As the name implies, this is simply a report that projects the cash you are anticipating to come into, and flow out of, your company in the future months. It won’t predict the future for you, but it will help you to plan and develop the strategies necessary to keep your business running smoothly

A cash flow projection begins with looking at your current cash position: cash on hand, accounts receivable and accounts payable. The next step is to develop a projected timeline for the collection of those receivables and payment of the payables. This is the most basic form of a cash flow projection. However, it doesn’t let you look very far into the future. To do that, you need to go on to the next step.

The next step is to add ‘anticipated’ cash flow projections into your timeline. Based off of your current sales and anticipated future sales, add in amounts that you expect to be depositing in the future and correlating expenses. These projections should be on the conservative side, not from the ‘best-case scenario’ view. You don’t want to fool yourself by being overly optimistic. Make sure you don’t overlook things like your annual insurance audit, employee pay increases or bonuses and other expenses that aren’t a part of your regular monthly routine.

Mapping these numbers out on a timeline that shows the expected hills and valleys of your cash flow for the next 6 months can help you develop advertising and promotional strategies. It can also prevent you from spending too much during a peak in cash flow since you will have the anticipated valleys clearly mapped out before you.

Don’t let the highs and lows of your cash flow take you by surprise. Take the time to develop a cash flow report to help you peer into the future. We’d be happy to help you lay out the numbers and learn how to read the map.

However, you probably purchased those 10 candles several months before they were sold. Where do you record that $40 purchase initially? Your purchases of goods for sale should initially be debited to your inventory account, which is an asset account on your balance sheet. You have simply exchanged one asset (cash ) for another asset (inventory).

Once the item sells, you will be recording the sale, which is a debit to cash (or accounts receivable) and a credit to your sales revenue. However, since you did not make 100% profit on the sale, you must reduce your sales by the cost of the goods sold. You do this my crediting your inventory and debiting your cost of goods sold. Now your income statement will show a $100 sale, less $40 cost of goods sold, for a gross profit of $60. Your inventory account will have also decreased by $40.

‘But I keep my books on a cash basis. Can’t all my material purchases go to cost of goods sold?’ you ask. In that case, you are correct. A business that is recording its transactions on a cash rather than an accrual basis will generally record all their materials purchased for resale under cost of good sold and then simply do a physical inventory count at year end to determine their inventory carry over at the end of the year.

Some businesses, such as a service business, will have both labor and materials as costs of goods sold, or direct costs. Only labor directly related to your revenue billings should be recorded in the cost of goods sold. For instance, since you are billing a customer for your receptionist’s time, her labor costs would not be recorded as a cost of goods sold. The labor for your field technician who did the billable work, would be recorded as a cost of goods sold. The labor for the receptionist should be recorded under your general operating expenses.

Again, if you’re uncertain on where or how to record a business transaction, a call to your accounting professional can sometimes be the simplest solution. They understand your business and can you give the best advice.

To understand where to record your debit entry for a purchase, lets look at some definitions.

• Fixed Assets – Personal or real property which will have a use-life of more than one year.

• Operating Expenses – General expenses related to the cost of doing business.

Now, let’s look at a purchase scenario.

Company A has just purchased a new desktop computer for one of its salesmen. The purchase included a computer, monitor, printer and ink for the printer. How should this purchase be recorded?

The computer, monitor and printer are all personal property items that have a use-life of more than one year. These fit into the definition of a fixed asset and should be recorded under a fixed asset account that contains your office furniture and equipment. Any shipping costs or taxes related to the purchases of these items should be included as part of the transaction entry into the asset account.

The ink for the printer, however, is an expendable operating EXPENSE. The cost of the ink, including and shipping and tax, should be recorded in your office supplies expense account.

But the computer and printer cost you money, how do I deduct those costs off my profit? The costs of your assets are deducted from your profit each year through depreciation expense, which is also located on the income statement under your operational expense accounts. At the end of each year, your accountant will determine the percentage of the value of your assets that can be recorded as depreciation expense and deducted from your profit.

The dollar amount of depreciation Company A will be allowed to deduct for this equipment purchase will depend on what time of the year the pieces of equipment were purchased and the depreciation schedule over which the value of the item is depreciated.

This is a basic organizational layout of any chart of accounts, and the types of items entered under each category:

Balance Sheet Accounts:

Assets

• Current Assets -Cash accounts, Accounts Receivable and Inventory
• Fixed Assets – Items that will depreciated over a period of years. Vehicles, furniture, equipment, buildings and real estate.

Liabilities

• Current Liabilities – Accounts payable and any portions of debt that will be paid within the current year.
• Long term Liabilities – Mortgages and other long term debts.

Owner’s Equity

• Owner’s Contributions – Initial startup costs and other contributions
• Retained Earnings – Accumulated profits and/or losses

Income Statement Accounts:

Operating Revenue – Gross sales

• Cost of Goods Sold – Direct costs of sales: purchases, labor for services, materials, subcontracted labor

Operating Expenses – Administrative salaries, office expense, rent, utilities, insurance etc
Non-operating Revenue – Sales of assets, refunds
Non-operating Expenses – Penalties, fines etc.

This, of course, is still a very broad overview. Be watching for more detailed explanations of these accounts in our future blog posts.

When a bill is sent out to a client, there will generally be some sort of description on the invoice. In some cases, it is very detailed and specific. In other cases, the description will be very general and lacking in detail. Another issue with billing descriptions comes when the description on the invoice does not accurately reflect the product that was sold.

The reasons for a lack of detail can be a matter of saving time on entries or a lack of information being provided to the billing department from the sales department. This second reason, the transfer of information from sales to billing, can be the reason behind incorrect billing descriptions as well.  Whatever the reason, incorrect billing detail can become an issue in a few different ways.

First of all, it can create issues with the client. An improper description can lead a client to believe they are being charged for something more, or less than, what they actually received. It can also create problems if the client desires to return an item and the item they attempt to return or exchange doesn’t match what is written on their invoice.

In adequate or incorrect invoice descriptions can also cause billings to be flagged in an audit. Billing invoices should always clearly state whether you are selling a material product, labor or both. If you are charging for labor, it is important that the invoice describes the service that is being provided. This is especially true where some types of labor are taxable and others are not.

Sales tax is another detail that needs to be clearly stated on your billing invoices. If you are charging sales tax to your client, the invoice should always state the exact amount of tax being charged. To simply state ‘tax included’ is not considered sufficient. The client has a right to see exactly how much tax you are charging, and verify that it is the correct percentage, for themselves. Your friendly tax auditor will be happy to remind you of that, should he pay you a visit.

Another detail item in regard to accounts receivable billing is finance charges. Each state has its own regulations about what are the acceptable percentages allowed for calculating finance charges on past due amounts. If you plan on charging finance charges on overdue accounts, the terms of your billing, and the percentage rate you will be assessing for finance charges, should be clearly spelled out on all your invoices and statements. Without this pre-warning printed on your billing documents, you may have a hard time collecting on those finance charges, should you need to take a client to court for non-payment.

Those little details do matter, especially when it comes to your accounts receivable billings.

QuickBooks is an accounting application and FreshBooks is an invoicing application. They are two different things, but in the end to have your data matching in both, there could be a ton of double entry resulting in valuable time consumed and strenuous effort.

You can have your data accurate in both, while not matching in both. Matching and accuracy are two different things. For all of the numbers to match up, it is a matter of accuracy. To have all of the details such as sales items etc. it would be a matter of matching.

In this blog post, I will begin to show you ways to get accurate data from FreshBooks into QuickBooks.

This blog post is Part 2, if you have not read Part 1, I suggest you do so, as it covers Methods 1 & 2.

In methods 1 and 2 we spoke of various ways to get your data into QuickBooks assuring that you have your Accounts Receivable accounted for. Now, we understand those two methods may not be ideal, and not everyone wants (or needs) to track their Accounts Receivable in QuickBooks – after all they track it in FreshBooks. We also understand that Cash Basis companies only have to worry about income after it is received.

So, let’s talk about Method 3, shall we. Method 3 is all about getting your paid income into QuickBooks from FreshBooks.

Method 3: Getting Money Received (Cash Revenue) as a whole into QuickBooks

This method is ideal if:

• You do not need to track accounts receivable in QuickBooks.
• You only want income data in QuickBooks after it is received (when it becomes cash revenue).
• You file taxes on a cash reporting basis (not accrual)

Step by Step Instructions:

1. Log Into your FreshBooks Account

2. Click on the Reports Tab

3. In the second column, click on the Revenue by Client report.

4. Select the year that you want to report on, highlight all clients, select total collected, and then click View Report.

5. Open QuickBooks

6. Set up a generic or general client in your Customer Center. My general client is called ‘FreshBooks Receivables’ (If you don’t know how to do this, visit my blog post on setting up a customer in QuickBooks)

7. Click on Company in the main menu bar and then Make Journal Entries

8. Select the end date of the month you are going to be recording sales, for this example we will be doing January 2010. So I would enter the date of January 31, 2010.

9. From the account drop down pick your Income account (mine is Accounting Services Income).

10. Tab over (or move with your mouse) to the credit column and enter your payments collected total for the month you are entering. You will get this information from the Revenue Report that you previously generated from FreshBooks, it is your total at the bottom for the month in question.

11. Go to the second row and from the account drop down box select your bank account that the funds went into and in the debit column enter the same amount (in most cases QuickBooks will automatically fill in that amount for you).

12. Tab over to the Name column and enter your general client name that you set up in Step 6.

13. Check to make sure that your entry looks similar to this:

14. Press Save and Close

What has happened now is you have your entire month income inside of QuickBooks. The income is sitting in your bank account.

Now, there are some rules about this:

• You must wait until the end of the month.
• If you want to track revenue by ‘client’ rather than just the general revenue, you would do the same thing as above but change Steps 6, 10 and 12.
  1. Step 6 would no longer be necessary.
  2. Step 10 would become: Tab over (or move with your mouse) to the credit column and enter your payments collected by client for the month you are entering. You will get this information from the Revenue Report that you previously generated from FreshBooks, it is next to your clients name, in the month column you are entering.
  3. Step 12 would become: Tab over to the Name column and enter your client name that you set up in Step 6.

Problems you may be thinking:

1. Not all of my income goes into the same bank account.

Answer: That is fine in Step 13 you can have multiple rows, not just two. So let’s assume that my $8,337.40 deposit was split between three bank accounts. I would still have the Row 1 be the credit column, but then Rows 2, 3 and 4 would each have the bank account that the monies went into and the specific amount. See here for an example:

2. Not 100% of my invoice payments go into my bank account, because I accept credit cards or Paypal and they take a percentage of the revenue.

Answer: If you accept credit cards or Paypal you have to understand that your money goes into a ‘different’ bank account before it hits your real bank account. Think of your merchant account as being a bank account or your Paypal account as being a bank account. In the next blog post I will explain how to deal with this in detail.

3. What about sales tax? All of your methods are recording sales tax as general revenue or income and I know it is not.

Answer: You are correct. We must make an entry to appropriately allocate your sales tax. I will cover this in detail in a follow up blog post as well.

Stay tuned, in the next week I will be writing two more blog posts:

• How to handle accounting for credit card processing or Paypal fees in QuickBooks (with a special segment on relating it to the suggested FreshBooks entries)
• How to handle allocating your sales tax in QuickBooks from FreshBooks.

QuickBooks is an accounting application and FreshBooks is an invoicing application. They are two different things, but in the end to have your data matching in both, there could be a ton of double entry resulting in valuable time consumed and strenuous effort.

You can have your data accurate in both, while not matching in both. Matching and accuracy are two different things. For all of the numbers to match up, it is a matter of accuracy. To have all of the details such as sales items etc. it would be a matter of matching.

In this blog post, I will begin to show you ways to get accurate data from FreshBooks into QuickBooks.

Method 1: Getting Receivables as a whole into QuickBooks

This method is ideal if:

• You do not need to track the accounts receivable balance by client inside of QuickBooks, but want to track your accounts receivable as a whole.
• Have no issues with documenting your invoicing on a monthly basis inside of QuickBooks.
• Are okay with entering your payments received on invoices, once the payments are actually received from your customers.

Note: I offer this as an option, because maintaining who owes you what in QuickBooks is not that big of a deal, because you track that same data inside of FreshBooks. However, tracking your accounts receivable total is necessary for some companies, such as accrual based entities.

Step by Step Instructions:

1. Log into your FreshBooks Account

2. Click on the Reports Tab

3. In the second column, click on the Revenue by Client report

4. Select the year that you want to report on, highlight all clients, select total billed, and then click View Report.

5. Open QuickBooks

6. Set up a generic or general client in your Customer Center. My general client is called ‘FreshBooks Receivables’ (If you don’t know how to do this, visit my blog post on setting up a customer in QuickBooks)

7. Click on Company in the main menu bar and then Make Journal Entries

8. Select the end date of the month you are going to be recording sales, for this example we will be doing January 2010. So I would enter the date of January 31, 2010.

9. From the account drop down pick your Income account (mine is Accounting Services Income).

10. Tab over (or move with your mouse) to the credit column and enter your sales total for the month you are entering. You will get this information from the Revenue Report that you previously generated from FreshBooks, it is your total at the bottom for the month in question.

11. Go to the second row and from the account drop down box select your accounts receivable account and in the debit column enter the same amount (in most cases QuickBooks will automatically fill in that amount for you).

12. Tab over to the Name column and enter your general client name that you set up in Step 6.

13. Check to make sure that your entry looks similar to this:

14. Press Save and Close

What has happened now is you have your entire month income inside of QuickBooks. You should be able to see that the balance exists for your general client, and see the revenue reported in your Profit & Loss Statement.

You are not done yet! When you receive payments from your customers on these open invoices, you have to record this in QuickBooks. This is easy though:

15. Get a notification from FreshBooks that you have received a payment.

16. Open up QuickBooks

17. Click on Customers & then Receive Payments from the main menu.

18. Pick your general customer name in the Received From field, enter the amount received, the payment method, the date it was received, and then in the Memo line, I like to personally leave the real clients name and invoice number.

19. Click Save and Close.

20. Don’t forget to deposit your money in the Banking -> Make Deposits menu, all customer payments are automatically stored in Undeposited funds in recent versions of QuickBooks (in some older versions, you could pick the account you want it deposited to at the received payments screen).

Method 2: Getting Receivables on a per client basis into QuickBooks

This method is ideal if:

• You want track the accounts receivable balance by client inside of QuickBooks.
• Have no issues with documenting your invoicing on a monthly basis inside of QuickBooks.
• Are okay with entering your payments received on invoices, once the payments are actually received from your customers.

It is the same process as outlined above in method 1, with the following changes:

1. In Step 6 you will either want to skip this step or set up your actual clients name if they are not already in QuickBooks.

2. In Steps 10 and 11 you will only enter the amount for the specific client in that month, rather than the total revenue.

3. In Step 12, rather than entering the ‘general clients’ name, you would enter the specific name of the client.

4. In Step 18, rather than picking the ‘general clients’ name, you would select the specific name of client from whom you received payment.

It should be noted that with this method you will have to do an individual entry for each client, as QuickBooks does not permit combined General Journal Entries involving accounts receivable and multiple customer/client names.

In my opinion: It is not necessary to record things as in method 2, because you are already maintaining client specific accounts receivable information in FreshBooks. Entering your data as outlined in method 1 will assure your data is accurate, just not identical as it relates to client specific invoices and balances.

Before you pick one method over the other, I want to state that there are more ways than just these and I will be outlining them in upcoming blog posts.

Some of you may not want to have to enter your accounts receivable (the invoicing) and the payments received (the money received), this is especially applicable to cash based reporting companies, whose income is only income once the payment is actually received. So, rather than having to enter all the invoicing totals and then payment receipts, you can enter just payment totals. There are several ways that this can be done. Stay tuned and I will outline them in an upcoming blog post.