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When to use/not use journal entries

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  • When to use/not use journal entries

    There have been quite a number of references in recent posts to journal entries. They are the Cinderella function of QB, and I think it may be useful for users if I quote what that excellent book Sleeter's QB Consultant's Reference Guide has to say about using them. I quote from the 2003 edition at pages123 to 125: (I don't know if there have been changes since then in how QB handles journal entries or in what Sleeter has to say about them)

    "[J]ournal entries should almost never be used in QuickBooks because, among many reasons, they cause your item-based reports to be incorrect.

    Here are two checklists for when you should and should not use journal entries.

    When to Use Journal Entries:
    * Adjusting entries such as depredation.
    * Closing Partner's or Owner's Drawing and Investment Accounts to Retained Earnings or Owner's Equity.
    * Accruing and reversing accruals of prepaid income or expenses.
    * Adjusting sales tax payable.
    * Entering bank charges or interest.
    * Entering credit card service fees or interest.
    * Reclassifying transactions between accounts, classes, or jobs.
    * Adjusting balance sheet accounts (except A/R, A/P, Payroll, Inventory, and Retained Earnings).

    When Not to Use Journal Entries:
    * If you use QuickBooks Payroll, don't use Journal Entries when the transaction should affect a Payroll Item. See page 436 for a discussion of how to adjust payroll.
    * If you want your Sales by Item reports to match your financial (account-based) reports, don't use journal entries when the transaction affects (or should affect) an Item. See page 125 for more information on posting changes to income accounts.
    * If you use QuickBooks to track your A/R or A/P, don't use Journal Entries when the transaction affects A/R, A/P. For example, don't use journal entries to write off bad debts. See page 651 for how to write off a bad debt.
    * If you're using Inventory parts, use an inventory adjustment instead of a Journal Entries when the transaction involves inventory items.
    * If you want QuickBooks to track Sales Tax, never use journal entries when it involves revenue (sales or credits).
    * To make corrections to Retained Earnings. There are some exceptions to this rule (e.g. distributing net income to partners), but if you need to make corrections to retained earnings it is best to adjust an income or expense account using one of QuickBooks' forms (Invoices, Bills, Credit Memos, etc). Using the forms allows you to maintain the integrity of the management reports like Sales by Customer, while still achieving the adjustment to Retained Earnings. Essentially, the recommendation is to change last year's net income (using forms), which in turn is automatically reflected in the Retained Earnings account. See Adjusting Income Accounts in QuickBooks on page 125.

    Other than these situations mentioned above, journal entries are almost never used in QuickBooks. This is because every accounting entry can probably be recorded more accurately using one of QuickBooks forms."

    Sleeter also recommends that because QB (at least 2003 Pro UK) does not have a General Journal like most accounting programs, a bank account be used to keep track of all journal entries - see pages 127 to 129.

    Ken

  • #2
    Ken,

    I couldn't agree more! When I see a file that is mostly JE's I just cringe and want to run in the other direction :-)

    I explain that QB's is a 'form based' software .... that is how it was designed to be used and that is how you will get the best level of detail and functionality.

    Excellent post!
    Rox :-)
    Rox :-)

    Advanced Certified QuickBooks ProAdvisor
    Visit us at: www.Consulting4qb.com

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    • #3
      The post by Ken is informative and enlightening.

      I think as journal entries are basics of any transaction, so one cannot ignore it.

      Thank you ken for sharing the information with us.
      SAM
      ------------------------------------------------
      Someone who thinks logically is a
      nice contrast to the real world.

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