooks says, right?
So here, the checking account says 2, 101. If that's not what was put on the tax return, then just put what was in the tax return. Well, let's say it was 3, 000 and we're going to put that in here. And so what it does here is now calculates the debit, the debits and credits difference between the tax return and what QuickBooks has.
And we're just going to go down down the line here. And just say well, this is saying that there's a oh, sorry, this is a there was an 800 savings. So we'll just say if, if there's no change or if it does [00:21:00] match, then just leave it blank, right? Like you don't have to go through everyone and put it in.
The exact same amount because it will, it will, it will say, actually you do want to put the, put the numbers in here if it's mentioned so that it doesn't calculate a difference between the two.
Rachel: Wait, let me make sure I understand. So, this would be like, I can see if maybe I'm starting a new QBO or something, you know, I can put the balances on, but are you saying like if it's an existing QBO and the numbers don't align to what the prior tax returns are saying, it'll just create adjustments?
Dan DeLong: Yes.
Rachel: Okay.
Dan DeLong: Yes, absolutely. So
Rachel: you don't have to go back and re reconcile old checking accounts or anything like that.
Dan DeLong: Right, right. Because that's maybe not part of your engagement.
Rachel: Right.
Dan DeLong: Cleaning up their crap from, from before, right? So we're, we're picking a point, you know, cause they're not going to be [00:22:00] unless, you know, that's part of it, right?
So if you, if you are going to go through and clean up that and it doesn't again align to the tax return, then. That's another conversation, right? Like, hey, you're going to need to file an amended return because we've now cleaned up your QuickBooks data. This is, this is the point of where, okay, we're just going to use this, this moment in time as the moment of truth, align QuickBooks to that, and then move forward from that in our, in our, and there's a
Rachel: time to do that.
That's that's. Yes. Yeah. Okay.
Dan DeLong: So, yes. Yeah. You do want to go through and and put in the the balance sheet amounts as well as the income and expense amounts all through here right and just and you just go down the line right of of what you have there And do we just, I mean, [00:23:00] I'm just going to put a few in here because we're not going to actually do you know, the importing process, but I'm going to show you a couple of ways to do that, right?
So we're just going to go through, I'm just putting in some numbers. Yeah, that's a little too big,
whatever, whatever it happens to be, make sure you use numbers and not text, right? But you would go through the entire trial balance and align that to your. To your tax return, right? And then down here, we have three outputs, right? So, This output here is for a TransactionPro importer, TPI, right?
So this is the format that that TransactionPro needs, right? So as it's gone through you know, this trial balance tab it will copy what's necessary into this output, right? So let's say you're not using TransactionPro, [00:24:00] you're using Sassant, right? So we've got a Sassant export as well. Or. Let's say you're using right tool pro, right?
So we've got three different outputs depending on how how it is that you that you'd like to one of the really cool tools or really cool features of right tool pro is the ability to copy and paste a Journal entry so rather than going through the import process which transaction pro Or sassant is going to need you to do.
You can just essentially copy and paste this, this entire output and go back into directly within right tool and just choose the option to copy it in, put it in their user, their interface, and then it will do the copying and pasting for you. Right? So all you need to do for right tool is [00:25:00] again, just copy the output.
On the tab and then paste it into, into QuickBooks right there. So you never actually have to leave, QuickBooks, with the exception of, you know, just doing just doing this, you don't have to go into another tool, right? It's, it's QuickBooks and this template, this Excel template. And then going right back into, into QuickBooks.
Another thing that WriteTool does because I had a, had a quick call with Mark yesterday, is that for balance sheets for the, the ProTool, it allows you to make adjustments right there. And it will create the journal entry for you.
Rachel: Yeah. That's awesome. I remember they were talking about that before.
That's a new update and I have a right tool version and they
Dan DeLong: do something very similar to this right in, right in right tool with the exception of the. [00:26:00] The income and expense, right? So you could use this for the, the, the income and expense, and then just use the right tool pro feature for, for the, for the balance sheet, right?
Rachel: Yeah. And I said that Rachel pro is nice. Cause you don't necessarily need to fix all of the accounts, like maybe one or two Nancy has a question, which is you know, this isn't always going to be the case because there's different types of tax returns. So like when you're dealing with a schedule C, they don't, there is no balance sheet or we may be using a balance sheet, but they don't need to take that into consideration, but the return.
Dan DeLong: Yeah. So you're going to need some moment in time. And typically that is, you know, the, the, the tax return but whatever it is that they want to be able to, to align to you know, you can get that and then put that in. Yeah, because if
Rachel: [00:27:00] they're, you know, filing with the schedule C and there isn't, you know, a previous balance sheet to look at or something, usually what I would do is I would, you know, get the bank statements, credit card statements, loan statements and make sure that I start the new file or, you know, if I'm not cleaning it up or something, which isn't usual, usually I do clean it up, but if I need to have the correct starting balances, you can just pull those right from, yeah.
Yeah. The previous statements,
Dan DeLong: it's a lot more paperwork and a lot more gathering of, you know, supporting documents to, to get that stuff. That's why, you know, having it in, in a tax return. But good point, Nancy, as far as, you know, those type of entities don't have a balance sheet on their, on their, On their return, usually, you know, one stop shop, you know, that's typically what we want to have is, is one source of truth rather than a multitude of, of, of truths.[00:28:00]
But then at that point, you, you really just have, you know, your preferred outcome output, right? And in the, in the instructions here, we've, we've provided links to, you know, transaction pro or SAS and online or right tool pro if you are. Using WriteTool Pro, Mark and Hector were nice enough to give us a promo code for the first year, so you get 20 percent off.
The first year by using a promo code S of B, not
Rachel: SOB. And anybody that doesn't know what right tool is, Oh my goodness. It's just a whole bunch of neat shortcuts that save you a whole bunch of time. There's batching abilities and you can batch delete. out of a register and just little things that should be in QBO, but they're not yet.
[00:29:00] So they've created all these neat little shortcuts that now we can't live without. Yeah,
Dan DeLong: I think I think Hector says just making QuickBooks usable again is his goal of there. And, you know, He, what drives him crazy is repetitive tasks that, that cost him seconds of his life. Yeah.
Rachel: Yeah. Right. It can be done in one second instead of eight seconds.
That's literally how Hector Garcia is.
Dan DeLong: Yeah. And on the where did I have it here? There it is down in here. I actually do have right tools, copy and paste option where it's, it's kind of funny because he had to use his this is when he was going through his vocal cord surgery. So he actually recorded an AI voice of himself.
So it does not sound, you know, exactly like, you know, the chipper chipper [00:30:00] version of, of Hector. It does sound a little slightly robotic because it is, but it does sound like Hector. It actually is kind of an interesting. experiment in in, in AI. But he walks you through or his, his robot, robot Hector, cyber Hector, walks you through this whole process of, of, of copying and pasting there.
So that is a really good good use of right tool pro. Nancy is cheering on the right tool bandwagon as well. So, and we love it love, love it, love it as well. But this is in a nutshell, the the ability to tie, you know, a starting point and just get a, get a, get your balances agree inside of, inside of QuickBooks again to draw that line in the sand and say, Hey, we're not really [00:31:00] worried about all of the details prior to this date, let's, let's choose this moment in time, you know, because, It's going to take you time and cost the customer, you know, who knows how much in order to rectify that and get, and get things aligned.
And typically that's not part of your engagement. If it is great by all means, go, go forth and clean up a mess. But this allows you to, you know, kind of. Push that, push that to the, to the back burner. Find that moment in time that, that, that you and the client can agree that this is, this is where we want to move on moving forward.
And then, you know, go, go from there.
Final Tips and Best Practices
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Rachel: I will say though, if it's, you know, beyond really a bookkeeper's understanding, especially with regards to a [00:32:00] higher level of tax involved do make sure that, you know, you're at least you know, their tax preparer CPA is on board with What's happening and, and rather than just maybe making the executive decision on your own, do make sure that that that's, that's going to be okay with all parties.
That's one thing that. I do suggest.
Dan DeLong: Yeah. Nancy brings up a good question as well about, well, you know, what if what's on the tax return doesn't match exactly what's what's on what's in QuickBooks. That's a great question.
Rachel: It won't.
Dan DeLong: Yeah. They may be calling it, you know, checking. Parentheses last four in QuickBooks and in the tax return, they just call it checking.
That's, I guess, in some cases, that can be just a mental thing for you. [00:33:00] You know, looking at the return and aligning that. Or there may be some consolidation, right, where you've got some details. That are sub accounts.
Rachel: Yeah, that's what I think you're talking about. If there's rolling up into that, yeah, the tax return.
There's just one line. Yeah.
Dan DeLong: Understanding that you're, you're, you're either going to choose you know, the parent and just make, make the alignment to that. Just keep in mind, especially for income and expense. Those are individual those are individual accounts. So even if you just make it to the parent.
That's, that's not gonna, you know, consolidate all of that. Just, so just bear that in mind when, before, you know, making one change or, or the other or clean up the, the chart of accounts, you know, to, to make them, consolidated and [00:34:00] then, you know, move them out after, Which is, which is totally fine as well.
So there's a lot of ways to, to do things. That's kind of QuickBooks, QuickBooks is double edged sword, right? Yeah, it's great because you can delete things. It's bad because you can delete things.
So that's why
Rachel: there's, that's why there's a endless amount of webinars and. tips and education and all things to make sure that, you know, people out there are getting as much, as much information as they can to use the software correctly.
Dan DeLong: Absolutely. So this is a, just a nice little tool a resource for you in, in school bookkeeping to be able to, you know, do those automatic reconciliation, so to speak of.
Reconciling a tax return to, to QuickBooks to draw that line in the sand, to allow you to, [00:35:00] you know, make things in alignment, and then move forward from there.
Conclusion and Upcoming Topics
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Dan DeLong: So we appreciate you joining us today and next week we'll actually have Sean again we were supposed to have him today, where we'll be continuing our, our, our series of.
Comparing QuickBooks Desktop to to a cloud based inventory solution like Katana and and we're going to be talking about just the generalities and the functionalities that are tied to building things inside of QuickBooks Desktop and comparing them to Katana's cloud based solution. So we appreciate you joining and we'll see you next time on the Workshop Wednesday.
Have a great day, everyone. [00:36:00]
