Chapter 17
Entering Special Transactions Using General Journal Entries
In this chapter:
• The QuickBooks Journal Entries window
• Make adjustments to the general ledger
• Depreciate fixed assets
• Use journal entries to post to outside payroll services
As you work in QuickBooks, the amounts involved in the financial transactions you complete—such as invoices and bills—are automatically posted to the appropriate accounts in your chart of accounts (the chart of accounts is covered in detail in Chapter 2). But, if necessary, you or your accountant can make an adjustment to an account directly. QuickBooks refers to this type of transaction as a general journal entry (aka journal entry).
Journal entries should be used to enter only financial data that cannot be added to an account via a standard transaction. For example, your accountant will often use a journal entry to adjust an account balance at year end to record annual depreciation of an asset and the associated depreciation expense.
The QuickBooks Journal Entries Window
The Make General Journal Entries window, shown in Figure 17-1, is accessed from the Company menu. The format of the transaction window is standardized and cannot be customized in the same way as, for example, an invoice template can be. There are columns for account names and debit and credit amounts. In addition, QuickBooks provides columns you can use to link the data you enter to customers and classes and also enter a memo.
FIGURE 17-1 |
The QuickBooks Make General Journal Entries window has extra columns so you can track additional information about your entry. |
To create a journal entry, follow these steps:
1. Choose Company | Make General Journal Entries. QuickBooks displays a message telling you that automatic numbers are now assigned to journal entries. (You can select the option Do Not Display This Message In The Future before you click OK.) You can enable or disable the automatic numbering feature in the Accounting category of the Preferences dialog.
2. In the Account column, select the account you need.
3. Move over to either the Debit or Credit column and enter an amount.
4. Optionally, make an entry in the Memo, Name, or Billable? columns.
5. Repeat Steps 2–4 for all the amounts in the journal entry.
As you enter each amount, QuickBooks presents the offsetting total in the next line. For example, if the line items you’ve entered so far have a higher total for the credit side than the debit side, the next entry presents the balancing offset (see Figure 17-2).
FIGURE 17-2 |
QuickBooks keeps the running offset figure available so you don’t have to enter an amount for the last entry. |
Here are some guidelines to using the columns available in the Make General Journal Entries window:
• Use the Memo column to write a comment about the reason for the journal entry. The memo text appears in the entry of the account’s register and on reports, so you should enter the text on every line of the entry in order to see the explanation, no matter which account register you’re viewing.
• Use the Name column to assign a customer, vendor, employee, or other name to the amount on this line of the entry, if you’re linking the entry to a name. If the account you’re posting to is an A/R (accounts receivable) or A/P (accounts payable) account, an entry in the Name column is required. Note, however, that you cannot use more than one A/R or A/P account in the same journal entry.
• The Billable? column indicates whether the amount is billable to the name in the Name column, if you are using an expense account and you enter a customer name in the Name column.
• If you are using the Class Tracking feature, a Class column is present and you can link the entry to a class. This can be useful if, for example, you’d like to allocate certain overhead costs or assets to different classes. (See Chapter 6 for information about setting up classes.)
ProAdvisor RecommendsCreating Journal Entries for Changed Accounts
I’ve had many clients who, after they’d been using QuickBooks for a while, decided that they wanted to track their income or expenses differently. For example, instead of using only one income account to keep track of all the products and services they sold, they determined that having separate income accounts for service fees and for products sold made analyzing their business easier.
You can use a journal entry to split out these amounts to separate income accounts. First, create the new account and then take the appropriate amount of funds out of the original account and put it into the new account. Income, for example is a credit-side item, which means you’ll want to do the following:
• Debit the original account to reduce the balance for the amount that belongs in the new account.
• Credit the new account to increase the balance for that amount.
Then, of course, you’ll have to go to the Item List and change the impacted items by linking them to the new income accounts so you don’t have to keep making journal entries.
The same decision is frequently made about expenses as well. Maybe you think your insurance accounts should be separated for car insurance, equipment insurance, building insurance, malpractice insurance, and so on.
Expense accounts are debit-side items, so the journal entry in this case is to do the following:
• Credit the original expense account to reduce the balance for the amount you’re taking out of it and putting into the new account(s).
• Debit the new account(s) to increase the balance for the appropriate amount(s).
Create Journal Entries for Depreciation
Depreciation is a way to track the current value of a fixed asset that loses value as it ages. The basis of an asset’s depreciation from an accounting point of view is determined by a complicated set of rules, including IRS rules, which can change frequently. Most small businesses enter the depreciation of their assets at the end of the year, but some companies perform depreciation tasks monthly or quarterly.
Depreciation is a special journal entry, because the accounts involved are very specific. The account that is being depreciated must be a fixed asset, and the offset entry is to a Depreciation Expense account found in the expense section of your chart of accounts.
Creating Accounts for Tracking Depreciation
It’s not uncommon to have multiple fixed-asset accounts if you want to track different types of fixed assets separately. For instance, a chart of accounts could have three fixed-asset account categories: Equipment, Furniture & Fixtures, and Vehicles.
It’s very useful to create a separate subaccount to capture the depreciation entries for each of your fixed assets as well as the purchase of an asset for that asset category. For example, the fixed-asset section of the chart of accounts for the three categories just described could look like this:
| Parent Accounts | Subaccounts |
| Equipment Assets | |
| Equipment Purchases | |
| AccumDepr-Equipment | |
| Furniture & Fixtures Assets | |
| Furn & Fixtures Purchases | |
| AccumDepr-Furn & Fixtures | |
| Vehicle Assets | |
| Vehicle Purchases | |
| AccumDepr-Vehicles |
If you use numbers for your chart of accounts, create a numbering system that makes sense for this setup. For example, if Equipment is 16000, the subaccounts start with 16010; Furn & Fixtures starts with 16100, and the subaccounts start with 16110; Vehicle starts with 16200, and so on.
Post asset purchases to the subaccount created for purchases, and make the journal entry for depreciation in the AccumDepr subaccount. Avoid using the “parent” accounts when tracking fixed assets. There are several reasons for this:
• The transactions posted to both the asset subaccount and the AccumDepr subaccount should be consistent so that you (or your accountant) can look at either one to see a running total instead of a calculated net total.
• Tracing the year-to-year depreciation is easier. Just open the AccumDepr subaccount register—each line represents a year.
• The net value of the fixed assets is correct. A Balance Sheet report shows you the details in the subaccounts and automatically displays the total of the subaccounts in the parent account.
You can further refine this example by creating subaccounts and classes for specific fixed assets. For instance, you may want to create a subaccount for each vehicle asset (or one that covers all cars and another that manages all trucks) and its accompanying accumulated depreciation. If your equipment falls under a variety of depreciation rules (for example, manufacturing equipment versus computer equipment), you may want to have a set of subaccounts for each type. You can then use classes to categorize these assets by location or division.
Now, if you’re really particular, you can create a different subaccount for each year of depreciation; for instance, under your AccumDepr-Vehicle subaccount, you could have Vehicle-Depr 2012, Vehicle-Depr 2013, Vehicle-Depr 2014, and so on. Then your balance sheet shows a complete year-by-year depreciation schedule instead of accumulated depreciation—and the math still works properly.
Creating a Depreciation Entry
To depreciate fixed assets, you’ll need to have a Depreciation Expense account in the Expense section of your chart of accounts. Once that account exists, open the Make General Journal Entries window and choose the first asset depreciation subaccount. In the following example, it’s the AccumDepr account under the fixed asset Equipment. Enter the depreciation amount in the Credit column. Notice the colon in the account names for the asset accounts—that’s the QuickBooks indication of a subaccount.
ProAdvisor Tip: To help ensure that important transactions such as this depreciation journal entry are posted to the correct subaccount, you can turn on a company preference that tells QuickBooks to display only the lowest subaccounts—and not the parent accounts—when entering transactions. Select Edit | Preferences | Accounting | Company Preferences | Show Lowest Subaccount Only. Keep in mind that this option is available to you only if you use account numbers in your chart of accounts.
Choose the next asset depreciation subaccount and enter its depreciation amount in the Credit column as well. QuickBooks automatically puts the offsetting amount in the Debit column, but just keep moving to the Credit column as you work. Continue until all your depreciation figures are entered in the Credit column.
Now choose the Depreciation Expense account. The total amount of the credits you’ve entered is automatically placed in the Debit column. Click Save & Close.
Use Journal Entries to Post to Outside Payroll Services
If you have an outside payroll service, you have to tell QuickBooks about the payroll transactions that took place. Your payroll service provider should be able to provide you with a report that gives the details of gross wages and any withholding or deductions, so you can enter this information into QuickBooks.
It’s common for businesses to make this entry via a journal entry. Like all other journal entries, this one is just a matter of entering debits and credits. There are three parts to recording payroll:
• Transferring money to the payroll account (if you’re using a separate bank account for your payroll)
• Entering the various payroll totals
• Entering the employer expense totals
Transferring Money to the Payroll Account
It’s a good idea to have a separate bank account for payroll if you have an outside payroll service, because it makes it easier to record, keep track of, and reconcile payroll-related transactions. In fact, a separate payroll account is a good idea even if you do your own payroll using a QuickBooks Payroll service.
To transfer the money you need for a payroll, choose Banking | Transfer Funds. Select the account that you want to take the funds from and complete the transfer to your payroll account. Be sure to transfer enough money for the gross payroll, plus the employer payroll expenses, which include the following:
• Employer-matching contributions to FICA and Medicare
• Employer-matching contributions to pension plans
• Employer-matching contributions to benefits
• Employer state unemployment assessments
• Employer FUTA
• Any other government or benefit payments paid by the employer
Even though some of these aren’t transmitted every payday, you should transfer the amounts at this time anyway. Then, when it’s time to pay them, the correct amount of money will have accumulated in the payroll account.
Recording the Payroll
Running your payroll produces a fairly detailed set of debits and credits. If your payroll service takes care of remitting your payroll liabilities for you, you can record a single journal entry for the payment side of a payroll run and another, separate journal entry for the payment of the employer expenses when they’re transmitted. An example of the journal entries you’ll make to record this payroll processing scenario is shown in Table 17-1.
TABLE 17-1 |
Typical Journal Entry to Record Payroll by an Outside Service |
If your payroll service doesn’t remit your liabilities, leaving you with that task, your check-writing activity will record the payments when you create those checks. So, in this instance, you don’t need a second journal entry.
Table 17-1 shows a typical template for recording the payment side of a payroll run as a journal entry. It’s possible that you don’t have all the expenses shown in this table (for instance, not all states have employee unemployment assessments). And you may have additional withholding categories such as union dues, garnishments against wages, and so on. Be sure you’ve created a liability account in your chart of accounts for each withholding category you need and a vendor for each transmittal check.
Recording Liabilities
Next, you’ll need to journalize the employer payment of the payroll liabilities recorded in the first journal entry, if your payroll service is taking care of them for you. As previously mentioned, if you do it yourself, just write the checks from the payroll account and each item will post to the general ledger. Table 17-2 is a sample journal entry for recording payroll remittances.
TABLE 17-2 |
Typical Journal Entry for Employer-side Transactions |
The entry involving the transmittal of withholdings is posted to the same account you used when you withheld the amounts. In effect, you “wash” the liability accounts; you’re not really spending money—you’re remitting money you’ve withheld from employees.
You can have as many individual employer expense accounts as you think you need, or you can post all the employer expenses to one account named “Payroll Expenses.”
Creating Your Own Payroll Entry Template
You can save a lot of time and effort by creating a template for the payroll journal entries. Open a Make General Journal Entries window and fill out the Account column only. Enter the first account, and then press the DOWN ARROW key and enter the next account; keep going until all accounts are listed (see Tables 17-1 and 17-2).
Press CTRL-M to open the Memorize Transaction dialog. Name the memorized transaction Payroll (or something similar), and select the Do Not Remind Me option (the reports from the payroll company are your reminder).
Close the Make General Journal Entries window. QuickBooks displays a message asking if you want to save the transaction you just created. Click No (you don’t have to save a journal entry in order to memorize it). Do the same thing for the boilerplate journal entry you create to record employer remittances.
When you’re ready to record a payroll, open the memorized transaction by pressing CTRL-T to open the Memorized Transaction List. Double-click your payroll boilerplate journal entry, enter the appropriate date, and then enter the data.
Click Save & New if you have to create another journal entry for the employer expenses; otherwise, click Save & Close.
Reconciling the Payroll Account
When you use journal entries to enter your payroll, the reconciliation process is a bit different. You don’t have a record of the individual check numbers and payees. When you open the payroll account in the Reconcile window, you see the journal entry totals instead of the individual checks.
ProAdvisor RecommendsEntering Payroll Check Details for Your Bank Reconciliation
If you want to perform a complete reconciliation in QuickBooks, you can use a workaround to enter individual “dummy” payroll checks for the sole purpose of making your bank reconciliation easier and more accurate. You have a little bit of setup to do, but the good news is you can reuse what you set up every payday.
1. Create a name in the Other Names List and name the new entity Payroll. You can use this name for every check and put the employee’s name in the Memo field. If you prefer, you can create a name for each employee in the Other Names list using initials, last name only, or some other name that isn’t the same as the original employee name as it exists in your Employee List.
2. Open the Write Checks window. Using the bank account that you use for your payroll, enter the individual dummy payroll checks using these guidelines:
• The Date is the date of the payroll check.
• The No. field is the check number referenced in the report from the payroll service.
• You can use “Payroll” as the Pay To The Order Of name (unless you’ve entered all of your employee names as Other Names, in which case enter the appropriate name, which you can match to the right check number, too).
• The amount that you enter in the $ field is for the net paycheck (not the gross payroll) amount.
• The account is the same bank, meaning that the net effect on your bank account is zero and you’re not double counting your payroll expenses, either.
QuickBooks flashes a message warning you that you’re posting the payment to the source account. Click OK, because that’s exactly what you want to do. You can check the Do Not Display This Message In The Future check box if you don’t want to be reminded each time. You can also enter the checks the payroll service wrote to transmit your withholdings or pay your taxes.
You’ll still have to enter your regular payroll journal entry (as described previously in the chapter), because the total of the checks written and posted to the bank account via the journal entry will need to be cleared as part to the reconciliation as well as the individual dummy checks you’ve entered that have cleared the bank.
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