The Use and Misuse of QuickBooks in Small Businesses


Prepackaged Accounting Software for general consumption has come a long way in the last 20 years.  One of the top selling accounting software packages is Intuit’s QuickBooks.  QuickBooks was released in 1994 as a “double entry” accounting software.  It quickly became the most popular prepackaged accounting software for small to medium sized businesses and still retains the title today but, in my opinion, not for long.  Let’s look at the use and misuse of QuickBooks in small businesses today and see what we can glean from the information. Most of this information is from my personal experience of working with many different versions of QuickBooks in the setting of a CPA office.  This gives me a wide range of diverse companies, using many different versions of QuickBooks, in order to view how the program is working for them on a day-to-day basis.

QuickBooks seems perfect for small to medium sized businesses as well as start-up businesses. What makes it so attractive is the program is relatively easy to use by someone with minimal accounting experience.  This is very beneficial to a start-up entrepreneur who wants to see where the expenses are going, what revenue is being generated, and tracking the profitability of the business.  At the push of a button, balance sheets and profit and loss statements can be produced for any time frame along with comparative reports to prior years, quarters or months.  This feature is what makes QuickBooks such a strong platform for running day-to-day accounting operations.

Using QuickBooks

At the initial set up of QuickBooks you decide whether your business is cash or accrual basis. If you are accrual basis, QuickBooks will create an accounts receivable account and accounts payable account. You can track and run reports for both A/R and A/P at any time.  These reports can be in summary or more detailed.  You are able to customize any report in QuickBooks in order to reflect the information you want to see which is an excellent feature.  You can create custom invoice templates with your company logo on the invoice and make the template your default for all invoices created in the program.  Also, sales tax can be tracked through QuickBooks and you can run reports that show the amount to pay each month, quarter, year or however you select the range for your sales tax.  This will give you a level of trust that the actual sales tax you are paying is pulling from exactly the information you have input into QuickBooks.  You can set up as many bank accounts as you need and credit card accounts as well.  Both of these accounts can be reconciled monthly to your statements through QuickBooks.  This gives you the confirmation that your numbers are correct on your balance sheet and profit and loss, if you are reconciling the accounts on a regular basis.

There is also a payroll module that can be added to your QuickBooks program.  The payroll module is excellent for in house payroll preparation. It keeps you up to date on SUTA, FUTA, Medicare, and Social Security thresholds, something that the average person is not going to know to go looking for every year.  It also reminds you when to pay your payroll taxes. You can produce your quarterly and yearly payroll returns right from QuickBooks. Paychecks can be printed from QuickBooks that show hourly or salary pay, sick pay, vacation pay, year to date information and it looks like an actual paycheck instead of a regular accounts payable check.

Most CPA firms use QuickBooks which makes it is easy to send data to your accountant in preparation of your tax return.  This is less time consuming then handing your accountant a shoe box full of receipts and it will save you money in the long run. The reports generated by QuickBooks make the preparation of your tax return smooth and uncomplicated.  Your accountant can make adjusting journal entries into your QuickBooks data file and return it to you or you can make the entries yourself.  Having the year end business financial statements match the tax return every year is an important function of keeping your financial reports accurate.

By now you are probably thinking, “Is it really all as good as you make it out to be?  Is there no negative side to QuickBooks?”  Well, QuickBooks is only as good as the information you enter into the program.  You’ve heard the saying “garbage in, garbage out”?  If you do not reconcile your bank statements and credit card statements on a regular basis, monthly is preferred, then you will never know if the information you entered is correct.  The profit and loss and balance sheet reports are subject to being incorrect if you do not reconcile these accounts.  Since these reports are the ones that are most frequently used to see how a business is doing, it’s imperative that you reconcile your bank and credit card accounts.

Misuse of QuickBooks

Everyone seems to love the ability to download data directly from their financial institutions.  I must admit, this is nifty for saving time from inputting all those pesky transactions.  The problem lies when you download the same transactions over and over again without keeping an eye on the date parameters and then your bank balance is completely off.  I’ve seen this over and over again with clients who will download the same month’s transactions several times over and then there bank balance at the end of the month does not match the bank reconciliation report.  This can be very harmful if you are trying to see how much cash you actually have on hand after everything clears the bank.  Another problem that can arise with downloaded transactions is that you need to make sure the downloaded transactions are coded to the correct income and expense account. If they are not coded properly then your profit and loss statement and possibly your balance sheet will not be accurate.  Finally, the downloaded transactions should have a name entered, whether it’s the customer name or the vendor name.  This is important for an audit trail of your general ledger.  This can be time consuming if you have many transactions, so I’ve seen this step skipped numerous times, but it could be a costly mistake if you were ever audited.

The payroll module can be tricky. It’s only as good as the information you input and you need to have some payroll knowledge to set it up in the beginning. If you have no payroll knowledge you are better off consulting a CPA firm or tax professional with payroll knowledge to help you set it up right the first time. Once payroll is set up right to begin with it is relative seamless, but it’s only as good as the person inputting the information.  One of the mistakes I have seen clients make is in dating a payroll check after a 941 tax deposit payment for this very paycheck. The same goes for dating a 941 tax deposit payment before the period end date of the payroll check it relates to.  This confuses the payroll module because the expectation is that your tax deposit payment will always be after a paycheck and after a period end date. Both of these scenarios will generate incorrect payroll reports.

Another area where I’ve seen mistakes made is that typically towards the end of every calendar year, you will receive a notice from your state telling you what your new SUTA rate is going to be for the upcoming year.   You need to put your new SUTA rate into QuickBooks payroll module at the beginning of the calendar year, before you run your first payroll, in order for the reports to calculate correctly.  If you do it at the end of the 1st quarter, which I’ve seen frequently done by clients when they receive their quarterly blank SUTA report in the mail to complete and notice the rate change then, you have to input payroll adjusting journal entries in order for the reports to calculate correctly.  I’ve never seen a client be able to do this by themselves, they have always required assistance and guidance.  It requires knowledge of the payroll process and QuickBooks payroll module that most people do not have.

I don’t have a lot of experience with the inventory module but from what I’ve seen with the handful of clients that have used it is that it is not that great.  I have yet to see a client who uses it correctly and the reports never seem to come out accurately either. So the same as before, garbage in/garbage out.  I believe that if you need to track inventory you are better off using a richer accounting software program like Sage 50 (previously Peachtree).

The QuickBooks online version is limited and archaic. The reports are restrictive and not user friendly in comparison to the desktop version.  The ability to navigate around the online version is difficult and awkward which is the opposite of what makes the desktop version so popular.  What customers need to know is that the online version is not a version of the desktop program.  It’s completely different with its’ own set of challenges. I would recommend that the only time the online program is worth investing in is if you have numerous locations where many people need to access the same QuickBooks file.  This is really the only time it has any redeeming value.  Otherwise, invest in a desktop version. You will end up with less aggravation for yourself and your CPA firm in the long run.

QuickBooks Recap

I believe the road for QuickBooks may not be as lucrative as it’s been in the past.  Everyone is going the way of the cloud and their online version has been pretty bad for at least the 10 years I have had experience with it.  I’m hopeful every year that the online version has been fixed but each year I’m disappointed.  For Intuit not to be able to get it right yet is frustrating and actually a little shocking. When the answer to all the problems seems to be just to create the same popular, user friendly desktop version in the cloud.  I’m not sure why this is so difficult to achieve?

Another area of concern is that every year they come out with a new version of QuickBooks with new bells and whistles. It’s like they are trying to outdo themselves every year but really the upgrades are not of much value to the day-to-day user and can be quite frustrating for the long term user who just wants the meat and potatoes of the program.  I remember a few years back with the QuickBooks 2013 upgrade when Intuit made many visual changes to the program including increasing the font size, highlighting in an obnoxious green color, my personal opinion of course, and adding the left icon bar, etc.  It was very off putting to the long term user like myself. I personally don’t think these changes make the program better or more functional but I tend to be a person who wants to get in and get the job done, not worry about what the color/font of my register looks like or can I get a help bubble on every screen.  I kind of find these upgrades insulting but once again it’s my opinion.  I think Intuit should only upgrade when they have a serious upgrade to offer.  The yearly upgrades appear to be just money makers in that they can make a prior year obsolete and unsupported by Intuit, forcing the consumer to upgrade and spend money.  The general public is pretty savvy to this and with everyone wanting their information in the cloud, if Intuit doesn’t get their online version up to speed soon they may become obsolete because the competition is fierce.