The reliability and usefulness of your QuickBooks 2014 data depends to a great degree on how neat and tidy you keep your financial records. To help you or your staff do a better job at this, consider employing the following four techniques.
Technique #1: Reconcile your QuickBooks bank accounts regularly
When you take the time to reconcile a bank account, not only do you improve the accuracy of your bank account records (including your account balances); but you also indirectly check a bunch of other transactions, including all the revenue that flows into a particular bank account. And you check the expenses paid out of a particular account.
So, bottom line: Reconcile your bank accounts regularly.
Technique #2: Update loan account balances
If you’ve borrowed money from the bank, you should double-check that account balance. And you should update the account balance if it doesn’t match the lender’s year-end records.
Loan account balances typically go “wrong” over time because the breakdown of payments into their principal and interest components is slightly off. This error begins to add up over time.
You can often fix loan account balances by adding a journal entry that “fixes” the erroneous account balance and then throws the required debit or credit offset to the loan interest expense category.
Technique #3: Check for orphan payments
People find it surprisingly easy to enter customer payments but then never apply the payments to an invoice. When this error of omission occurs, the business omits revenue from the profit and loss statement and understates its revenues and its profits. So this is a bad error.
You can find any of these orphan payments in your QuickBooks file by producing a cash-basis balance sheet. If a cash basis balance shows a negative value for accounts receivable, that indicates you’ve entered payments into QuickBooks but never applied the payment to an invoice.
To fix this error (or fix this error multiple times if you’ve made multiple errors), you need to page through your customer payments or produce a report of transactions for a customer to find those you haven’t applied.
Technique #4: Review your balance sheet
You know where accounting errors often show up most strikingly? On your balance sheet.
For this reason, get into the habit of regularly producing a balance sheet. Look for weird numbers, for example, undeposited funds that total $40,000 (meaning QuickBooks thinks you have 40 grand of cash lying around the office someplace) or a cash balance that’s $11,000 (meaning you’ve overdrawn your checking account by 11 grand).
You can research funny balance sheet numbers by double-clicking the odd value in the report window and then looking through the transaction data that adds up to some obviously wrong value.
One final point about this error-checking technique: Often, the error that produces a crazy balance sheet value is not a transaction entered incorrectly but a transaction that’s been omitted.