Accounting F&Qs

Accounting FAQs

by Susan Hawkins

 

What is the difference between a Sales Receipt and an Invoice

  • Sales Receipts are for sales PAID at time order is placed (usually via a credit card entered when the customer places the order).  Sales Receipts are recommended for most e-commerce businesses.
  • Invoices are for sales NOT PAID at the time the sale is made.  An Invoice creates an Accounts Receivable (A/R) balance for the Customer that is later offset by a ‘Receive Payment’ transaction when the customer actually pays.  Invoices are commonly used for B2B sales. 
  • Invoices are sales to Customers while Bills are purchases from Vendors.  QuickBooks users frequently misuse this terminology – listen to the context as you may need to clarify the user’s terminology. 

 

Then what is a Sales Order?

A Sales Order (SO) is a non-posting transaction in QuickBooks, it does not impact the financial statements.  Sales Orders frequently are used when there is a timing difference between when the order is taken and when the product is actually sent.  A Sale Order might be used when the product is made-to-order in house, has to be ordered from a Vendor before being sent to the Customer or will be drop-shipped from the Vendor directly to the Customer. 

 

A Sales Order is not yet a completed Sale – the user is not ready to ship the product and likely has not collected payment yet.   To complete the actual sale and impact the financial statements, a Sales Order needs to be converted to an Invoice.

 

Sales Orders assist in inventory management by ‘reserving’ inventory that will eventually be sent when the sale is complete.  A Sales Order reduces the Available Quantity but not the On-Hand Quantity for an item.

 

The Sales Order feature is only available in QuickBooks Desktop Premier and Enterprise software and not available in QuickBooks Desktop Pro or QuickBooks Online. 

 

What is a Purchase Order? And what does it have to do with Drop-Ship?

Like a Sales Order, a Purchase Order (PO) is a non-posting transaction.  Often with a Sales Order, the user needs to order an item to complete the sale and one-click on the Sales Order will create a Purchase Order with the Vendor Name already populated with that item’s Preferred Vendor. A Purchase Order can be initiated separately from a Sales Order.

 

The customer shipping info can be provided on the PO for Drop-Ship orders.  Unify can auto-create PO’s for those Items flagged as drop-ship in Unify. We recommend that drop-ship items be set-up as Non-inventory Parts so to avoid selling negative quantities of Items that you do not keep in stock.  

 

To complete the actual Item purchase and impact the financial statements, a Purchase Order needs to be converted to a Bill or Item Receipt.

 

My web orders are posting to Undeposited Funds and not my bank account – now what?

The ‘Deposit To’ account should be carefully considered within the Unify Settings.  By default, the ‘Undeposited Funds’ account is frequently selected … and this leads to a lot of frustration! 

 

The Undeposited Funds feature/account is a feature that is very helpful for specific uses, such as the handling of check payments that have not yet been brought to the bank … and are therefore ‘undeposited’.  It is like a virtual desk drawer in QuickBooks – the mail is opened, a ‘Receive Payment’ is entered in QuickBooks, and then the physical check is put in the drawer. When someone is ready to take checks to the bank, the virtual checks are selected in the Undeposited Funds account in QuickBooks and deposited as a batch in the QuickBooks checking register.  The deposit total in QuickBooks will mirror the deposit total on the bank statement, which greatly simplifies the reconciliation process.

 

However, this workflow does not work as well with a large volume of daily transactions, such as web orders.  It can be onerous to match-up each transaction to the merchant account statement, select the appropriate transactions, and then deposit from Undeposited Funds.  As well, the Undeposited Funds account has limitations on transaction types that can lead to frustration. We recommend using a Clearing account instead. 

 

Why a Clearing account?

We recommend creating a separate Clearing account (with a QuickBooks Account Type of ‘Bank’) for each sales channel (ie, Amazon Clearing and Shopify Clearing…) or even for each payment processor.  The Unify Settings should point to these new accounts, which function as check registers and are easy to maneuver data. These clearing accounts are like a bank register.

  • Increases to Clearing balance 
    • Online orders
  • Decreases to Clearing balance
    • Online returns
    • Marketplace fees
    • Merchant account fees
    • Transfers to bank account when funds received at bank

Clearing balance should represent the orders for which you have not been paid (one or two days for Shopify or up to two weeks for Amazon) 

 

What is the difference between Inventory and Non-inventory Parts?

The ability to track on-hand quantity and per-unit cost.  If users seem intimidated by keeping on-hand quantities in-synch between QuickBooks and their Sales Channels, remind them of the great Synch tool available within Unify.

  • Inventory Part – when products are received from Vendor (or manufactured by client), a Bill or Item Receipt is created with the individual Inventory products noted, as well as the quantity of each and per unit cost of each.  These products are added to inventory AS OF the date of the Bill or Item Receipt. 

 

The costs are aggregated in an Inventory Asset account (on the Balance Sheet).  Upon the sale of the product, the Inventory Asset account (and on-hand quantity) is decreased and Cost of Goods Sold (on the P&L) account is increased.  This keeps the Sales Revenue and related COGS in the same time-period.

 

  • Non-inventory Part – when Items are received from Vendor (or manufactured by client), a Bill or Item Receipt is created without the Item detail, cost, or quantity.  Purchase costs are aggregated into Cost of Goods Sold at the time of Item receipt, so the Sales Revenue and related COGS can appear in different time-periods.

 

What is the difference between a Group and an Assembly?

  • Groups – a short-hand way of getting a bundle of Items on a Sales transaction (an Invoice, Sales Receipt, or Sales Order).  The Items can be sold individually or as part of the bundle/Group. 
    • For example, a basket of three bottles of wine (red, white, rose).  Each bottle is a separate Inventory item that can be purchased individually or as a Group.

 

  • Assembly – combines individual Items to make a finished Inventory item.  The component parts are defined in the ‘Bill of Materials’ and can include Inventory Parts, Non-inventory Parts, and Services.  To create the Assembly, you need to ‘Build Assembly’.
    • For example, a bicycle. The component parts of pedals, wheels, brakes, handlebar, and seat are tracked as Inventory items but then defined as an Assembly item to create the finished bicycle.  You likely are not selling the component parts separately.

 

What accounts are on the Profit & Loss Statement (a/k/a P&L or Income Statement)?

  • Revenue
  • Cost of Goods Sold
  • Expenses

 

What accounts are on the Balance Sheet?

  • Assets – of value to business
    • Bank Accounts
    • Accounts Receivable
    • Inventory
    • Fixed Assets – computers, equipment, vehicles
    • Other Current Assets
  • Liabilities – obligations of the business
    • Accounts Payable
    • Credit Card
    • Sales Tax
    • Payroll Tax
    • Loans
    • Other Current Liabilities
  • Equity – owner’s residual interest in the business.  Assets – Liabilities = Equity
    • Capital Contributions
    • Net Income
    • Retained Earnings

 

Sometimes clients need an explanation of the difference between P&L and Balance Sheet (not a good sign).  And I have been asked too many times, ‘why don’t I see my Inventory on the P&L?’.

 

What is Net Income and Retained Earnings?

  • Net Income/Loss is for the current fiscal year.  The year-to-date Net Income/Loss of the P&L should match to the Net Income on the Balance Sheet.
  • Retained Earnings is the cumulative Net Income/Loss for the prior fiscal years.  At the end of the fiscal year (often December 31st), QuickBooks automatically moves the year-to-date Net Income to Retained Earnings and then Net Income starts at $0 for the new fiscal year (often January 1st)

 

What about the Statement of Cash Flows (SCF)? 

  • Starts with the Net Income for the period (from the P&L)
  • Plus Sources/Minus Uses of Cash during period, classified as: Operating or Financing activities
  • Ends with the ending Cash balance for the period (from the Balance Sheet)

QuickBooks calculates this financial report, but most users do not understand how to read a Statement of Cash Flows.   If a client insists that the SCF is wrong, then have the user confirm they are looking at the same date range for all the reports.

 

How do I Add or Edit an Account?

All of the accounts are listed in the Chart of Accounts.  To add a new account, go to: Lists > Chart of Accounts and right-click New.  To edit, click on the respective Account, right-click Edit and change the account.

 

Note, you can also get to the Chart of Accounts via the icon on the Home screen or Company > Chart of Accounts.

 

How can I change the Account where an Item posts?

The Account mapping for Inventory and Non-inventory Parts is a drop-down menu within the Edit Item screen.  It is more efficient to make bulk edits via: Lists > Add/Edit Multiple List Entries.  Each Item can only map/post to ONE account.  If a user wants to view Sales of an Item by the various Sales Channels, then the Class field should be utilized.