Unapplied cash payment income and expense

Hi there. Linda Artesani, Artesani Accounting. This week we're going to continue on the series of cleaning up the law firm's books and really looking at— now you've done all the cleanup, you followed through the books review, or, and you've also taken the time to look at the comparison reports. And now what we're looking at completely here is the last step. You create the reports to send them to the tax professional and they say, oh, wait a minute. These are accrual-based and you guys file your tax return on a cash basis. So you hurry up and send them along and you pull them up on the screen and lo and behold, there's unapplied cash payment income and an unapplied bill payment income. And you're sitting there going, what the heck is that account? So maybe it came from QuickBooks Desktop, they didn't have that. Or maybe you just never really toggled over to the cash basis because it's always been— your books are always showing in accrual. Maybe you run a hybrid set of books. You do. Hybrid method where you're looking at the accrual-based and then you're also looking at them at cash basis at year-end and you're just looking like, what is this account and how do you clean it up? That's what this video is about. And I'm going to actually go into the file, a file that has that, and we're going to fix it right on the fly. So let me share my screen. So here we are in the demo file and I've just put the year in here. It's 2019 because that's where my data is. But I can still recreate the scenario for you really simply. And it's an accrual basis. So you're not going to see those accounts that we was talking about, the weird accounts. And this file has lots of fun things happening because it's one that I share with other people to try to use as a testing ground. So I'm going to just switch this over to cash basis so you can see. As soon as you start to switch over to cash basis, you can see that old unapplied cash payment income account shows up and you're like, what the heck is this? Let's take a peek inside and see what's in the file, what's in this account itself. And I can see there's a payment for $937.50, but It looks like there's no invoice for $937.50. That will definitely cause you a problem. Now, that invoice could be postdated, truly could be postdated. So let me just go here and see if it was dated in 2020 or 2021. And if that's the case, that's going to cause this issue. So if you're looking at a set of books, you want to take a peek and see where that is. It doesn't look like it's jumping very quickly for me. So you definitely want to look at this payment. Let's just open the payment. It might be faster. And there's my invoice, and it's actually 2019, it's $937.50. It's just not connected, so we just need to connect it. Once we connect it, that will clean up that one transaction that was giving us that balance. And now we can go back. Now you can see the balance is zero. So anytime you have an invoice, you're billing the client, and then you have a payment, so you can't pay that bill. Before you get paid, before you create the invoice, you have to have the invoice first. It's kind of the cart before the horse, the invoice first and then the payment second. Obviously, when you're talking about law firms, you're thinking retainer. That's a whole different animal. That's not what we're really talking about here. We're talking about accounts receivable. So once we fix that, I can go back to my original paperwork here, go back to my financial statement, my profit and loss, and now it's showing zero. And that's because of the transactions in there that kind of zero each other out. So that's why that's there, but it's okay, zero. We can actually come over and I'll show you after I'm done showing the other one. So as we get down here, I've got unapplied cash payment expense. So the flip side of that is the same thing. It's either an unapplied bill payment check, or maybe there's a— there can't be a bill payment check without a bill actually ever being created. So somebody could have deleted the bill, and you might find that, or you might find it's out of the date scope. So I'm just going to come in here. And take a look and see this payment was dated 2/28/19, and I have a bill dated March 26th. That is the wrong order. You can't pay a bill without having the bill. So we'll have to go back to the bill itself and make sure that the bill says 2/28. So let me just go back to the bill here, and it's going to say, do you want to leave? I'm going to say yes. And I just need to make the bill be the right date for the bill payments. So that was 2/28. And now things will be in order. So you created a bill on 2/28, you got paid on 2/28, which actually shouldn't be a bill and a bill payment, but in that case it would be more of an expense. But you get the gist. So let me go back here. I'm going to go back and look at this bill payment because they're still not connected. So they lost their connection for some reason. Maybe somebody deleted it and added something else in. So I'm just going to add that over here. Now they're connected. You can see the bill payment is now connected to the bill, and I'm going to hit Save and Close. And now when I go back, we haven't changed any amounts, so I didn't wreck any reconciliation. So now when I come back here— And this can take time to tidy up. So if you're looking at your records every month, you might find these and fix it. Usually it's a workflow problem or something that somebody's not understanding. I see this with immigration firms. Money comes in the door and they're trying to scramble and make an invoice and a payment, and really it should be a sales receipt. But if you have accounts received— accounts receivable, want it to be accounts receivable, you got to make sure those dates are right. Otherwise it can make a big issue. So now that's— that account's actually gone. So that was the one transaction, and because I fixed those dates, it's gone. So if you have any balance sheets or profit and loss with a lot of— this is just a bonus tip— with a lot of zeros on it that you don't want to show, sometimes that happens as you're going through. You just want to come over here to where it says Total Only and come over to this Active, and you just want to pick Nonzero, Nonzero, before you give it to your clients or your tax professional, and that kind of cleans it up. Additionally, you probably want to save these. So if you run— you look at accrual basis all year, which is kind of that hybrid method, you want to save these in a grouping so you can save the reports in a grouping. And when you save them up here and save the customization, I'm going to save— I'm going to look at it through the lens of accrual all year, and then I'm going to save these this grouping of records that the tax person wants, the balance sheet, maybe they want cash flow, maybe they want the profit and loss, you can save it as they ask for it. So ask the tax professional what they want and then create that tax professional's grouping. Once you've created these preset reports that your tax professional is looking for, A, you won't have to ask them for what you want anymore, and B, you're going to have them right here under Custom Reports. And you just create a grouping called Year End, and it's just one click, literally one click once you've gone through the data. You can just go right here and just say Export to PDF. It puts them all together for the tax professional. It's that easy. So I hope that was helpful. I know, short a video today, but I think it's just to get through those little fine-tuned pieces that you have left to finish the file. And until next week, we'll go on to a couple more little short tips that will help you with year-end work. Thank you. Bye now.