Tutorials

Should I Pay Myself with a Salary or Owner’s Draw?

As a business owner, you might be wondering how you’ll receive compensation for your work. Generally speaking, business owners can pay themselves with salary and/or owner’s draw. While both options involve funneling money from the business to the owner’s personal bank account, there are some stark differences between the two.

Salary vs Owner’s Draw: The Basics

Let’s first go over the basic definition of a salary and owner’s draw. A salary, as you may already know, is a regular, fixed payment that’s made to a business owner or employee. It’s usually paid either monthly or biweekly and expressed as an annual sum. In contrast, owner’s draw are payments made to a business owner that are not regular or fixed. They are taken from the business’s profits and given to the owner as compensation for his or her work.

Sole Proprietorship

The way in which you pay yourself will vary depending on the structure of your business. If you operate your business as a sole proprietorship — meaning you didn’t set up a legal structure — you must pay yourself in owner’s draws. The Internal Revenue Service (IRS) requires all sole proprietorships to use owner’s draws for this purpose. Keep in mind, however, that you are also required to make estimated quarterly payments to the IRS based on the amount of income you expect to earn for the given year.

Limited Liability Corporation

If your business operates a limited liability corporation (LLC), the IRS also requires that you pay yourself using owner’s draws. With an LLC, you’ll have more protection over your personal assets in the event of lawsuits or other liabilities associated with your business. Nonetheless, you must still pay yourself using owner’s draws.

Corporations

Corporations, on the other hand, are often required to pay owners using a salary. C-corps, for instance, are required to compensate owners using a salary, while S-corps are required to compensate owner’s using a salary with an optional owner’s draw. The key difference between S-corps and C-corps is that the former is a pass-through entity in which the business isn’t tax.

Hopefully, this gives you a better understanding of the differences between owner’s draws and salaries. If you’re struggling to determine which payment method is right for you and your business, talk with a professional accountant. They’ll help you understand the intricacies of tax laws while explaining which compensation method is appropriate for your specific business.

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What Are Accruals in Business Accounting?

In business accounting, you may come across the term “accrual.” Basically, this term refers to revenue that has been earned but not yet officially recorded. If you ship a product or service, for instance, you may use accrual accounting to keep track of such revenue. Even if the customer hasn’t paid, you can still record the transaction as an accrual.

Here’s a common example of accrual accounting: a retail sells a product to a customer, and that customer pays using his or her store credit. The customer might not pay for the product for another month (or longer). Nonetheless, the retail store should record the transaction as an accrual. This ensures the transaction is recorded in the appropriate month. If the customer purchases the product on store credit in January but doesn’t pay until February, recording it immediately as an accrual prevents discrepancies.

Accrual account is the opposite of cash accounting. With cash accounting, the business records its income when payment is received from the customer. This doesn’t necessarily have to be a cash payment. Whether the customer pays using cash, credit card, debit card or check, the business records the income earned from the sale at the time of payment.

You might be surprised to learn that some businesses in the United States are actually required to use the accrual accounting method. The Internal Revenue Service (IRS) specifically states that all businesses that earn more than $5 million in gross sales, for instance, must use the accrual accounting method. Businesses meeting this criteria that use the cash accounting method are not complying with the IRS’s rules in this regard.

Of course, there are both pros and cons to using the accrual accounting method. One advantages include the ability to defer some of your tax liability. Additionally, it ensures your business’s income matches its related expenses. On the other hand, accrual accounting ignores cash flow. You record transactions as income even if you don’t receive payment for those transactions. Furthermore, accrual accounting is more laborious and time consuming than cash accounting.

Hopefully, this gives you a better understanding of accrual accounting. To recap, it involves recording revenue after selling a product or service before the customer has paid. While it has some disadvantages (see above), the Financial Accounting Standards Board (FASB) says it’s an excellent way to reveal additional information about a business’s assets, liabilities and earnings.

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How to Print Multiple Invoices at Once

As your business picks up and the sales begin flooding in, you may find yourself printing dozens or even hundreds of invoices. While you can always print them one by one, doing so is both time consuming and tedious. Thankfully, Quickbooks allows you to print multiple invoices at once. Opting for this method will undoubtedly save you time, allowing you to focus your efforts elsewhere, such as acquiring new customers. So, how exactly do you print multiple invoices at once using the Quickbooks accounting software?

First, you’ll need to make sure your invoices have been flagged for this task. This is done by clicking the (+) icon, followed by “Invoice.” From here, complete the invoice just as you normally would. If you’re planning to email it to the customer, include the customer’s email address and either check the box for “Send later” or “Print or Review,” followed by “Print later.” You can then click “Save” to save the invoice. Repeat these steps for every invoice you want to print.

To print multiple invoices at once, go to your Quickbooks dashboard and select Sales > All Sales. From here, click the “Filter” drop-down menu, after which you can enter the invoice type, status, delivery method, dates and customer. Next, click the box next to the transactions that you want to print. Because you’re printing multiple invoices, you’ll need to select every invoice that you want to print. When finished, click the “Batch Actions” drop-down menu and select “Print Transactions.” Quickbooks will now print all of the invoices that you previously selected. Of course, you can also email these invoices by choosing “Send Transactions” instead of “Print Transactions” from the “Batch Actions” drop-down menu.

When finished, you’ll find all transactions in the “All Sales” window.  You can add an email column to this window by clicking the gear icon and checking the box next to “Email.” Clicking the gear icon once again will close the window. If you’d like to add an email address to a transaction, simply double-click the transaction, add the customer’s email address and click “Save and close.”

Creating and sending invoices is something that comes with the territory of running a business. The good news is that you don’t have to create every invoice manually. By following the steps listed here, you can create and print multiple invoices at once.

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How to Record a Vendor Refund in Quickbooks

It’s not uncommon for business owners to receive refunds from vendors. There are a few different scenarios in which a vendor may issue a refund. If you accidentally paid the same bill twice, or overpaid a single bill, the vendor may issue you a refund. Another instance in which a vendor may issue a refund is if he or she is out of the product you purchased. Regardless, it’s important to record these refunds in your Quickbooks account.

To record a vendor refund in Quickbooks, log in to your account and access the “Banking” menu and click “Make Deposits.” In the “Payments to Deposit” window, click “OK.” Next,  click “Received From” under the “Make Deposits” window and choose the vendor who is issuing the refund. You must now click the “From Account” drop-down menu and select the “Accounts Payable account.” In the “Amount” column, enter the total amount of the refund check, after which you can click “Save & Close.”

After completing the steps listed above, you must then record a Bill Credit for the refund. This is done by accessing the “Vendors” menu, followed by “Enter Bills.” Next, click the “Radio” button and enter the vendor’s name. You must then click the “Expenses Tab” and enter the account from the original bill. In this “Amount” column for this field, enter the amount for the account, after which you can click “Save & Close.”

You aren’t out of the woods just yet. You’ll now need to link the deposit to the newly created Bill Credit. Go back to your main account screen and click the “Vendors” menu, followed by “Pay Bills.” Find the deposit that matches the vendor refund and click it. You should then click “Set Credits” to apply the bill credit you previously created, after which you can click “Done.” Finally, complete the process by clicking “Pay Selected Bills” and “Done.”

Regardless of what your business does or offers, you’ll probably receive a vendor refund at some point in time. Maybe the vendor failed to deliver a purchased product or service, or perhaps you overpaid for a product or service. Either way, it’s important to record vendor refunds so they don’t throw off your books. Assuming you use the Quickbooks accounting software, you can easily record vendor refunds by following the steps listed here.

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What is a Purchase Order in Quickbooks?

When using Quickbooks, you may come across the term “purchase order.” So, what is a purchase order exactly, and how do they work?

Overview of Purchase Orders

A purchase order is a document stating the intent to purchase products, goods or services offered by another company. It contains detailed information about the intended purchase, including the quantity, price, date and more. Purchase orders are commonly used when a business purchases products or services from another company. The business creates and sends the vendor a purchase order. If the vendor accepts the purchase order, it creates an agreement between the two parties.

How to Create a Purchase Order

You can create a purchase order in Quickbooks in just a few easy steps. First, you’ll need to enable this feature by logging in to your Quickbooks account and choosing Edit > Preferences. From here, you can enable or disable purchase orders.

After enabling purchase orders in Quickbooks, click Vendors > Create Purchase Orders. You can then choose a template to use for the purchase order (optional). Next, click the “Vendor” drop-down menu and select the vendor from whom you are purchasing products, goods or services. If the vendor is new, you’ll need to create a new vendor. If it’s an existing vendor with whom you’ve done business in the past, you can choose the vendor’s name from the list.

Quickbooks also allows users to track purchase orders by class. If you use class tracking, you can click the “Class” drop-down menu and select the class that you want to track the purchase order. Like using a template, however, class tracking is completely optional and not required when creating or using a purchase order in Quickbooks.

Assuming you’ve followed the steps previously mentioned, you’ll need to complete the information for the line item area. When you are finished, you can then add a memo or vendor message to the purchase order in the respective fields. When finished, click “Save & Close” to complete the process.

It’s important to note that the steps listed above only apply to Quickbooks Desktop. Creating and using purchase orders in Quickbooks Online requires a different approach. You can enable purchase orders in Quickbooks Online, for instance, by logging in to your account and clicking the Gear icon > Company settings > Expenses > Purchase Orders. From here, you can click the “Use Purchase Orders box” to enable this feature.

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How to Set Up and Track Sales Tax in Quickbooks

Still struggling to set up and track sales tax using Quickbooks? It’s actually a relatively easy process that should only take a few minutes.

To get started, log in to your Quickbooks acount and select “Taxes” on the left navigation menu in the “Sales Tax Center.” From here, you’ll need to click “Add/edit tax rates and agencies,” which is found in the “Related Tasks” list. As the name suggests, this will allow you to add tax rates to your account. Once the new window appears, click “New” and choose either a single tax rate or combined tax rate. You can then enter a name for the rate, agency to which you pay the tax (state tax agency) and the percentage of the rate.  If you’re only paying a single agency, choose single rate. If you’re paying tax to multiple agencies, choose combined tax rate.

When you are finished, click “Save,” after which the new rate should appear in your account’s “Sales Tax Rate and Agencies” list. This tax rate will automatically be added to newly created invoices and sales receipts.

Setting up a combined tax rate is slightly different than setting up a single tax rate. When you choose “Combined tax rate,” you’ll need to enter a name for the rate. Next, you’ll need to enter the different sales tax components that create the rate. This includes the component names, agencies’ names and their respective rates (in percentage). Keep in mind that Quickbooks allows you to add other components as well.  When you are finished, click “Save” to complete the process. Like single tax rate, the newly created combined tax rate will appear in your ‘Sales Tax and Agencies” list as well as invoices and sales receipts.

Of course, it’s not uncommon for sales tax rates to change. When your state changes its tax rate, you’ll need to go back into your Quickbooks account to update this information; otherwise, you’ll overpay or underpay the sales tax. To update your sales tax rate, refer to the steps listed above.

You can also edit a tax agency’s name in Quickbooks. This is done by clicking the “Rename” option next to the agency whom you wish to rename. From here, you can delete the agency’s old name and create a name for it. When finished, click “Save” to complete the process.

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How to Create a Bank Transfer Between Two Accounts in Quickbooks

According to Intuit, one of the most common mistakes Quickbooks users make when attempting to record a funds transfer between two accounts is accidental duplication. Assuming both accounts appear in the Chart of Accounts, the transfer must be recorded as a single transaction. It will still hit both accounts, but doing so allows the transfer to appear as a single transaction instead of a check transaction and separate deposit transaction. So, how exactly do you create a bank transfer between two accounts in Quickbooks using this method?

There are a few different ways to create a bank transfer between two accounts, one of which involves the “Transfer” option. After logging in to your Quickbooks account, click the (+) icon at the top of the screen, followed by “Transfer.” Next, click the drop-down menu for “Transfer Funds From,” at which point you can scroll through the list of banks to choose the account from which the funds are originating. After selecting the source account of the transfer, click the drop-down menu for “Transfer Funds To.” You can then select the bank account to which the funds are being deposited.

Next, you should see a window appear asking for the amount of transfer. Go ahead and enter the amount of money that’s being transferred in the “Transfer Amount” window. Double check this information to ensure it’s correct, after which you can edit the date and add a memo (optional). When you are finished, click “Save” to complete the process and save your changes.

If you imported the transactions from both accounts, you can easily match the transactions. If you didn’t enter a transaction, however, you’ll need to match the transaction from the other account. This is done by selecting Banking > choose the bank account > click the row of transactions > click the radio button to change it from “Add” to “Transfer.” In the drop-down menu, select the other account. Next, click Transfer > select the other bank account > select Recognized tab > Match.

It’s not uncommon for business owners and accountants to transfer funds between two accounts. When doing so, however, the transaction must be properly recorded. Thankfully, Quickbooks makes this process a breeze. You can easily record a bank transfer between two accounts in Quickbooks by following the steps outlined here. Once complete, the transaction will appear as a transfer in Quickbooks.

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How to Record Credit Card Fees in Quickbooks

Using credit cards to make business-related purchases makes accounting a breeze by leaving a “paper trail.” At the end of the year, you can review your credit card statements to see exactly how much you spent and for what products or services. With that said, however, it’s not uncommon for banks to charge fees for using their credit cards. Some credit cards have an annual fee, whereas others have monthly fees or finance charges. Regardless, you should record these fees to keep your books in order. To learn more about credit card fees and how to record them in Quickbooks, keep reading.

Recording credit card fees in Quickbooks require these use of a new expense. This is done by logging in to your Quickbooks account and clicking “Create (+),” followed by “Expense.” From here, you’ll need to enter the cred card associated with the fees in the “Bank/Credit account” field. You can also select a location or department for the credit card. Keep in mind that this option may be turned off in your Company Settings or Account Settings. If you don’t see an option for location or department, skip this step and move on to the next step.

Assuming you followed the steps listed above, you should see a new form with several fields. To record credit card fees, you must enter the appropriate information into these fields. For the “Date” field, Quickbooks will automatically use the current date. You should change this, however, to the date on which you were charged the credit card fees. For the “Amount” fee, enter the total amount of the fees that you want to record.

For the “Account field,” enter an expense account so you can track the fees. If you haven’t already created one, you can do so by entering a new account name and clicking “Add.” Next, select “Expenses” for the category and “Bank Charges” as the detail type.

There’s also an option for sales tax, which you can either complete or leave blank. Finally, you can add a note to appear in the register in the “Memo” field. Like sales tax, however, the “Memo” field is optional and not required when recording credit card fees in Quickbooks. When you are finished, click “Save and close” to complete the process or “Save and new” to create another expense.

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How to Reverse a Journal Entry in Quickbooks

It’s not uncommon for business owners and accountants to reverse journal entries. There are two specific reasons for doing so. First, reversing a journal entry allows you to correct mistakes without deleting the respective entry. While deleting the journal entry is always an option, this is somewhat tedious and time consuming considering that you’ll have to recreate the entry after it has been deleted. Therefore, many accountants and business owners prefer to reverse erroneous journal entries.

Secondly, reversing a journal entry allows you to track an expense between two accounting periods. So, whether you’re trying to fix an erroneous journal entry or track an expense between two accounting periods, you should consider reversing the journal entry. For step-by-step instructions on how to reverse a journal entry in Quickbooks, keep reading.

To begin, go ahead and log in to your Quickbooks account. Next, navigate to the journal entry you want to reverse by viewing the account history for the associated account. Once you’ve found it, click the journal entry to open it. Next, click “Reverse,” at which point Quickbooks will reverse the respective journal entry. When you are finished, you should click “Save and close” to complete the process. Alternatively, if you want to create a new journal entry, you can click “Save and new.”

It’s important to note that reversing a journal entry in Quickbooks automatically creates a new entry. The new journal entry will contain some basic information, including the number of the original journal entry as well as the date (first day and month) of the original entry and the debit or credit amount from the original entry. Of course, the new journal entry will also include the account, name and description from the original transaction. You can double check this information to ensure it’s accurate, but Quickbooks automatically creates the new entry with information from the old entry.

Ideally, you should try to enter the correct information every time when you make a new journal entry. Unfortunately, though, mistakes happen. And when you make a mistake on a journal entry, it can affect your business’s books. Assuming you use Intuit’s Quickbooks accounting software, however, you can reverse journal entries in just a few simple steps. It’s a relatively quick and easy process that should only take a few minutes to complete. By following the steps listed here, you’ll be able to reverse journal entries in Quickboks.

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How to Clear a Transaction in Quickbooks

Keeping proper financial records is essential when running a business. In fact, one of the most common reasons why small businesses fail is because of poor accounting practices. We’re only human, however, and as humans we make mistakes on occasion. If you accidentally entered the wrong transaction in your Qucikbooks account, you’ll need to clear that transaction so it doesn’t adversely affect your books. So, how exactly do you clear a transaction in Quickbooks?

To clear a transaction in Quickbooks, log in to your account and click Banking > Registers. Next, click the “Register Name” drop-down menu, select the bank account associated with the erroneous transaction and click “OK.”

Quickbooks will now show you a list of all transactions associated with that bank account. Scroll through this list until you find the one you want to clear, at which point you should click to highlight it. Next, click the line between the “Deposit” and “Payment” amount. Depending on whether this transaction has been reconciled, the field here will either contain the letter “R” or the letter “C.” If it’s been reconciled, it will be “R.” If it’s been cleared, it will display “C.” To change the status from reconciled to clear or vise-versa, simply click the field again. For instance, if the field currently displays “R,” clicking it will change it to “C.” When you are finished, click “Save” to save your changes.

Of course, it’s important to understand the differences between a cleared transaction and a reconciled transaction in Quickbooks. Basically, cleared transactions are financial transactions that have already hit the bank, credit card or other financial institution but haven’t been reconciled in Quickbooks. As previously stated, they are marked by the letter “C,” indicating the respective transaction has been cleared. In comparison, reconciled transactions have already been reconciled at the end of the month. To put it simply, cleared transactions become reconciled transactions after the business owner or account has performed the end-of-month reconcilation process.

Financial transactions in Quickbooks can be marked reconciled in two ways. The first method is listed above, which involves manually marking the transaction as reconciled. The second method — also the preferred method — involves using the Quickbooks reconciliation process. Both methods, however, will allow you to mark a transaction as reconciled.

Following the steps outlined above will allow you to clear transactions in Quickbooks.

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