How to Maintain Good Accounting Controls with QuickBooks - dummies

How to Maintain Good Accounting Controls with QuickBooks

By Stephen L. Nelson

QuickBooks allows multiple users. Many businesses, after they grow to a certain size, need to support multiple users with access to accounting information and the capability, in some cases, to create accounting transactions. Unfortunately, multiple accounting system users create risk for the business owner.

By having access to the accounting system, users can either inadvertently introduce errors into the accounting system or, unfortunately, intentionally defraud a business. For these reasons, here’s a list of some QuickBooks control techniques that a business owner or business manager can use to minimize unintentional errors and minimize the opportunity for theft.

  • Regularly compare physical inventory counts with inventory accounting records. Inventory shrinks, unfortunately. People — sometimes employees, but often pseudocustomers such as shoplifters — steal inventory. Therefore, one thing that you need to do, both to minimize your inventory losses and to maintain accurate accounting records, is regularly compare physical counts of your inventory with what your accounting records show.

    This approach to frequently counting the most valuable and easiest-to-steal items accomplishes two things:

    • Inventory shrinkage is quickly identified.

    • The business owner can minimize inventory shrinkage by identifying the type of inventory that is most often stolen or even when inventory is most often stolen.

  • Reconcile bank accounts. One thing that business owners should do is reconcile their own bank accounts. Often, employee theft by accounting personnel occurs as employees figure out how to write checks on the company’s bank account that the owner doesn’t see. One sure way to find a fictitious and fraudulent transaction is to have the owner reconcile the bank statement.

    If the owner reconciles the bank statement, she can compare the bank’s accounting for the account with the company’s QuickBooks accounting records. Any obvious discrepancies can be fixed, which means that the QuickBooks accounting records are more accurate. Additionally, any flaky, suspicious transactions tend to become obvious when the business owner looks closely at checks.

  • Segregate accounting from physical custody where possible. In a small business, it’s difficult to always separate the accounting for some activity from the physical custody or physical responsibility for that activity. For example, it’s tough to segregate the inventory accounting from physical custody or access to that inventory.

  • Train employees in the use of QuickBooks. You should train employees to use QuickBooks if you have a business of any size for two basic reasons:

    • Someone who knows how to use QuickBooks is less likely to make inadvertent errors.

    • Messy accounting records camouflage employee theft.

  • Close your QuickBooks file. If you take a Principles of Accounting course, you’ll discover that closing means a set of bookkeeping procedures that somebody performs to zero out revenue and expense accounts so that starting in the new year, revenues and expenses can be easily calculated. In QuickBooks, closing means something different.

    But you still want to close the QuickBooks file in order to maintain the integrity of your data. Here’s how: Choose the Edit→Preferences command, select Accounting, select the Company Preferences tab, and then click the Closing Date Set Date/Password button. When QuickBooks prompts you, specify a closing date and password.

    After you provide this information, QuickBooks prohibits or limits users from changing or entering transactions dated before the closing date. (Only people with the password can make changes to or enter transactions with dates earlier than the closing date.)

  • Manage your QuickBooks accounting system. Many business owners don’t view the accounting system as being anything more than a tool to produce invoices, paychecks, and information required for the annual tax return. Unfortunately, that distant relationship with the accounting system means that business owners often don’t feel much need to actively manage what happens with the accounting system.

    An accounting system should be a tool that you use to better manage your business. And it can be that. But if it’s going to be a tool for better managing your business, you need to manage the system.

    You can rather easily make sure that people are doing the sorts of things they are supposed to be doing by creating some simple checklists.

A Sample Monthly Accounting To-Do List
Task Completed?
Data backed up and moved offsite
Bank accounts reconciled
All invoices, credit memos, statements out
Any suspense accounts cleaned up
Financial statements delivered
Exceptions reported (for example, overdue invoices, bills,
purchase orders, understocked inventory items)
A Sample Annual Accounting To-Do List
Task Completed?
Adjust trial balance
Burn CD with year-end numbers for permanent record
Consider cleaning up data files if they’re huge
Close year when really done