Intuit tells QuickBooks Desktop users that:
“... the Condense Data utility streamlines your company data file by condensing closed transactions into summary journal entries and removing unused list elements. The utility can create a journal entry for each month in the selected period. The summary journal entries affect your accounts in exactly the same way as did the detail transactions.”
As we'll see in a bit, that last sentence might not be entirely accurate.
Frequently, users are convinced to use the Condense Data Utility to help improve QuickBooks performance, even though Intuit admits it “cannot predict if the Condense will affect the size of your company file.”
The reality is that too many variables exist in the data, and the types of data that can be impacted by this utility for anyone to forecast how the Condense Utility may impact the file resulting from the process.
Condense Data menu item
An all too often reason why some people try to condense is the presence of corrupted data they believe will be eliminated or resolved as part of the condense process. In reality, corrupted data prior to condense is likely to be omitted from the condense process and may well be unrepairable after condense.
Take for example a common form of QuickBooks file corruption related to the actual quality of the data as opposed to the integrity of the data. If your file contains historical negative inventory and you condense the data, the impact of that negative history is captured in the summation of the inventory transactions.
This means the negative history becomes a permanent part of the value of the inventory and it cannot be corrected in the manner that's appropriate for such transactions.
Even under the best of conditions, the Condense Data Utility still negatively impacts your financials. Many users, and even ProAdvisors, report they had no idea that the actual values could change.
Let’s look at some examples of why this can occur.
There are no links from Cash-in to Income, or from Cash-out to Expenses. If you enter an invoice on March 1 and a payment on April 1, the histories show they are linked.
QuickBooks knows to include the invoice in cash basis income for April 1. But after running Condense Data, your cash basis reports will be inaccurate, because the income is condensed into the March (condensed transaction) journal entry and the cash is condensed into the April (condensed transaction) journal entry.
Neither the invoice or payment exist any longer in QuickBooks, so the program doesn't know that an invoice for March 1 was paid on April 1. In reality, QuickBooks doesn’t even know the original invoice and payment ever existed.
A side effect of this impacts Sales Tax reportability. While the condense journal entries created via the Condense Utility credits income for invoices condensed, the details do not exist to determine which portions of that income are taxable and which were non-taxable. Since the Invoices no longer exist, the details related to sales tax no longer exist including the amount collected for the invoice. Accordingly, sales tax reports will be inaccurate in terms of taxable sales and tax liability.
One additional side effect impacts "customer-based" accounts receivable. While in theory, the A/R balance subsequent to the condense process should be correct, the collective A/R summarized in the condense transaction journal entries are recorded under “no name.” Therefore, you cannot trace back A/R on a customer-by-customer basis within the condensed file.
A similar situation occurs in terms of Accounts Payable, bills and bill payment checks no longer exist and the expenses are no longer linked to cash payments, so QuickBooks cannot know when to report cash basis related expenses. Most of the problems I just outlined for the A/R side of the house exist respectively for the A/P side after condense.
Since all detail level reports within QuickBooks draw their data from items within the transactions. They will be in error after a condense since there are no more invoices and bills (as well as related transactions), and accordingly, no more transaction item details upon which to build the detail reports. As such, the reports turn out blank.
If you use Class tracking, you might as well forget about having comparative financials tied to class. Because individual transactions that had been associated with unique classes prior to condense are summarized within the condense transaction journal entries without any class association, all amounts associated with such transactions will be reported as "unclassified" when you run reports reflecting that data. This makes meaningful period comparisons by class impossible.
ProAdvisors using the Accountant version of QuickBooks or QuickBooks Enterprise have a variety of options (shown below). Non-accountant users of QuickBooks typically use the Transaction before a specific date functionality.
Condense Data QBPA Options_01
While the Transactions before a specific date option provides even greater flexibility to accountant users (shown below) (that are not available in non-Accountant versions), the problems outlined previously still exist when any summation methodology is used.
condense data 2
Obviously, if ProAdvisors select the option to Don’t create a summary, you still have missing data, but you also are keenly aware that your history isn’t reliable since it doesn’t exist at all. You're not going to believe it could be accurate when it isn't.
Furthermore, this option provides the ability to enter your own starting balances in as much detail as you wish, even on a class-by-class basis or inventory item-by-item basis.
Some third-party tools give you options that may be useful for entering historical information, but you may not want to struggle with that process either.
A few highly reputable third-party services exist that can perform proprietary procedures to condense or split your file and insure an accurate result that will give you the financial information you're seeking, while providing you with a smaller, more manageable QuickBooks file that will perform much better.
While these services are not cheap, they produce, in my opinion, a better, less troublesome, outcome than the QuickBooks Condense Data Utility.
If you elect to use a service like this, be sure to do your homework and shop and compare. You also need to "hammer down" the work to be accomplished and the exact results you expect to see.
Reputable firms are more than willing to do this. In fact, many guarantee their work and the file they produce. In the long run, you may find the few extra dollars you spend bring with them fewer difficulties and headaches than condensing does.