Seattle Small Business Blog

Q: I’m still learning QB, so can you walk me through merging the vendors?

Merging vendors is pretty easy:

• Go into Single User mode
• Then go to the Vendor Center and decide which vendor name you want to keep. I usually go with the one that’s either 1) oldest, or 2) has the most transactions posted to it.
• Double-click on that Vendor’s name in the list, copy the name as it appears in the top-most field of the Edit Vendor window, then close that window.
• Now double-click on the name of the Vendor you don’t want to keep, and paste the copied name into the top-most field. Click OK or Save (whatever the button is called) and QB will ask you to confirm that you want to merge the two Vendors.
• Say yes and you’re done.

The other option is to just make one of them inactive (right click the Vendor’s name in the list and choose “Make Inactive”), but that makes the Vendor’s name disappear from the list in the Vendor Center. If we ever want to see our complete history with that Vendor, we have to remember that there’s a second one that’s inactive, and search for it separately. Most of the time, if you’re looking for historical transactions and you find a Vendor that’s active, you’ll stop there and won’t bother continuing to look for duplicate/inactive Vendors that may provide additional history.

If you merge the two, then you will have all the transactions available to view under just one name, which will stay active and easily viewable without having to take any additional steps. 

-Veronica

Question:  I added three payments I received this week through “Receive Payments” and showed that I received all 3 through my PayPal account.  These payments are now associated to the A/R account, but I can’t seem to edit the account they are associated to (it should be Products/Services income, right?)

Perhaps you can explain how to do this?

A/R is the correct account to which payments should be posted. The Income account is affected when you create the initial Invoice and specify which Products/Services you sold to that person.

When the invoice is created, it posts “Income” to the Products/Services accounts, and an offsetting amount is posted to “Accounts Receivable,” since you have not yet received the actual payment. When you receive the payment, the appropriate amount is then moved out of Accounts Receivable and into your PayPal or your bank checking account (whichever account the payment originally posted to). This decreases your A/R account and increases your bank account.

The only time this workflow would be different is if you did not invoice the customer, but you did receive payment — i.e. the customer paid at the time of purchase, so you never issued an Invoice. In this case, there are two ways you can handle this:
1) Create a Sales Receipt (best/most “correct” way), by going to Customers > Create Sales Receipts
2) Enter the deposit directly into the PayPal or bank checking account, by going to Banking > Make Deposits

A Sales Receipt is just like an Invoice, but instead of issuing an Invoice and collecting payment later, a Sales Receipt combines the two and shows that the payment was received at the time of the sale. It’s filled out the same way as an invoice — you select the products/services the customer purchased, QuickBooks calculates sales tax, etc. You just don’t have to go back in afterward and do the Customer > Receive Payments step, as you would with an Invoice.

If you enter the deposit directly into the bank account, you are not able to select which items the customer purchased. You are only able to designate the name of the customer and which “type” of income you received — Sales of Products or Sales of Services. You also cannot auto-calculate Sales Tax using this method.

The proper way to do it would be to always enter an Invoice if they customer will be paying later; or to always enter a Sales Receipt if you collect payment in advance or if the customer pays in full at the time that the order is placed.

Until you’re routinely invoicing all customers through QuickBooks, there may be some discrepancies, but part of my weekly review process includes checking Accounts Receivable and Accounts Payable to make sure they are reflecting the appropriate amounts. If I do see a customer who has a balance due or a credit balance (meaning that you received payment against the A/R account but there was no invoice to match it to), then I will either fix it myself, or ask you for more details if it’s unclear.

Let me know if you need any more info on this process. It can be a little abstract to try to wrap your head around it, until you see it in action.

Let’s begin by defining what a small business expense is.  You spend money on your small business simply to carry on your business.  In other words, in order to trade whatever it is you trade, it costs you money.  If your business is designed to make a profit, the cost of operating your business is often deductible in the preparation of your tax return.

According to the IRS, a business expense is deductible if it is “ordinary and necessary.”  If your trade normally has a certain expense, for instance, a quilt maker’s fabric, then the cost of fabric is considered an ordinary expense.  If your business needs to spend money on something that is helpful to your trade, for instance, it helps if you advertise your quilts, then those advertising costs would be considered appropriate and helpful to your business, and necessary.

If you produce goods to be sold, you have expenses involved to produce those products.  Again, if you produce quilts, you have fabric, batting, and thread.  However, along with these raw materials, you may have the freight it costs you to receive your materials, costs to store your materials, factory costs, and possibly even labor costs.

There are complicated rules for determining what costs can be deducted as direct expenses.  Depending on your business, you may have indirect costs to consider such as rents, interests on loans, handling costs, and even administrative services.  Your tax accountant will sit down with you and make these determinations by reviewing the current laws and regulations of the IRS.

Some costs to your business are not considered “expenses” – at least when it comes to a simple deduction on your income taxes.  Capital expenditures fall under three classifications:

• Start up costs
• Assets
• Improvements

These three classifications make sense when you take a look at the items you have to create and maintain your business.  Getting back to the quilting business, you have sewing machines and tables, for instance.  You can see that those items are not going to go out the door to make you money. These items will not be deducted as expenses, but rather as a capital expenditure on an amortization schedule.

Business Expenses v. Personal Expenses

Small business owners often operate a portion of their business in their own home, using their own income, their own time, and their own car.  You cannot deduct your personal or family expenses, but you are allowed deductions for those costs that are exclusive to your business, even if those expenses occurred in your home. Two common examples follow:

• Business Use of Your Home – There is a strict division between personal and business expenses, and you must prove your square footage, utility bills, maintenance, and rent or mortgage, used for business purposes.

• Business Use of Your Car – Many small business owners use their own family car for business. If this is the case, the actual mileage must be tracked in order for the business mileage costs to be deductible.

There are many deductible expenses that fit within these direct expenses categories.  You’ll need to sit down with your tax accountant to work through the differences between business expenses to be deducted directly and those expenditures that should be capitalized.  Follow your accountant’s advice, keep good records, and tax time should go smoothly.