Processing Payroll in your software when using a Payroll Service

When posting to payroll there are several accounts that payroll posts to, some of these accounts are expense accounts which will post the labor and the cost of the labor as well as any benefits that the company pays for their employees.

The reason you enter payroll in your software even though you use a payroll service is to get the costs to the expense accounts and to the proper jobs and cost codes with the accurate burden which the software will calculate. This will replace any journal entry you used to do try to calculate the burden or estimate the burden to each job.

Because you are entering payroll, you will also be creating “liabilities” for payroll, or what the company would need to pay for this payroll। Since your payroll company pays these amounts, you will post these amounts to a “clearing account”. The liability + the net amount of the payroll checks will equal what the payroll company tells you is due to them to cover the cost of the payroll.

When the statement for the payroll comes in from your payroll service, you will post the amount that you owe them as you would normally, but you will not have to expense it to expense accounts since this was done during the processing of payroll। You will only need to credit your payroll GL account and debit the payroll clearing GL account for the total amount that is to be funded. This will zero out the clearing GL account if you record it each time payroll is done. If there is still a balance in the clearing account after this entry, you should review all deductions for payroll to be sure they are accurate and posting to the clearing account.

You may need to complete the payroll process by funding your payroll account (if you have a Cash account specifically for payroll)। You will put money in the payroll account from your general account to cover the cost of payroll. This can be done by writing a check from the general account and expensing it to the payroll account.

Success In-Formation would be happy to asssit you with setting up this feature in your software. We can be reached at info@successif.biz

Getting to 100% complete on jobs

Most software written for construction will automatically calculate a percentage complete on a job. This percentage is a percentage of actual costs to the job budget. If you haven't entered a budget, most software will calculate the percentage as 100% because it will assume your budget should be what your costs are. The way to avoid this problem of course is to be sure you enter a budget for every job.

Another challenge in construction is to get the calculation to 100% complete when the job truly is complete. It is rare that a jobs cost is equal to its budget. There will most always be a slight variance. I recommend the following when a job is complete.

1. Set up a cost code or tracking code called "over/under budget".
2. Review the job (see previous blog) to be sure it is complete.
3. Enter an internal change order (which only posts to budget, not to contract amount) for the amount of the difference so that you force the budget to equal the final costs.
4. Be sure to record the amount in #3 to the code called "over/under budget", this preserves your original budget figures and also allows you to see your "over/under budget" amount by job at any time which would be a great report to view by Project Manager, Estimator or Crew Leader over a specific length of time.

Closing out Construction jobs

Every construction company knows that jobs need to be reviewed and closed out when they are completed, but many times, no one is assigned the specific task and sometimes it just doesn't get done completely. If this is done on a monthly basis, it won't be as overwhelming a task as if it were left to be done once per year.

Following are some procedures for reviewing a completed job and determining it closed

1. Each job probably has several job folders belonging to several different employees throughout the company. I recommend that all job folders be collected when a job is complete to be filed in a "closed job" file cabinet together. After all, the company is the owner of all employees files, if an employee leaves the employment of the company, you will want that folder for future reference.
2. Job reports should be printed out to show the contract amount and the amount billed which should equal (including change orders).
3. Review if there are any pending change orders that have not been confirmed back from the owner, CM or General Contractor as to whether they were approved or denied. (you may find "un-billed money" here). Usually this won't be entered in the computer, so you will have to go through the folder, clipping similar paper together such as all correspondence for each change order together. Use this an an opportunity to organize the file and look for information not handled completely. The information in the folder should be organized logically, if you don't understand it, ask someone who does. Don't leave loose ends.
4. Make a one page document (lets call it "closed job report" for purposes of this blog) in large font that includes the following information: contract amount and amount billed (these should equal each other). Budget (aka estimate) and costs (these also should equal each other for the job to calculate at 100% complete - more about that in a future blog topic), if there is a difference, show the difference clearly. Retention or any Receivable on the job still due if any (if any money is still due, you may not want to close this job). Liens filed Yes or No, Liens released, Yes or No. Have a line for "percentage overhead and profit", divide the cost into the amount billed and put the percentage here. Then, make lines for the estimator, project manager and owner and any other individuals necessary to sign off on the job with space for notes and initials.
5. Show a computerized job report that shows both summary and detail of the overall job cost (listing costs by code with budget to actual variance) as well as billing information.
   Review any Over/Under budget lines on attached job report and highlight them.
6. Staple or clamp the computer reports for the job to your "closed job report" for this job.
7. Place this group of reports on top of the file folders and ask the related parties, PM, Est, Owner to have a couple hours each month where they review the jobs to be closed and ask them to sign off that the job will be closed. (Make a positive experience of this time, maybe one Friday per month, the company brings in lunch and these employees meet in the conference room to review jobs to close out).
8. Once they have signed off on the document, put it in the main job folder, highlight all file folder tabs with a colored highlighter (a color that signifies within your company that this is a closed job) and write on the job folder that it is closed with a date and your initials. This is important in case the folder gets pulled at some later date and it isn't clear that it is a 'closed job'.
9. Change the status of the job in the computer to closed and file these folders in a special file cabinet called "closed jobs" organized by job number.

Once a job is closed, no costs or change orders or billings should need to be posted against it. If you feel that this is a possibility, don't close the job. That is the main reason, you need the approval of all related parties to close the job.

Be aware that this process may require reclassification of costs to various cost codes. PM's and estimators and Owners may find costs in this job that should have been posted to a different job. That is OK..this is why you are doing this. Once the job is corrected, get signatures and close out the job.

Types of General Ledger Accounts

Sometimes I find that people need the basics. Often in small businesses, employees earn their roles in the company by default. Maybe an experienced bookkeeper left the company so the accounting clerk gets promoted to bookkeeper. Sometimes a couple takes on the role of running a company and choose to take on the accounting, management, marketing and running of the business. This is a big role, too much sometimes for just a couple and can be draining on a relationship as well.

When I work with companies, I usually find an employee who is hungry for all the knowledge I can share and they appreciate the basics. One of the accounting basics I share that seems to be appreciated is a very basic description of the types of accounts in the general ledger. If you number your accounts, or use the standard numbering for your chart of accounts, this theorey will be correct. If your numbering system is a bit different, the numbers may vary but the structure is the same. See what you think:

Basic description of the general ledger acccount types:

• 100 accounts are Assets. Things that you own or people owe you.
• 200 accounts are Liabilities. Liabilities are what you owe to others.
• 300 accounts are Equity. Equity is the worth of your business.
• 400 accounts are Income Accounts. Income or Revenue for the current year only.
• 500 accounts are Cost of Goods Sold Expense Accounts. This is the cost for what you buy to make the money listed as Income on your Profit and Loss. This is the cost for the current year only.
• 600 accounts are Overhead expense accounts. This could include shop and warehouse expenses or equipment expenses for the current year.
• 700 accounts are General Administrative expense accounts. This is the cost of keeping your office open, rent, office supplies, utilities, office salaries and wages, etc. for the current year.
• 800 and 900 accounts may include other accounts not listed above, such as Other Income, Interest Expense, Federal and State Taxes, only for the current year.

Items in QuickBooks

Sometimes I just have to take a step back and realize how many companies are using QuickBooks and don't realize how to use Items. Recently I was browsing a contractor blog that I visit occasionally to read postings and comments. Of all companies, contractors benefit the most from using Items. Click the check box when creating an item that says if you are a contractor click here. When you do, another area of the item opens up so you can indicate your cost of goods sold general ledger account to post to if you purchase items for a job, or your income account to post to when you bill for a job. If you use the "items" tab in the "vendor bill" you can post your costs to the items. When you do your invoicing, of course you have to use an item to bill to. When you do both, you can see profitability of item reports.

Seminar options

This last week, we completed another QuickBooks seminar in Tampa. This seminar is held in computer lab and lasted 2 1/2 days. Several of the attendees suggested holding the seminar for a full week, teaching in the morning and allowing the students to set up their companies in the afternoon as we help them and float around the room. Personally I don't think that people would take an entire week away from their office. I think it's hard as it is to get them away for 2 1/2 days. All the students loved the seminar but now see that they need to go back and do the work to setup their company on their own. They would prefer to pay for me to assist them, yet in a group setting where the price might be more affordable to them. any thoughts out there?

The difference in our seminar vs other QuickBooks seminars the students said was that we offered extensive accounting education which they hadn't understood when explained to them in the past.

Statement of Cash Flow

One of the most valuable reports in any business is the statement of cash flow. Many business owners say "my Profit and Loss statement says I made $20,000 but I have no cash in the bank, where did the money go?". The statement of cash flow shows you where your money went for a reported period of time. This is a standard report in QuickBooks. Analyzing reports allows you to manage for success. Learn more about reading and analyzing reports at www.successif.biz.

Spell Check

Turn on Spell Check in QuickBooks to save time proof reading documents and prevent errors in typing or spelling. Go to Edit/Preferences/Spelling /My Preferences, and check the box for Always check spelling before printing, saving, or sending supported forms.

Credit Card Transactions

Are you NOT using the credit card feature because you don’t want to enter all those vendors into your vendor list for each credit card charge? Use generic vendor names like “restaurant” “fuel” or “hotel”. The QuickBooks credit card feature is awesome and rivaled by more expensive software. Stop entering from the credit card statement, start entering from the charge slips. Get control of your finances, it’s a great tool. To learn more about this feature, take a one hour class at www.successif.biz

Deleting and Inserting Lines

Did you know that while in a transaction, pressing the Ctrl key + the Insert key at the same time will insert a row? To delete a row, press Ctrl key + the Delete key at the same time.