Archive for the Category »Bookkeeping Basics «

When you realize you need bookkeeping help, how do you identify what is the best resource for your business?

Call in your accountant (CPA) or hire a Bookkeeping Service?

Each option has different skill sets and different pricing.   You don’t want to end up paying two twice to get the job done.  Therefore, do some homework before making your hiring decision, and really think about what your business needs.

In this blog post, I’ll explore the appropriate situations for these options and hopefully make your job a little easier.

Hiring an Accountant

Your CPA should be brought in for:

  • tax matters
  • tax planning
  • financial statements
  • complex accounting issues
  • to interact with financial advisors and/or banks

CPAs are very important to your business, but you have to understand that their expertise is usually in taxes and they may or may not have QuickBooks expertise.

Hiring a Outsourced Bookkeeper

Bookkeepers, either full time or freelance, can be a good alternative if you find the right one, but remember: you must have time to oversee them on a day-to-day basis.  Some business owners hire a bookkeeper to help save time, only to add another management headache to their already busy lives.

You can reduce this risk by adhering to the old adage of “you get what you pay for.”  TustinTim has been engaged many times to come in and clean up messes that inexperienced bookkeepers have created. It is not a pretty sight in most cases and the root cause is  lack of accounting knowledge.

With our services you have the opportunity to upgrade the quality of your bookkeeping department while cutting costs! By using TustinTim Bookkeeping Services you can replace the wages, payroll taxes, fringe benefits, worker’s compensation insurance, employee training and management, accounting software, office space and other costs associated with an in-house employee. Your costs could be reduced up to 40%! And TustinTim can provide you with the reports you and your CPA need to verify the accuracy of your books.


Whichever route you elect, make sure it’s based on strategic thinking about your business’ needs.  Then do your homework by interviewing, asking questions, checking references, and finding the right person, firm or mix of several professionals to meet those needs.

What do you do when you’ve never done bookkeeping before?

Or you started doing your books months ago but you got so busy with sales and service that now you’re months and months behind?

Where do you start cleaning things up?

How do you start out on the right path?

Use your tax situation to guide you on how far back to go. If your CPA is hounding you for information to do taxes for 2012, then you go back to December 2011 and make sure everything is entered from that point. If your concern is taxes for 2011, then go back to December 2010 and enter everything from that point.

Time is your best friend in this case. That’s right, time.

If you haven’t setup QuickBooks yet, open it up and go through the initial interview process QuickBooks provides for a new company setup. That should be good enough to get you started.

Once that setup is done, start organizing the various piles of paper on your desk, in your drawers, the stuff shoved into the corners of the office that you promised you’d get to later.

Organize the receipts, bills, notices, statements, etc. into date order.

Starting with the oldest paper you find, group each one into a “month-year” folder. When all the paper is sorted this way, you have your starting point.

Taking the oldest month-year folder of paper, open your QuickBooks company file and start data entry. As each item is entered, mark it as done with your name and date on the piece of paper.

Once entered, each piece of paper now deserves its own folder; for example, telephone bills go into a folder made for that vendor, office supply receipts go into files for each of those vendors. The organizing concept is that each company you purchase from gets its own folder.

This is important! In the future, when you may need to see that vendor bill or receipt, it’s easy to locate and your system now works for you rather than against you.

With data entry of old stuff finally done, you’ve reached the point where you can start taking control of your finances. Now you can match up your books against your bank statements (the process known as bank reconciliation) and that puts you on the path knowing the financial health of your company – with real, hard numbers. You’re able to stop the guesswork – hurrah!

Make no mistake – it could be painful doing all this data entry – but the freedom from worry and not knowing your real financial position will be well worth the effort!

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Pondering the confusion question

When faced with a mound of paper, in banker boxes and in drawers it can all appear overwhelming and insurmountable. Months or even years of no data entry, it’s enough to make a grown bookkeeper weep.

Something can be done about it, as distasteful as it may seem. Start somewhere.

The basic idea of bookkeeping – CASH IN, CASH OUT. This command tells you where to start, no matter what the boss or the client says. After all, the boss or the client created the mess in the 1st place….right?

So….start with CASH IN, CASH OUT. What’s that in the real world? It’s the bank accounts where money comes in to the business and exits the business for day to day bills and expenses.

Your weapons of choice in this quest are the sequential bank statements covering the period of no data along with the super QuickBooks tool of “remembering transactions”.

You can have QuickBooks pre-fill new transactions based on previous transactions.

To do this task

1. Open the general preferences.

2. Click Automatically remember account or transaction information.

3. Click one of the following two preferences.

Automatically recall last transaction for this name:
Sets up QuickBooks to remember the previous transaction for a person. When you enter a new transaction, QuickBooks
automatically fills out the form with information you entered in the last transaction of that type for that person. For example, when
you enter a vendor’s name on a bill and press Tab, QuickBooks fills in the bill just like the most recent one you entered for that


This preference works only with bills, checks, credit card charges, invoices, and sales receipts. For invoices and sales receipts, it
completes Ship Via, Ref Doc (PO Number), and Free On Board (FOB) values. This preference has no effect on purchase orders,
payroll liability checks, or credit memos.

Pre-fill accounts for vendor based on past entries: Sets up QuickBooks to pre-fill the account for a vendor transaction based on
previous transactions for that vendor. QuickBooks remembers all your recent transactions for a vendor, not just the most recent
one. If you consistently use the same account for a vendor, QuickBooks will automatically pre-fill that information any time you
select the vendor in a bill, check, or credit card transaction.

How does QuickBooks know which account to pre-fill?

This preference is “smart” about when to pre-fill account information when you select a vendor. For example, if you pay the rent
every month from the same account, QuickBooks will soon start to pre-fill the bills you enter to your landlord with the usual

When you use different accounts for a vendor, the account will not be pre-filled. For example, you might write checks to a
warehouse supplier out of several different accounts, depending on the purchase. So the next time you write a check to that
warehouse, QuickBooks will not pre-fill the account.

4. Click the OK button.

You can always override any pre-filled information in a transaction.

Bad news? At first, the data entry task will be huge. Good news? As you proceed with your data entry, based on the sequential bank statements, you will build up the history of transactions in QuickBooks. Each entry gets you closer and closer to your goal of re-creating a true and accurate picture of how the business lives and breathes.

Debits and Credits – what the heck are they anyway?

Long ago, after proudly surviving my first formal accounting classes, I was confronted by Tom, a CPA friend of mine, with a mind numbing quiz. If you’re so smart Mr. Tim, then tell me, what is a debit and what is a credit?

I proceeded to launch into a picture perfect and lengthy explanation of debits and credits. When I finally finished my erudite spontaneous pontification on “debits and credits”, Tom loudly chided me, saying “FLUNK – debits on the left, credits on the right”.

Remember that one – I sure did.


That’s it – very simple actually; debits on the left, credits on the right.

In today’s double entry bookkeeping system, instead of using one column for each account and entering one number as positive and the other as negative, we use two columns for each account with only positive numbers. Whether the entry increases or decreases the account is determined by choice of the column in which it is entered. Entries in the left column are referred to as debits, and entries in the right column are referred to as credits.

In double entry bookkeeping, at least two accounts are impacted by each transaction, and one of those entries must be a debit and the other entry must be a credit of equal amount. To complicate things further, more than two accounts can be used if the transaction is split among them, as long as the sum of debits for the transaction equals the sum of credits. Oddly enough, they must balance (cancel each other out, if you think about it) to zero.

That’s one of the beauties of QuickBooks – the user is spared the decision making process of “what do I enter here…..debit or credit?”.

The truth is, whether a debit or a credit increases or decreases an account balance depends on the type of account. Asset and expense accounts are increased on the debit side – liability, equity, and revenue accounts are increased on the credit side.

QuickBooks obscures the credit/debit aspect of transactions, which is not always a good thing. That QuickBooks strength can also be a curse. If you don’t “grok” the concept of debits and credits as they apply to specific types of accounts, QuickBooks may allow you to merrily enter transactions incorrectly.

That’s where the double entry bookkeeping system can help – it provides a system of checks and balances.

By adding up all of the debits and adding up all of the credits and comparing the two, differences stick out like a sore thumb and you have the chance to correct any errors. When debits and credits don’t match – the “double entry bookkeeping” system  loudly tells you something is wrong and needs correction. In fact, QuickBooks will actively prevent you from entering “out of balance” (meaning the debits and credits don’t match) transactions. However, QuickBooks will NOT always stop you from incorrectly assigning debits and credits to your accounts.

To avoid confusion over debits and credits, don’t think of them in the way they are used in everyday language.

You may be confused because you thought a credit was a good thing! We learned these terms from dealing with banks and stores, but they were using the terms from their perspective.

When the bank gave you a “credit”, it was their Cash they are crediting, or subtracting from.

Good for you, not good for the bank.

As a business owner, think of debits and credits from your company’s point of view. When you debit your Cash, you add to it. When you credit your Cash, you subtract from it.

When you put cash in the bank, the bank now is obliged to pay it back to you, which is a liability and therefore a credit (increase) of their liability to you. So the teller tells you your account has been “credited”.

See how this can get confusing now? See how the two of you, your company and the bank mirror image each other? The “credit” from the viewpoint of the bank is, in fact a debit from your business point of view. Fascinating (as Spock would say), if you think about it.

The confusion can be eliminated by remembering the basic concept.

Debit refers to the left ; credit refers to the right.

And no, it does not mean Democrats are debits and Republicans are credits.

What do you think? Has this helped shed light on the subject?

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