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Friday, April 23, 2010

The Owner Bought a Plasma TV, What do I do with That?

The owner purchased a television on his company credit card for his uncle.  A few days later the uncle sent a check for the price of the television.   How should both of these transaction be recorded?

You have no idea how many times I hear this question (not necessarily a TV but you get the idea). So let's talk about it.

First of all, unless the TV (read also: bicycle, golf club, lawnmower, vacation, etc.) had a legitimate business purpose, we as accountants want to make sure it is not recorded as an expense for income tax purposes. How do we do this? Well, I advise clients to set up an officer loan account, or a distributions account (if a partnership or Sub-S). That way when these types of shall we say "expenses" hit the books we can properly segregate them. That way you will also be aware of the amount that still need to be reimbursed from the owner/uncle/wife.

To the next part of your question, if and when you get a repayment for these items you can simply apply the amount against the loan / distributions account.

You didn't ask but I assume you also want to know how to do this in Quickbooks.

The first part is easy, when you are entering the owner's credit card statement (either in "Bills" or "Write Checks") code the amount to the above account.

Now when you get the check, it is slightly more difficult. I do it with a journal entry. This avoids setting up the uncle as a vendor or a customer.

The journal entry would be as follows for that $1,200 HDTV:

Debit - Cash $1,200.00
Credit - Officer's Loan account $1,200.00
Memo: To record reimbursement for TV on company card 4/1/2010.

On the next bank reconciliation make sure you mark the journal entry as cleared.

Why are Payments in the Wrong Bank Account?


I run two bank accounts in Quickbooks. One was only active for 1 month, June 2009. I have invoices showing up randomly in that check registry. I have not used that bank account since June 2009 yet I have invoices showing up in that registry in Feb 2010. Any idea how an invoice would show up in the check registry?
Thank you


First understand that invoices don't post in the check register, the payments do. Therefore it appears that the applied payments are being posted to the wrong bank account.
There are two places where you choose the bank account for customer payments (depending on whether or not you use the Undeposited Funds option):

1. If you use Undeposited Funds - Go to "Make Deposits", select the payments you are applying in the dialog box and say OK. Now notice in the upper left hand corner there is a "Deposit To" drop down box. Make sure that the correct bank account is selected.

2. If you do NOT use Undeposited Funds - Go to "Receive Payments". Again there is a "Deposit To" drop down box. Make sure that the correct bank account is selected.
Just a suggestion. If you have closed this bank account, you can keep this from happening in the future by making the unused account inactive. Inactive accounts will no longer be an option in the "Deposit To" boxes. To make any account inactive in QuickBooks, open the Chart of Accounts, right click on the desired account, and select "Make Account Inactive". This is better than deleting an account because it can be reversed later if needed. 

Paying Contract Labor


Some employees are paid through on-line banking directly.  I enter this transaction in QuickBooks as a General Journal crediting the bank and debiting the Contract Labour account.
When the person asks for a print out for the previous year I cannot get the information to come up.  I click on Company, Chart of Accounts and Contract Labour.  In Contract Labour I click on Modify, Filter, Date (change dates to cover requested period) and the Name of the person.  The information comes up until I click on the person’s name.
I have tried to click on Memo instead of the person’s name and enter the information exactly the same way it is under memo in the General Journal and this also comes up blank.  How can I access this information to print last year’s income for this person?
Thank you very much for your help.  


The problem here as I see it is that you are entering the the persons name in the "Memo" field instead of selecting the vender in the "Name" field of the general journal screen. Changing this should allow you to filter by name. I would also get the report by bringing up a profit and loss for the period in question, double clicking the "Contract Labour" account and filtering by name under "Modify Report"

So the quick answer is you can either go back and fix the entries or print the report and spend some "fun time" with your calculator.

Can I make a suggestion though?

In the "Write Checks"screen, there is a selection box under the check that says "Online Payment". Paying your contract Labor expenses from here would give you more function in terms of reporting.There are an abundance of vendor reports that I believe would give you the detail you need.

I am not sure of the regulations in Canada (I can tell you are one of our Northern neighbors by your email, and by the way you spell "Labour") but in the US paying contract labor this way allows us to track payments for 1099 purposes as well. Readers in the US would do well to take this opportunity to review the IRS literature on employee vs. contract labor. This is an area of focus as always for the IRS.