Diagnosing Common Errors in Quickbooks Part One - Negative Balances in A-P and A-R
Introduction
Diagnosing problems in a QuickBooks file is easy once you know what you are looking for. It's usually a matter of glancing at the chart of accounts for anything out of the ordinary. The problem is that most business owners aren't sure what is out of the ordinary and what isn't. This is the first in a series of articles that will explain how to diagnose what the problem is and how to correct the problem once known.
Negative Balances in A/P or A/R
Although this may seem kind of basic for those who have been entering data into QB for a while, for those who haven't this may be new information, so hang in there for their sake. Accounts Payable is the account automatically created by QuickBooks when you enter your first bill. This is the account that all these amounts go into and from which these same amounts are taken when you pay the bill. More often than not, the clients I see for the first time have a negative balance in the A/P and cannot explain why, nor do they know what to do with it.
A negative balance in the A/P would indicate that YOU owe your vendor money, and though there are legitimate reasons why you would give a credit to a vendor, a refund for extra material sent, etc., most of the time it is the result of a simple mistake. That mistake is the entering of a payment to a vendor without entering the bill that the payment should apply to. This happens when the data entry clerk is not using the Enter Bills/Pay Bills screens and is simply entering the amounts paid into the check register. Since there is no corresponding bill, (according to QuickBooks) the amount of the check is entered as a credit toward the vendor specified.
Likewise, a negative balance in the A/R indicates that there are customers that your company owes money to. And again, there are legitimate reasons you would credit a customer, but often it is a mistake. The mistake that is made is that a customer payment is recorded without a corresponding invoice being recorded. If the invoice isn't recorded, then according to QuickBooks, this customer doesn't owe you anything, upon receiving the payment and recording it, you now have a customer you owe money to, but not really.
NOW HOW DO I FIX IT?
As with all questions related to accounting, the answer is, "that depends". If these are current mistakes and the bank accounts have not been reconciled as of yet, the method of correction is easy. For the A/P, look for the Pay Bills and enter in the same check number that you used earlier and pay the bill in that screen. The little 'oh-oh' screen will pop up telling you that this check number is already used, ignore it and use that number anyway. When you are done with all of these entries, return to the register and look for those identical check numbers, the ones entered correctly will have BILLPMT in the box below the check number, delete the one without that designation and you will have completed the task. Fixing the A/R is not much different, (assuming that the reconciliations have not been completed!) enter an invoice dating back to the time of the payment received for whatever that customer ordered. The invoice will counter the credit received and will bring the balance out of the negative to zero, unless the customer of course, still owes you for work done.
WHAT IF EVERYTHING IS RECONCILED?
If the negative balances date back into months that have been previously been reconciled and the bank statements and QuickBooks match, deleting these payments by customers and reentering them applying them to invoices will throw off all reconciliations for the rest of the year. You will then have to re-reconcile the bank accounts and that can be tedious.
For A/P corrections after reconciliations, DO NOT DELETE THE BILLS! We have to be a little creative with this so here goes. First, create a fake bank account; call it Adjustment Bank or First Bank of David, whatever you wish. Go to the Pay Bills screen and use the fake bank account to pay the bills you are sure have already been paid.
Once you have completed the entries, make a fake deposit from an account called adjustment into the fake bank account for that same amount of the already paid bills. This effectively zeroes out the bank account, which you can then make inactive.
For A/R corrections after reconciliations, since the amounts have already been received and deposited into the right bank account that has already been reconciled, simply entering in matching invoices to compensate for the received funds will not affect the bank account, and thus will not affect the reconciliations already done. Just make sure to tie out the payment to the invoice number you create by using the invoice number in the payment memo box. Since the amount won't change you won't have to worry about affecting the reconciled transactions.
CONCLUSION
Admittedly, this is not the ideal solution, and if you only have a few of these transactions and it won't require an entire year of re-reconciliations, you should do it the long way. However, this way gets you done sooner and let's you get on with the day to day business you love to do. I hope this helps you with your QuickBooks issues.