Good evening. I start a new job and here is my challenge.
My company decided to start using QuickBooks since 2018. They transfer all 2017 and 2018 vendors purchase orders and bills from another software and leave them there unattended. They created the chart of accounts, vendor, customer, and item lists. After that, they didn't have any other activities in Quick Book.
As a new accountant, I have to fix and close 2018. First of all, I am planning to set up all beginning balances for all accounts and then finish all my bank reconciliations.
However, my big concern is existing vendors bills since 2017. They are already in the system.
I think that I have to delete all bills that were issued and paid in 2017 since I start my new company book from 2018 and have to leave only those who have an open balance as of the last day of 2017. How may I adjust their existing total amounts and make them match with what should be an as open (unpaid) balance for the end of 2017? For example, I have one bill with 3 items lines used for a specific customer job for the total amount of $150,000. During 2017 it was 50% paid and at 12/31/17 it has only an open balance of $75,000. If I start a new company at QB I would create a new customer and use the open balance space to type only $75,000 as the beginning balance for 12/31/17. But I already have an existing bill and don't feel comfortable to change the amount in the total. How should I adjust it?
In addition, some of 2018 open bills had credit card prepayments in 2017. Since I am planning to start all my bank reconciliation from 01/01/2018 and I need to apply these prepayments for 2018 bills, should I treat these CC prepayments in the same way as outstanding checks while you set up the open beginning balance for a new bank account? Should I use open balance equity account for these prepayments and put use the actual 2017 payment days for them?
Never use Opening balances. The point of having bills is that they create the specific AP for you. The point of having invoices is that they create the specific AR for you. You don't want generic opening balances; you want Meaningful balances. It also matters if this is a cash or accrual basis entity.
Examples: An unpaid bill dated in 2017, paid in 2018, is a 2018 expense, so what is on that bill matters, and that is why you would enter a bill for something you owed at year end and didn't pay until the current fiscal year. An unpaid invoice, from a 2017 sale, paid in 2018, would be a cash basis Sales and sales taxes also owed on cash basis is why you have an invoice from 2017, in the file waiting to have the payment received and applied.
For an accrual basis entity, the transactions are dated in 2017, so they will not be part of the 2018 reporting, because the program knows how to manage this.
"I have one bill with 3 items lines used for a specific customer job for the total amount of $150,000. During 2017 it was 50% paid and at 12/31/17 it has only an open balance of $75,000."
Which is reality.
"If I start a new company at QB I would create a new customer and use the open balance space"
No, never. You stated "bill' = AP. Customer = AR. And Open Balance fields are meaningless and generic AR balances for customer names, AP balances for vendor names. If the customer owes me for concrete (subject to sales taxes) and labor (not subject to sales taxes) then all of that is Meaningful and not some generic opening balance entry.
"should I treat these CC prepayments in the same way as outstanding checks while you set up the open beginning balance for a new bank account?"
I also recommend never using the Opening Balance field when setting up balance sheet accounts. Start using Real Transactions. When you know you have money in the bank, make a deposit. When that is money already on hand from the old file and the prior year, then this Deposit is from Equity. Not OBE. Real Equity. You know it is Real Equity, so why use OBE or Opening fields?
"Should I use open balance equity account for these prepayments and put use the actual 2017 payment days for them?"
No. If it all happened in 2017, then that is done. Only the carry forward balances are part of the process. And again, cash or accrual basis matters to everything you will be entering, because you need to understand how the info was or wasn't already reported in 2017 and how it needs to be reported or does not report in 2018.
Example: An open invoice from 2017, paid in 2018, will be income + sales tax liability for 2018. For accrual basis, it all has been reported, already. For using Opening Balance for the customer, instead of a dated invoice, you just created Uncategorized Income on Cash basis for 2018 reporting. Remember, some of this is not even Income, but sales tax liability, in reality.
That's why real transactions matter.
For full detail, enter all the open Invoices and Bills as of last year's closing date, as Invoices and Bills dated on the actual date, so that when you run an aging report or statements, they will be correct. Use an Item called Prior Year or similar and link it to Opening Balance Equity. For partially paid Invoices and Bills, one option is to enter the original amount and the payment/s as separate lines, but still using Prior Year item for both. You should not use the original Items linked to income/expense accounts because the offset is Opening Balance Equity. If you want the actual transaction/s you would go to the prior year's file. So the Invoices and Bills would create AR and AP against Opening Balance Equity. When you are finished the total AR and AP should agree to the last year's closing balance sheet of course.
If there is sales tax involved, it may be tricky.
For other balance sheet accounts, except AR and AP, use the box in the account set-up screen or in the import file, to create the opening balance per last year's closing balance sheet. The offset will go to the Opening Balance Equity account.
When you are done the Opening Balance Equity account should be zero, and should never be used again.
The Opening Balance Equity account is used for just this case of creating a new file for an existing business.
But how may I closed my open bills for 2018 if I have credit card prepayments for them in 2017 before I started my first bank reconciliation for this account. If I won't do adjustments my bills will still be open when in fact they should be marked as paid.
(My company decided to start Use QB from 01/01/2018 and I will make Beginning Balances for all accounts)
Credit Card "prepayments? for Bills? What you did, then is Prepay the Vendor and that is tracked as the date you paid the expense (for a cash basis entity) or as Other Current Asset (for an accrual basis entity). Then, the Bill arrives as Paid. For a Cash Basis entity, there is no Bill to enter; you already paid it. For an Accrual Basis entity, you enter the Bill and use a vendor Credit to show the prepayment from Other Current Asset; you apply them to each other in Pay Bills. That clears the Vendor Prepayment account of this balance.
So, you either have Nothing to enter, for 2018; or you have a Vendor Credit to enter, and the bill to enter, for 2018, to show you are holding the value you prepaid and going to apply it to a 2018 bill. Or, you have a 2017 bill still unpaid, and you never prepaid against it at all.
And if a credit card is used to Buy something, there is nor also a bill later. The payment was made by Credit Card Charge, so there is no Bill to pay later for that same expense details.
Bills are not Adjusted. They are entered, paid, or offset by applying a vendor credit, depending on the circumstances. If you intend to use JE, you never use them with Names; never for AP, AR, Sales, Sales taxes, QB payroll or QB Inventory.