Getting Ready for 'Auld Lang Syne' - Part 3

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You should now be ready to print at least your preliminary end-of-the year financial reports to examine your year-end performance. This will begin with a Trial Balance, along with the Profit and Loss (Standard) Report and the Balance Sheet (Standard) Report. In many cases you will also need to prepare the Statement of Cash Flows Report.

Trial Balance report

Print the Trial Balance report for the day after the year that you just closed. The traditional trial balance report creates a trial balance as of a specific date and shows the balance of each account in debit and credit format. This also allows you to make sure that all income and expense accounts have a zero balance and have been closed out to Retained Earnings by QuickBooks (although you may need to reallocate them to another appropriate Equity account as we discussed in an earlier Part of this mini-series).

If you are using QuickBooks Desktop you access this report by, Reports > Accountant & Taxes > Trial Balance.  If you are using QuickBooks Online (or QBOA) you access this report by, selecting Reports > For my accountant > Trial Balance.

The trial balance is designed to ensure the debits equal the credits. But, just because the trial balance balances, does not mean that the accounts themselves are correct or that mistakes didn't occur within a subsidiary ledger. There might have been transactions missed or items entered in the wrong account – for example increasing the wrong asset account when a purchase is made or the wrong expense account when a payment was recorded. Another potential error might be the recording of a transaction twice, for example once as a payable, and once as an expense without recognizing the payable existed. Nevertheless, once the trial balance is prepared and the debits and credits balance, the next step is to prepare the financial statements.

Profit & Loss Standard report

Verify that the Profit & Loss report includes the correct dates and is set to the appropriate accounting method (cash or accrual). This report, sometimes referred to as an income statement, summarizes your income and expenses for the period, in this case the year ending December 31, 2018. The report shows subtotals for each or your income and expense accounts in your chart of accounts, for a more streamlined version of the account select the option to 'condense' which displays only the parent-level accounts.

The Infographic below, prepared by Beverly Lang for a feature she wrote for Insightful Accountant back in January (2018) helps to explain the various components of the Profit & Loss Report and how they are derived from business operations.

If you are using QuickBooks Desktop you access this report by, Reports > Company & Financial > Profit & Loss Standard.  If you are using QuickBooks Online (or QBOA) you access this report by, selecting Reports > For my accountant > Profit and Loss.

One of the key principles my good friend Joe Woodard use to teach QuickBooks users was 'the Realism test' based upon the fact that QuickBooks tracks income in two different ways using both Items and Accounts. The Profit & Loss Report tracks your Account based activity, but QuickBooks tracks your Item based activity via 'Sales' reports like the Sales by Item Summary and Sales by Customer reports.

Ideally, all revenue should affect both an Item and an Income account. When revenue does not affect both an account and an item reference, it is important for you to quickly locate the offending transactions and make any necessary adjustments. In other words, you should be able to balance and reconcile 'sales' with 'income' within your QuickBooks reports. The inability to balance these underlying registers is a first sign that something is 'out-of-balance' and needs to be investigated and resolved prior to 'auld lang syne'.

Balance Sheet Standard report

Reconcile and verify all your Balance Sheet items. Be sure that this year's beginning Retained Earnings matches last year's ending Retained Earnings.This report provides a financial snapshot of your company as of a specific date. The report calculates how much your business is worth (your business's equity) by subtracting all the money your company owes (liabilities) from everything it owns (assets). The total for equity includes your company's net income for the fiscal year to date.

If you are using QuickBooks Desktop you access this report by, Reports > Company & Financial > Balance Sheet Standard.  If you are using QuickBooks Online (or QBOA) you access this report by, selecting Reports > For my accountant > Balance Sheet.

Both QuickBooks Desktop Accountant edition and QuickBooks Online-Accountant have a variety of 'Accountant tools' designed to provide accounting, bookkeeping and other consulting professionals including QuickBooks ProAdvisors with features designed to recognize problems like 'changes to previous reporting periods', 'changes to prior reconciled balances', 'improper undeposited fund balances', 'accounts receivable and accounts payable balances on cash-basis', 'inventory irregularities', 'sales tax irregularities', and 'payroll liability irregularities'.

With these tools you can quickly identify and resolve most problems with the balance sheet prior to year-end. What use to take hours and hours, or perhaps days to review and fix can now be done in a very short time. Intuit has incorporated these great tools into the 'Accountant' versions of both QuickBooks Desktop and QuickBooks Online as a result of listening to the feedback that thousands of accountant, bookkeeper and ProAdvisor partners, like Insightful Accountant readers have provided over the years. Without many of you, these tools would never have found their way to the development teams at Intuit that brought them to life in the products you are using today.