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 comment 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 90%
of these transactions it's called the one vendor one expense rule this rule asserts that about 90%
of the time each vendor will have only one expense in their transactions conversely about 90% 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 UPA 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 Risa 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 con Edison in the name field that's because in New York where we are Carn Edison
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 hardcopy 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 a 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 13th for $1,300 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 miss applied 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 miss applied
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 $1,300 April 17th 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
tool box inside the accountants tool box is a tool called reclassify transactions unfortunately it's
only available in the accountants edition or if you log in as the accountant user fortunately most
of our students are actually using the accountants Edition so I can show you exactly how this works
the file we're using was made with the accountants 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 purchase 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 name 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 happens 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 duh whenever you wrote a check for office supplies for Donna and now 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 transaction and now we have the reclassified 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 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 pulldown 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 reclassify 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 dad'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 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 $100 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 fix 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 $4,300 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 and 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 8 and we would find any kind of receipt or bill that went along with check
number 8 maybe at an attachment that explained 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