Accounting Software Source

John Dierkhising is the Managing Partner of Bottom Line Accounting, and the only Master Certified Peachtree Consultant in the Upper Midwest. Contact him with questions or business inquiries at john@bottomline-acctg.com, or 763.202.4523. In this interview John discusses some key differences between Peachtree and QuickBooks.

1) There is debate about QuickBooks being a more user friendly program that Peachtree for first time operators. Do you feel this is true, or would you still recommend Peachtree to any of your clients who are going to be buying a accounting software program for the first time?

They are very similar in layout and functionality. Both have drop down menus or transaction flow charts that link to data entry screens or reports. I like Peachtree’s simplicity in that it has a Maintain dropdown menu with all related list information like Customer, Vendors and Items and another drop down menu Tasks for all data entry screens like Invoicing, Enter Bills and Pay Bills. There are also menu short cuts separated by module for Vendors, Customers, Inventory, and Jobs. So it makes it really easy for a new user to pick up on how to swim around the program to get what you need done. I actually think it can be more difficult for a new user in QB in certain situations because in trying to make QB simple for non-accountants there can be extra steps needed to get something done, where in Peachtree it may have been as simple as one screen or transaction.

2) While both Pechtree and QuickBooks offer very powerful accounting tools to clients, they also have unique features that differentiate them in the accounting world. In your opinion, what type of business owners typically fair best from using Peachtree, and whatfeatures make it a better fit for these types of businesses and clients?

Peachtree offers a lot of functionality for business dealing with Inventory even in their lower flavors of the software. Peachtree can handle FIFO, LIFO, Serialized, and Average inventory costing methods. Along with the different costing methods Peachtree offers a nice Work Ticket functionality for light manufacturer’s that can help with the building of assemblies for Bill of Materials. Another great feature that you don’t see in even some more expensive mid-tier module based programs is Peachtree’s Attribute Inventory functionality. This is great for business’ dealing with shoes or clothing where you can assign an attribute for Size and Color so you only need to setup one item versus setting up the entire matrix of that item in the various size and colors.

3) I see some critics coming down on QuickBooks inventory features. Often users consider the inventory features offered by Peachtree to be more reliable. Can you describe a little bit about what makes Peachtree’s inventory capabilities so unique, and how they help small business owners?

Having the ability to have proper costing methods can help business owners know what their actual profit margin is at an individual sale level. If you are paying out commissions on sales you want to have actual cost versus QB average cost to ensure accuracy for both the owner and sales rep. We highly recommend clients that deal with inventory to start with Peachtree.

4) In your opinion, which program handles Job Costing functions better, and should the difference between QuickBooks and Peachtree in this department be a deciding factor in choosing one program over the other?

Peachtree’s job costing can handle progress billing as well as burden calculation which can be a nice feature to have to increase accuracy within the job profit reporting. It also can handle phases and cost codes making it a complete job costing application. The Job Management screen makes it easy to sort through the jobs.

5) Some people feel that Peachtree is only good big businesses, much like QuickBooks Enterprise. What aspects of Peachtree make it so well suited for big business, and how can it be scaled down to work for small business clients as well?

The advanced reporting options can really help with larger organizations to allow for more flexibility as the demands grow on being more efficient and heavier analysis. Peachtree bundles with Crystal Reports which is a universal reporting tool that can allow for the creation of just about any report imaginable. We have success stories where we have utilized Crystal to create reports where it has saved clients 8-10 hours a week in time savings where they used to have to compile spreadsheets to do the same thing. Now they can click a button and get everything they used to. Also, Peachtree has recently released an Excel based reporting tool called Peachtree Business Intelligence that can do similar reporting functions as Crystal right in Excel where most users are already familiar with. Smaller business can usually get what they need from the vast array of existing canned reports that offer a lot of flexibility in filtering and can easily be edited within Peachtree’s own report customization function. For owners or executives that don’t necessarily use Peachtree on a day to day basis, can get a lot of important information right from Peachtree screen based business dashboards so they can quickly interpret information.

Based out of Edina, Minnesota, Gary Carter and his firm offer a broad range of tax services for small businesses owners, executives and independent professionals.  In this segment Gary offers a unique perspective on how to file taxes for Non-Resident Aliens, and also offers some insightful tips on how to work effectively with clients around the globe. For more, visit the GW Carter LTD Website.

1) Gary, your business provides a very important service that I don’t see many other CPA’s providing.  Can you tell us a bit about how you started working with Non-Resident Aliens as tax clients, and how working with Non-Resident Aliens is different than working with US Citizens for tax purposes?

I started working with non-residents on a pro bono basis many years ago when I was a tax professor at the University of Minnesota. The U of M has several thousand foreign students and faculty who come to the U.S. on non-immigrant visas and must be classified as non-residents for tax purposes. The rules for Form 1040-NR (for non-residents) are much different than the rules for Form 1040. I began a VITA (volunteer income tax assistance) program for these folks, in cooperation with the IRS, and trained accounting students to prepare non-resident returns. Over the years we prepared thousands of non-resident returns, and I learned a great deal about the non-resident tax regime and the various treaty provisions that apply.

2) Do you find that the majority of your Non-Resident Alien clients work in specific areas, such as tech or medical industries?  Is there a big difference between how you handle these clients depending on what field they work in?  Is there different visa requirements for each field?

Non-immigrant work visas are granted based on the nature of the work the individual will perform in the U.S., and the different categories of visas have different terms and requirements. Many of my clients are academics (professors and researchers); some are foreign entertainers and athletes who enter the U.S. for musical tours and specific sporting events; others are diplomats or employees of foreign organizations. There are various statutory and treaty based exemptions that apply to all of these individuals.

3) Do you find QuickBooks Premier Industry Specific Editions to be of any use in helping file taxes for Non-Resident Aliens?  I.E.: Manufacturing and Wholesale Editions for Import/Export clients.  Do you think programs like QuickBooks are of good use to these types of clients?

I have used the currency conversion feature in QuickBooks for small business clients who trade internationally. However, although I use QuickBooks for my small business clients, the program is not used for the typical non-resident tax client.

4) You said that the majority of your Non-Resident Alien clients never get to meet with you face to face.  How do you structure your business to be able to work with these clients from around the globe?

Most of my clients do not live in Minnesota, so I had to devise a system to work with them remotely. Since 1999, when I began my current practice of preparing non-resident returns, I have used a Web-based organizer for clients to provide their information to me. I also have a secure Web portal for them to upload documents. I provide them with an electronic review copy they can view through the portal. Since non-resident returns cannot be e-filed, I then send an electronic filing copy, signed by me, with filing instructions. This allows them to print, sign and mail the return to the IRS, and saves the high cost of private shipment for those clients living overseas. Some returns I can sign on the client’s behalf and mail myself with a signed power of attorney. With my system, geography is never a barrier to working with a client.

5) Are there any other online services or apps that you like to use for your business?  You had mentioned Bill.com as one internet service you like to use in conjunction with QuickBooks.  How have these internet tools helped improve your business with Resident and Non-Resident clients?

Bill.com is very convenient for paying vendors online, and it syncs it’s transactions with QuickBooks with a punch of a button. It is also very convenient to use Intuit merchant services for credit card processing, check scanning, and allowing the client to pay online. QuickBooks and its compatible applications have helped me reduce the flow of paper to a trickle in my office, which correlates directly with increased efficiency.

Rose Y.C. Huie, C.P.A is a regular contributor at Accounting Software Source.  She is a member of the American Institute of CPA’s and the California Society of CPA’s, and has been helping businesses and individuals deal with the IRS for over three decades.  In this interview she helps define some of the most common mistakes made when dealing with the IRS.  To learn more, visit Rose Y.C. Huie’s website.

1) Rose, tell us what is the Number 1 way people get in trouble with the IRS that can be avoided.

I would say the number 1 way will be not responding to IRS notices.  The IRS notices will not go away by themselves.  They will just get worse.  They are very persistent.

2) Now what are 2-4 other common mistakes people make when dealing with the IRS? 

The next common mistakes will be: 1) Not filing tax returns when required, 2) Not reporting all income or 3) Over reporting deductions with no supporting documents.
The IRS has a matching program.  They receive reports from all the banks, mortgage companies, brokerage firms, title companies, car dealers, credit card processing companies, other businesses, etc. as to how much income should be reported by each taxpayer by the social security number or tax ID and the IRS will be looking for these amounts in the tax returns filed.  If there is no match, they will be sending out notices to those individuals or businesses.

3) Do you see these mistakes being made on personal or business taxes more, or do both individuals and business owners face the same risk of making these mistakes? 

I would say both individuals and business owners face the same amount of risk in making these mistakes.  Some are intentional and some are accounting errors.

4) What are the final 6 mistakes you find clients making most often? 

The final 6 mistakes are:  1) unexplained deposits  in bank accounts  2) buying large items over $10,000 with cash such as buying a car with cash, 3)  depositing over $10,000 cash at one time into the bank account or a series of deposits close to $10,000 each time, 4) claiming employees as contractors, 5)  claiming unusually large deductions in business entertainment, auto, bad debts, home office or employee business expenses or 6) not claiming all the deductions they are entitled to and overpaying their taxes.

5) How does QuickBooks help keep your clients less at risk for making these mistakes? 

Quickbook uses a double entry system.  If it is used completely and correctly, all bank deposits are accounted for so are all expenses whether paid by check, cash, credit cards or loans.  All payroll is reconciled to the checks issued and all sales are supported by the sales invoices and reconciled to the cash deposits.  All Form 1099′s received or issued can be reconciled to the details by client / vendor.  This will ensure that the accounting for income and expenses are recorded correctly and there will be supporting details for all expenses claimed.

Kimbereley Washer is a QuickBooks expert, who has been helping businesses in the Stockton area for years.  She writes articles for a number of online sources and also speaks at accounting and QuickBooks seminars.  Learn more about Kim by visiting Ascend Financial Management.

We’ve learned that the Internal Revenue Service has acquired licensed copies of the QuickBooks software. What will the IRS be doing with the software, and how will that impact the small business owner who is being audited?

With 89% of the market share, QuickBooks is, by far, the most widely used software for all small business industries. With so many businesses using the software, the IRS has gained interest in learning how to use information in the QuickBooks data file during their audits. The Internal Revenue Service has purchased 1500-2000 licensed copies of the QuickBooks software and is now training their revenue agents and examiners on how to generate information that will assist them during audits.

Beginning in 2010, the IRS examiners began requesting QuickBooks backup files (also referred to as .QBB) as part of its protocol for auditing small businesses and self-employed taxpayers. Many taxpayers were unknowingly providing the IRS with access to information they, themselves did not know resided within the data file as well as providing the examiner with financial activity outside of the period being audited.

What information is the IRS looking for in QuickBooks and how is that information used during the audit process?

Although we cannot identify everything that the IRS seeks for during an audit, we can tell you a few things that the software can provide them. The first are missing entries such as missing checks and missing invoices. These can be found by running standard reports and sorting them by the number field. Any time the IRS can query your data file, a list of questions can arise.

The bigger and more valuable tool being used by examiners and for which they are being trained is a tool called the Audit Trail. In QuickBooks versions 2005 and earlier, this tool was an option that the taxpayer could turn on or off in Preferences. In latter versions, Intuit (the maker of QuickBooks) set the Audit Trail as automatically and permanently turned on.

The Audit Trail is a listing of every entry that is put into the software. It includes the date, time, and user login and the details of the transaction in a journal entry format. For example, when you enter a vendor bill, the system will show the bill in the audit trail with a debit to the expense account(s) and a credit to the accounts payable account. If you go into the entry and change it – say, to add a note into the memo field – the audit trail will show the date, time, and user login and the change to the memo field that you made. If you go into that same entry later and delete the entry, the audit trail will show the date, time, and user login and the fact that the entry was deleted. The changes are shown in bold; the prior version of the entry is noted just below it. Every transaction and alteration to transactions is shown in the audit trail which makes it a very handy tool during an audit.

So, for example, let’s say you entered a cash receipt from a client for $10,000 on December 14th. Then, let’s say you changed the date from December 14th to January 1st so that the income could be recorded in the next tax year because that is when you actually took the check to the bank. The audit trail will show your original entry and your changed entry which suggests constructive receipt in the December 14th tax year.

Another example may be that you purchased $800 from an office supply store. The original entry shows that the $800 was charged to Owner’s Draw (or respective entity equivalent) and entered with a memo that says “son’s college computer.” Later, you deleted the memo and reclassified the expenses to office supplies. This will certainly draw the attention of the auditor.

Is there a way to limit the periods contained in a .QBB so that the IRS is provided with only the financial activity relative to the audit period?

Unfortunately, there is not. A QuickBooks backup file (.QBB) is a full backup of the activity AS OF the date it is created including all transactions processed for dates beyond the date of backup. Intuit has not designated a backup process to capture data for only a specified period of time. There are general ledger reports that can be generated for specific periods of time, but once the IRS knows you are using QuickBooks (or any computerized accounting software), they are almost always going to request a copy.

Are taxpayers required to give the examiner a full copy of the QuickBooks data file (or whatever computerized accounting software being used)?

Revenue Procedure 98-25 addresses IRS authority to request all financial and related records that may exist. So unfortunately, yes they do have authority to request a copy of your backup.

• What options are available for a taxpayer using QuickBooks when faced with an examiner’s request for a copy of their QuickBooks data file?

There is a utility built into QuickBooks which may be a good solution for the time being. It is a utility called Clean Up Company. This function takes all of the transactions within a selected period and compresses the data into a summary journal entry. Your year of activity ends up looking like your year-end trial balance. All of the detail is removed and the audit trail is emptied. The utility was initially designed for two purposes;

• To reduce data file size for company files that have a large volume of transactions or for clients migrating from the desktop version to the online version (file sizes are limited when migrating to the online version)

• To alleviate manipulation of closed books by users with administrative override access. Many clients aware of this Clean Up option are running the utility and providing the examiner with the “cleaned up” version. Although this may work for now, the future seems to be leaning toward a directive for an unaltered version. In response to the AICPA’s March letter, the IRS sent a letter on April 20, 2011 to the AICPA stating that “it is important an exact copy of the original electronic data file be provided to the examiner and not an altered version.”

• Assuming that in the future examiners will have full access to our QuickBooks data files, what steps can a user take to make sure his data file will HELP and not HURT him during an audit?

Transparency goes a long way during an audit. Here are a few recommendations we provide to our clients to maintain transparency without inhibiting the ability to use the software to their greatest benefit:

• Use caution with each entry, and consider the entries permanent. Assume the IRS will see every entry you make. If you are unsure how to record an entry, use the ASK MY ACCOUNTANT general ledger account. Moving from this account to a more accurate account lends transparency to the auditor that when you are unsure of how to record a transaction, you don’t just drop it into an account but rather seek immediate remedy to code it right.

• Do not let your ASK MY ACCOUNTANT general ledger account to go unresolved. Include this account as part of your month-end closing procedures.

• Keep up with your books. Doing entries far in advance or for closed periods lends to a concern of manipulation for your own benefit. Do your entries on a scheduled basis and be consistent.

• Accountants and accounting managers often make closing period adjustments after the normal entry for the period has been completed. This is normal. However, these adjustments should be minimal and should all be done in a relatively reasonable time period.

• Assign separate logins for each user, and do not allow sharing of access. Logins are used for tracking each entry or alteration; you want to make sure you know exactly who is doing what. If your accountant is doing entries in your data file, make sure they have their own login. If your accountant is providing you with year-end entries, annotate your entries as coming from your accountant. We recommend using AJE before any designation number or to put AJE in the memo fields.

• Never delete a transaction. Instead, void it and put in a description on the memo field to explain the entry. If you delete a customer invoice, the auditor may wonder why there is a missing invoice number….for example. It is better to show a voided entry with a void memo that says “duplicate entry” than have the auditor question why you are voiding transactions.

• Other than your accountant, do not make adjustments to closed periods. There is a Preference that allows you to deny entries attempting to make changes to a closed period. We highly recommend that you use this Preference at least upon completion of your year end, but perhaps even more frequently to discourage tardy entries or manipulations to books once closed.

While the IRS and Intuit continue to work together toward improved audit trails within the QuickBooks software, we are sure to hear more on this matter in the upcoming years. In fact, electronic files such as QuickBooks could become part of the standard protocol for IRS audit procedures.