Yes, Quickbooks is meant to simplify accounting functions to enable anyone to use it. However it is amazing just how big of a mess you can end up with if you don’t understand basic accounting principals.
This is a true account and not a hypothetical situation of what can happen when your day to day transactions are not recorded correctly.
Businessman A decides to purchase Business B. Businessman A looks carefully at the previous year’s financial statements and tax returns. He sees a very profitable business. Businessman A has been maintaining his own books (which are minimal) in Quickbooks. So has Business B. The two owners come to an agreement in May for the merger of the two companies. In November, Businessman A hires a bookkeeper to handle the increased accounting functions required by the merger. The books from Business B have continued to be kept in their separate Quickbooks file from Business A since the merger. Businessman A has not looked at the books of Business B since the merger. This is what the bookkeeper finds:
The cash account of Business B listed a NEGATIVE $200,000, even though there was plenty of cash in the bank. The receivables account was also sitting at a negative of over $60,000. There was a long list of items sitting in an expense account with the title “Don’t Know”. In spite of all this, the former owner of the company was sure that he knew exactly where his business stood without the numbers to back it up. After several weeks of going back through every single transaction in the prior ten months of the year and attempting to record them correctly (dependent on the owner’s recollection at times), the bookkeeper determined that Business B had lost money that year rather than making the large profit expected by Businessman A.
What could have Businessman A done differently to avoid this costly mistake?
- Have his accountant review the Quickbooks files of Business B before purchase rather than just the financial statements.
- Assuming that the purchase went through anyways, the accountant should have been enlisted to combine the two Quickbooks files at the time of the merger.
- The bookkeeper should have also been hired at the time of the merger rather than six months later.
Your accountant is the one you should turn to for interpretation of your accounting data. However, as seen in this example, the interpretation of that data is only as good the input of that data. If you truly don’t feel a bookkeeper is needed or fits into your budget at this time, you should be (at the very least) sending your Quickbooks file to your accountant for review on a monthly basis.