and now we will finally learn the last part of proving your entire set of quickbooks desktop
records are correct to the last detail the last part is fixing expense account classification
if you have any questions about this topic you can leave them in the comments section below and i'll
do my best to help you and of course if you feel the video helped you i hope you will click like
and don't forget to subscribe to get updates on new videos that come out all the time choosing
the wrong expense or asset when recording a check or bill is the only type of mistake
that cannot be found and fixed by comparing your records to an independent source now the irs
knows very well that the vendor will not check our own records to see which
expense classification is in our own records for the check that we just gave the vendor
therefore the irs knows that the expense category is not checked by an independent source and could
be wrong and we all know that the expense category determines whether the expense is deductible or
not so it is our own responsibility to make sure it's correct so that we don't get in trouble
so how do you find any checks expenses or vendor bills with this mistake well we start with what
works for ninety percent of these transactions it's called the one vendor one expense rule
this rule asserts that about ninety percent of the time each vendor will have only one expense in
their transactions conversely about ninety percent of the time each expense will always have the same
vendor or vendors recorded in the transactions for that expense for example ups and fedex will
always be delivery expense they will never repair our equipment therefore if we see a check or bill
payable to ups and we see repair expense in the category field we know it's a mistake conversely
reese's repair ranch will always be repair expense in every transaction that we record
with risa she will never deliver a package for us therefore if we see a check or bill
payable to resa and we see delivery expense in the category field we know it's a mistake
so what's the solution well solution step one we will run reports that show vendor name by expense
we will easily compare the vendor names to the expense category we will open and examine anything
that we're not sure of when we run this report in this case we will use the trial balance and open
each expense and asset we will observe the vendor name in each account and then i mark your teacher
actually planted two mistakes and let's see how difficult or easy it is to find
using this method after downloading the sample file and logging in with the credentials that
were provided in the description of this video we can click the shortcut to open the trial balance
notice it's showing us the results of all transactions regardless of date
now we don't know if these expense amounts are correct the only way to find out is to double
click and open them up for example electricity or electric expense if we double click this number
we should see only the name carnetin in the name field that's because in new york where
we are carnetin is the only vendor that provides electricity so it should stand out very clearly
that there's a name here that does not belong we know verizon does not give us the electric service
so that's the check we should double click go back to the actual check the hard copy itself
and we should take a look and find out if this is correct and if not we should change
the expense to what the expense is supposed to be for that particular check for verizon
it's the same thing with telephone expense if we double click telephone expense we should see the
name only verizon we should not see con edison because they provide electricity so that's the
one that we should double click and go back to the original source april thirteenth for thirteen
hundred dollars take a look at that con edison check and see if it's correct and whatever's wrong
we can fix it right here so that would be one way of finding and fixing misapplied expense checks
the other method that will reveal these types of mistakes will be to run reports
that show expense by vendor name you can easily compare the vendor names to the expense category
on this report then you can open and examine anything you're not sure of to do this
we will use the transaction list by vendor report then we will customize the report to show
the split account because the split account is actually the expense or the asset that goes with
the vendor transaction then we will observe the expense name in each vendors section
you will see the same mistakes that i mark your teacher planted there
when searching for misapplied expense categories by vendor the best report to do that is this one
transaction list by vendor and you can see all of the checks to con edison say electric
expense except this one this one stands out as telephone expense so now we'll go ahead and fix
it it's the same one we saw a moment ago double click thirteen hundred dollars april seventeenth
and we know that we should change it to electric expense and then we'll click save and close
and now the expense category is correct if we scroll all the way down to verizon we can
see that verizon has every check made out for telephone expense except this one this one on
february 10th the person who wrote it accidentally put electric expense so we double click
and we change it to what it's supposed to be save and close yes now the report clearly shows
every check to this particular vendor is the same expense and that's the way it should be
and the final issue that always comes up when reclassifying transactions what if you made the
same mistake on many bills and many checks well the solution is something called the accountants
toolbox inside the accountant's toolbox is a tool called reclassify transactions unfortunately
it's only available in the accountant's edition or if you log in as the accounted user
fortunately most of our students are actually using the accountant's edition so i can show you
exactly how this works the file we're using was made with the accountant's edition and you are
logged in as the accountant user if you used the username and password that were provided
in the description so we can open this tool and fix things but first let's identify the problem
when i open the trial balance i open the account called supplies and i double click and i stretch
the column of name open a little bit more so that we can look closely at those whom we've purchased
supplies from now staples that looks good makes sense that we purchase supplies from staples
okay now what about donna's office supplies well it makes sense that we would buy office supplies
from a company named donna's office supplies but look closely there's another vendor with a
very similar name donna and dan delivery so it doesn't really make sense that we would
pay a company named donna and dan delivery to purchase office supplies from it is more likely
because these two names are very similar it is more likely that donna and dan delivery
we were paying a delivery and not buying office supplies but notice it happened
several times because the name is so similar donna's office supplies donna and dan delivery
and if you know anything about your business you know that delivery expense and deliveries are not
only made by ups so if you know in your own business that deliveries are not only made by
ups but you open delivery expense and you only see ups you know there's a problem and when you look
at the supplies account you see the explanation of the problem what probably happened was
whenever you wrote a check for office supplies for uh donna and dan well whenever you wrote a
delivery a check for delivery you accidentally put supplies and the names were similar
so since there is many many many of them it would take a long time to double click
change the account and go to the next one so let's use that special accountants tool
we click accountant and we go down to client data review and the specific part of client
data review we will click reclassify transactions and now we have the reclassify transaction tool
now we can change the date and you should immediately put the date range because
that's what everything is based on here in this uh tool so the first thing you will do
is change the date to make sure you're including all of the transactions within the top date range
notice you can see all four expense accounts show up here and all i have to do is click on one of
them and i'll see all the transactions within this date range for that particular expense
now if you want to fix supplies you can't limit it to only expenses
you would have to change it to balance sheet accounts because we classified supplies as an
asset rather than an expense so i click supplies and notice you can see all the transactions
that were recorded in the supplies account between this date range and the ones we want to reclassify
are the ones that say donna and dan delivery we don't want them here we want them instead
to be in delivery expense so from the pull down we choose donna and dan delivery and now we will
see only the the transactions in the supplies account who have the name with the vendor donna
and dan delivery now all of these need to be taken out of supplies and put into delivery expense
and now that we've identified them we can click select all and then simply
tell quickbooks which expense account they should be in and in this case it's delivery expense
and when i click the reclassified button all of the transactions that were wrongfully put in
supplies have been properly reclassified to the delivery expense account and to prove it when i
open the trial balance the supplies number is much smaller and the delivery expense account
is much bigger and when i double click the supplies you see i bought only from staples and
only from donna's office supplies which makes more sense and now when i double click the delivery
expense account i see that we get deliveries from donna and dan's delivery as well as ups
now you may well ask what about a vendor we purchase different things from
staples is our example for a vendor with multiple accounts in their transactions
we sometimes buy supplies from staples and we sometimes buy equipment from staples so what do
we do well in this rare case if a small number of transactions are in the uh vendor or in the
vendor section we should check the attached source documents of each one because if there aren't that
many it won't take that long to check if there are many then what we should do is find another data
field in the transaction that may indicate which expense or asset is being purchased for example
if equipment purchased are usually thousands of dollars and supplies purchased are usually less
than a hundred dollars each purchase then we could simply use the money amount to judge whether we
put the correct expense account before we open it up and actually look at the source document
you will know what may identify the correct category in your own company if you know how
your company runs there will always be something in the transaction that will tell you is this
supposed to be one expense or the other and if you're not sure you can always open it up and look
so if you know a little bit about your business you know that you purchase both
supplies and equipment from staples now when i double click equipment you see that it's no
problem and every vendor is staples now we fixed the vendor but we did not necessarily
fix all of the categories if you buy several different assets or expenses from the same vendor
we double click supplies now we know that they're all correct as far as the vendor
but what we don't know is if some of these are for equipment for example look at this
four thousand three hundred dollars or well let's really focus on staples in fact let's imagine
that we only buy office supplies from donna but we know when it comes to staples we sometimes
buy equipment and sometimes buy supplies so let's filter out donna so that we can focus on staples
click the custom report and then we're going to filter
by name type n for name and choose only staples and then click ok now we have the same report
but only for staples we don't want donna because we know already that we only buy supplies from her
but we want staples because we want to take a closer look at some of the transactions to
make sure that these are actually supplies and not equipment so the first thing we would do is double
click the one with the highest money amount and we would go and take a look at check number eight
and we would find any kind of receipt or bill that went along with check number eight maybe at
an attachment that explain what it was because we have to verify did we buy supplies or did we buy
equipment so the fact that the money amount was much much higher than any of the other
supply purchases from staples indicates that that is possibly classified wrong