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Small Business Finance Basics: QuickBooks & Beyond

Lesson 17 of 37

Preventing Theft in Your Business

 

Small Business Finance Basics: QuickBooks & Beyond

Lesson 17 of 37

Preventing Theft in Your Business

 

Lesson Info

Preventing Theft in Your Business

How do we prevent it from happening a couple ways. Now, I have a scenario here, and I'm gonna give you some others because there's a couple other ways where this scam can happen. Here's how you should handle billing. The great thing about QuickBooks is it generates an invoice. This number. So you should use number invoices. There's a number site so you can account for each numbered invoice. So if invoice number six is out there and it hasn't been paid, you can follow up and you Onley give your clients the numbered invoice. Whether it's from QuickBooks in your own system, you never let anybody else create manipulated invoice. Never. You hang on to that. Okay. The problem was here in the manager had to duties that should be separated. He controlled the envoys and he just had a pad right amount handed. And he had the ability to completely avoid the accounting process because there was no control toe. Let the man the owner know who was billed. What? The number of the invoice waas, how much...

you know. What address were they given to send it to? So you is an owner. Need to keep control of that. Okay, So you want to use a numbered invoice, you personally email, hand deliver invoices. Don't let other people do it for you. You account for all these invoices. You make sure, you know, Have I been paid? Has it been given to the client? All that? Don't let that up. Now, you know, you create your big organization, you start putting some controls in place and you've got other people doing it. Certainly. But as a creative person, starting a business, who's hiring somebody? Maybe Maybe somebody You're hiring full time. It may be just a bookkeeper. Make sure you handle this. OK? I want to talk about a different type of theft that can occur Not on the billing side, but on the ordering side. Not on the building's side, but on the ordering site. This is an example. I used him. I've lost track. It might be in one of the books. I can't remember. It's a common generic problem. All right. You own a restaurant and you, obviously by you have a supplier that you buy meat fish from. I know a guy who's in this business in ST Louis. He gets up at three in the morning every day and he flies in fresh meat, produce very high end stuff, and he gives it to all the high end restaurants in ST Louis. That's it. That's his business. So you aren't your order meat and fish from somebody. Let's let's call it, uh, armour meat. And that's your meat and fish provider. That's a vendor, Which about vendor and QuickBooks. So here is the process of ordering stuff. The manager of the restaurant fills out a purchase order that says We need a certain amount of me. We felt a purchase order. The purchase order is not you buying, you know, buying stuffing. It's not a bill for stuff. The purchase order is simply telling your folks, you know, I need to buy something, all right? So he fills out a purchase order, and that goes to an owner who approves it and says, Yeah, we probably do need that much stuff. That's that approval process. Now again, this may be a little bit beyond the scope of many people who are watching, but you need to start thinking about this process is you grow your business because if Europe a filmmaker and you get big enough where you've not now you gotta have somebody order stuff for you. This is what I'm talking about. And the other thing is, is that the steps can happen in very small amounts for years and years and years. There was a situation ST Louis. Um, actually, two. I'm aware of a situation because, unfortunately, the daughter of the lady who did this went to high school with my oldest daughter, who was that controller of a car company of a local car dealership. She stole money from this car dealership for six years before she got caught. She stole millions of dollars and it happened over six years. And it all came crashing down when her daughter was in eighth grade with my daughter was terrible, so we can happen over years. So if you're ordering film equipment and you don't have this set up right, they may not necessarily steal money from you all at once, like this guy did. It may be very small amounts for years and years and years and years, and then you find out about it later and I'll talk about how you find out about so I just want you to be aware of might not be a big dollar mouth beginning. It may not be noticeable, and its intentional that it's not noticeable. It's intentional because they can steal a little bit, you know, along the way, without getting noticed. So the manager approves the purchase, you receive the goods. So you're a filmmaker and you order, you know, five pieces of equipment and they come in and you open the box and you compare what you got. And there's normally a shipping document. Right when you order something. A shipping document with the purchase order. Did they send me what I ordered? Okay. Last step the owner. It's gonna look at the purchase order. The shipping document that shows what they ordered, and he's gonna write it. He's gonna pay the invoice that they sent. Okay, that's on ideal process for buying stuff. Okay, let me give you an example of how you can have a theft problem on the ordering side. Okay? In the trays. And I mention I do a lot people in trades plumbers, carpenters, roofers. There's lots of guys doing side jobs on the weekend who were using equipment sometimes from their employer. They work for during the week and things get lost. Okay, that's and that's the reason you need to have controls over custody. I'll talk about that one. Next. Let me give you a scenario where you could have a problem here. Let's say that the manager sets up a fictitious account. Cain Amma Central meets its a similar name. Fictitious company. He controls bank account. Whole thing. All right, Manager decides to go in cahoots with the guy who handles the shipping shipping clerk, and they're working together. And we call that collusion if you ever took a business school class. Collusion is where two or more people get together to commit a fraud. Two or more people, we call that colluding. All right, these two, here's what they do. They hand the they hand the owner a purchase order from the fake company to buy me. It looks like a similar name, doesn't it? Owners is fine. No goods there ever shipped, but they create a fake shipping document that says Yep, the goods arrive. So now you've got a fake purchase order to this company. You've got a fake documents said the goods arrive and What's the owner going to do? He's gonna pay an invoice based on a fake shipping documents, fake purpose work that could happen. Which brings up an important point, which is if people collude to get if people were together to collude. It's very difficult to catch. Okay, in a large organization, if two people work together, all these accounting controls, I'm showing you don't work if two or more people collude. Which is why many big companies have outside auditors come in because the outside order auditor might have a shot at finding somebody who's doing this now again to keep this on the scope of the people in this class. This is a situation that can happen both the ordering issue and the billing issue. When you hire that first employee when you hire that first employee. Okay, one more on this topic, which has to do with assets, custody of assets. As I mentioned, they're building a house down the street from me. I know that because of 1/4 7 both Saturday and Sunday morning, they had all kinds of equipment making noise, so oh, they must be doing construction. I know because I talk some of the guys was walking my dog, that there are guys who are working on this job who work on side jobs. There's a risk in that. There's a risk there and there's a writ. The risk is that employees used equipment for personal use for their side job, and they don't return it now. Many companies say, Hey, that's cool. If you want to do a side job and you want to use the stuff grinder or this or that or this piece of equipment, go for it, just make sure you bring it back. This becomes a problem for bigger companies that are plumbers, carpenters. And in your case, if you're in a an occupation where you have, like a film person, a photography person, lots of equipment and equipment that you have to update and replace all the time. So how do you do this? How do you handle this issue? I'm gonna call it inventory. What I'm suggesting that you do is you, that you tag your inventory so you got a camera and that's number one and you got a tripod and that's asset number to see what I mean and in your fixed asset listing, which I'll do in QuickBooks in a minute. You got these? You've got these assets, but they have a physical tag on them. A tag on them. Okay. And again, how much accounting do I have? This is important, because this is gonna prevent theft and even loss, you know, just slips your mind. You make a mistake. So when you have inventory, you need to tag the inventory items. Now, the example I always use, you know, the dollar store. If they've got a bin of pencils at the dollar store, I'm not suggesting the dollar store Tackle the pencils. I'm saying that if it's a decent dollar amount, you should put an inventory tag on it, okay? And every once in a while, you should count the items and make sure you have them all. Now, practically. You guys are probably doing this intuitively. Anyway, you're kind of doing it accounting to make sure you got everything. But as your business grows, you need to be a little more structured about this. You need to be a little more structured about this, Okay? Just to get take it one more step to give you a little feel for what I mean. One of the things you do when you're an auditor is you. Do you do audits And where you count inventory? Because you could imagine if you're a retailer that one of your biggest assets is inventory. So how do you verify that the inventory is there where you get accounting? Okay, so how do you count it? Well, you're going to take the tag list the list of tags, and you're going to agree it. Teoh each inventory item that you have listed in QuickBooks Q B QuickBooks. So you're gonna go into QuickBooks and you're gonna print off. Here's my fixed asset listing of all my cameras and all my stuff, and you're gonna take the list and you're gonna go out to where you keep your stuff. You know, the warehouse wherever, and you're going to make sure that you have all these items. Okay, Does that make sense? Questions on segregation duty? Yes, Josh. So you go out there and there's stuff missing. Then what? Okay. Josh will never be anything missing for you. Never. Perfect. No. So if their stuff nothing. Okay, if you're a sole proprietor, maybe you've misplaced it. But if you're a if you have employees, how do you prevent this from happening? You have to have people sign out items inside and back in sign Outside beckons. Okay, an in and that's how we track it. So you go back to that. If you're missing the tripod, you go to the person who signed out the tripod were the tripod. Okay, I have a question. We keep talking about employees, and at least in some of the business I own, it's better to hire people as consultant as opposed to employees for some of Michael keeping. So is there any reason why I like in other people's profession, why employees versus Consultant for we're gonna cover that later? But for the purposes of this discussion, anybody, I'm gonna say more broadly, anybody that is involved in your business, you need to have these controls four, regardless of whether their employees independent contractor, consultant, freelance or how we label them. Okay, What I'd like to talk about is this inventory thing and take that a little bit further in quickbooks, not only inventory, but fixed assets. Okay, let's start off by going to our chart of accounts. Are create. Yeah, let me go. I want to go to the wheel. I mentioned that we have a chart of accounts when we go to the wheel. When we hit settings, your QuickBooks may have accounts set up for both inventory and fixed assets, so let's scroll down. So we've got checking account receivable under positive funds and assets. I'm not gonna cover. We really don't use. I created one asset called Umbrella Backdrop, but for the purposes of this most basic level QuickBooks, there's not other fixed asset. There's not other assets listed or inventory list. OK, so what I'd like to do is let's do fix a fixed asset. So my next thing I'm gonna do just to keep this on track created fixed asset. I got a new asset. I got a guitar turned learning to play guitar, but I'm not allowed to play it around anyone else. Everybody leaves the room at home. So let's say the first thing we're gonna do is we're gonna buy a fixed asset for cash. Going to quickbooks again. I'm old school. I'm gonna go to the magic wheel. No, I'm not gonna go to create plus pretend this screen is not extended. I hit show Mawr. I got a journal entry. We are buying a fixed asset for cash. Christine, what would be another example of Ah, piece of film equipment? Let's just say camp, okay? I do not have an asset listed here. Call camera. I'm gonna hit. Add new category type, so I start in the top left hand corner drop down menu. It's a fixed asset. Remember, a fixed asset is something that you're going to use to make money over a long period of time. Might be months or years. Just so that's what a fixed asset is. All right, type camera. Now, Josh, remember, mention the sub account. Think it may be possible if you want to have a camera asset and then have five different cameras below it As a subcategory, you could That's what that is. Sub account means Okay, I always put I'm not gonna put a beginning balance in because I'm gonna make a journal entry to do that. And I would suggest that you not mess with this beginning balance because you should do a journal injury to create a balance. All right. All right. Cool on that. Fixed asset camera. Hang on. I've got to do one more thing on the type of fixed asset. Um, I'm gonna call Depleted ble. I don't even know that I want to use the somebody calling machinery and equipment. Now, it's kind of nice, because when you click on that, QuickBooks gives you a little description of what it is, what that means. So it says used machinery equipment to track computer hard. Well, as any other non furniture fixtures or devices owned under your business. So I create on an asset account call camera. So how much is a camera you might use? Christine? Been 2500 on it. I don't have that much cash. Simple. Let's spend 500. Thank you. I'm going to reduce cash. The only cash Can I have his bank checking there? Oh, now Rene told me I can right click. Only if you spell it wrong. You still to me? I'm spilled anything. Yeah. Okay. Purchase camera for cash. Again. I'm gonna copy that memo. Entry down a copy paced purchase camera for cash. Saving new. Now again. What did I just do in terms of a journal entry? Deb, It's still in the left until my dying day. Credits are still on the right. I increased on asset account called camera $500 debit. I decreased an asset account. Cold cash, $500 credit. Okay, next point. And we haven't covered this yet in this class. We're going to depreciate the asset now. Depreciation is defined as the decline in value of a fixed asset. Depreciation is defined as a decline in value of a fixed asset. Why? Because you're using the asset. You're using it up to make money. Okay, first step, we're going to create a depreciation expense account. And I would recommend that you do it for each Ask that you own. It gets back to a point that I made yesterday that I will do again. Okay. I need to do a journal entry to depreciate the $ asset. Okay, I'm just gonna say, Oh, before I do that, let's go to reports. Let's go to balance sheet. Let's go to assets. There's our camera. $500. I see that if I click on the number, there's the journal entry. I click on the journal entry. There's the transaction. Okay, let me do that again? Because it's worried you got it. Takes some getting used to report balance sheet. I scroll down. Here's the asset section. I go to a fixed asset camera. $500. Here's remember why Did can put a memo item on both the debit and credit because this only shows one part of the transaction. I gotta click on journal entry to see both parts. All right, everybody all right with that? Okay, we are going to depreciate the asset, which is the decline in value of an asset you use in business. Okay, Magic plus sign create journal entry. I do not have a depreciates financer. Is there a formula built in for the depreciation for the item? Is there a more sophisticated versions of QuickBooks? There is okay, for example, and I'm glad you brought it up. This is something you need to discuss with your account. So pristine owes the camera equipment. I don't know what the depreciation rate is on that. I mean, it sounds like you've got some equipment. After a year, it's obsolete. Could be Yeah, OK, help me remember. I'm gonna talk about obsolescence in a minute, so you need to talk with your accountant. Say, how quickly do I'd appreciate this stuff. And the first thing is going to say is, Well, how long do you use it? Because if you use the camera for if you use the $ camera, it's obsolete. After a year, all of that becomes expense. Why? Because you've used it all up. See what I mean? If you've got a vehicle on the other hand, that's going to use for five years. You're gonna recognize the expense over five years. You tie the expense of using the asset to the revenue that you used to create it. That's our matching principal revenue expense in this case, depreciation on the camera revenue I created with the camera revenue with the camera depreciation expense on the camera, see what I mean? Which is why you want to have a depreciation expense account for each asset. Here's what I mean. I go to my chart of accounts. Remember that expenses air all the way at the bottom business for, say, five years, and you buy all your assets up front. You should appreciate him 20% each year. The depreciation should be based on not how long you're in business, but how long the asset is usable either by you or someone else. So if you buy a truck that's hasn't a life of five years, but you only plan on being in business three years at the end of three years, it's not fully appreciate. It has some value, so the assumption is you'd end up selling it and it would still have value to someone else and they would depreciate it. So how do you determine how long an asset has value? Two. There's two ways. It's like I was saying with Christine, some of its intuitive because you're in the business More broadly, I would ask. It accounted. For example, vehicles air normally depreciated over five years. But anybody anybody used Triple A the greatest invention in the whole world. I had an exciting experience with a car. I had a transmission followed on my car, an exit ramp of a highway. I wouldn't recommend that it was very exciting. It makes a loud noise, so I'm in the Triple A truck. The guys tone me and go. How many? How many miles do you put on these trucks? He told me they put 300,000 miles on those trucks that used to triple A. So there is an asset that that's really unusual because they're using those trucks a lot. But standard Look is five years for a vehicle a year for a computer. So there are some standards. If you don't know, let's expense, let's recognize the depreciation expense. And normally there would be a standard account, and I don't see once I'm gonna make one up a lot of expense account. So I'm gonna go all the way up to the top, and I'm gonna hit, add new type of account. It's going to be an expense. So again, I slide to the bottom. What kind of expense? Well, since it doesn't show me, I can always hit other on this basic version. It may not. Yeah, I think I'm gonna I'm gonna call it. I'm gonna call it, um it really doesn't matter cause it doesn't show up on here. I'm just going to say, repair wars, that repair and maintenance that one doesn't really matter. I'm gonna call it depreciation. We know it's an expense account. It's gonna get in the right place, and we're gonna call it further depreciation on the camera again. I wouldn't. I want to label a depreciation account for each asset. Okay, expense depreciation on, specifically on the camera. Save again. I'm only in one period, but I'm going to say that some time has passed, and then I'm gonna recognize $10 a depreciation. I'm just The number isn't as important as the concept. Now, unfortunately, this is one of the goofy accounts that you have to use an accounting If and for those of you in the audience who are gonna have fixed assets, this is a little goofy and I'm gonna have to add new. Here's why it's goofy. We've got our camera account and it's got $500 in it. And now I need to recognize depreciation and a cameras, an asset account. I just mentioned that I'm gonna have depreciation expense because I've got expense the value of the asset while I use it. So I increased the asset to buy the camera. Now I'm increasing an expense by $ and I just set up an account. The other side of that entry is going to be a goofy account, but you need to know it. For those of you who are gonna have fixed assets called accumulated depreciation, which is basically a parking spot to keep track of your depreciation, I'm gonna have to just because they don't have a depreciation community depreciation account built in. I'm just gonna make one, and it's not gonna be perfect, but it will get the point across, so I'm gonna create a figure out. They do have it. I mean, they made me a liar. There's accumulate appreciation. All right, Save now, Here's the goofy thing. Depreciate. Showing the camera is is down here. The $10 accumulate appreciation gets credited. This is just a parking place. Whoa. To recognize your depreciation because let me post the entry, and then I'm gonna pull it up, and I'm we're gonna have to break here shortly, okay? To the journal entries that I thought maybe we'd pose to you right now. There's a couple of people in the chat rooms asking if there's a simple or way Teoh do these journal entries or an alternate to doing the journal entries. And Jesse l actually asked if if you if there's like a step one of the basics for someone just beginning where they can, something they can begin with and build on. If they felt like the journal, injuries were just a little too complicated for them, or is this really where they need to start? Unfortunately, it's where you need to store. I'll give you some exceptions because we talked about this. If you're doing if you're doing a sale, it's easier for you to go to sales and create an invoice. The Journal in trouble Post automatically for a sale. If it's an expense and you want to set up a payable, you can click on expense. So there are some ways to get around some transactions by going to this section. However, sometimes you just gotta post these journal entries, and I understand it's Greek to a lot of people who are just starting class. Okay, is there anything that you'd recommend for them to do? Let's say if they're planning on perching, purchasing this course, is there anything that they can do to prepare themselves if they're kind of not quite there yet that they can read up on or do something and then watch this course you can watch. That's a good question You can watch tutorials on QuickBooks. Great. You can go to into Intuit's QuickBooks site, and they have great stuff on how to do this stuff. Perfect. Thank you. Great stuff. 100. This stuff. All right, before we wrap up, I just did this entry to recognize appreciation and park it here. Let's see where it turned up That I make one more point. I'm gonna go to balance sheet. There's my accumulate appreciation. Do you see how I have camera? That is an asset with a positive number, and I have accumulate appreciation. That is a subtraction. Okay, so it did get posted. Its in the balance sheet. If I look at fixed assets, the accumulate appreciation got posted again. I named it. Just accumulate appreciation. I need to change the name of that. To accumulate appreciation for camera to be specific. I didn't do it. I broke my own rule. One more point. It gets back to the point of the guy buying the pizzeria or buying a photography store. So here's the acid section. We have a camera. We have accumulated depreciation on that camera. 10 bucks. I mean, abbreviate accumulate appreciation when I take the difference between those two numbers? Not necessarily that it's gonna be in QuickBooks that is called the book value of the camera. Or, in other words, the true value. What's left? And then I think I had a question. Give me just one second. That's the true value, because that's what's the usable value that's left. Okay, isn't accumulated depreciation gonna be the depreciation from all the different assets and that it would balance out because it would have, um, depreciation expense camera. So isn't this correct? Yeah. So let me find the I'm not showing you the depreciation expense. Let me go back. What you see on the screen is two of the three numbers you see camera and you see accumulate appreciation, but you don't see depreciation expense. So let me just jump to that quickly. Okay? Report profit and loss expenses. There's your depreciation on the camera. So that shows up in an income statement. These Aaron balance sheet that's in an income stated because it's an expense. Okay, Yeah, yeah, I just $10. Which then you would just appreciate it until you sell or you're a zero. All right,

Class Description

Accounting can be easy if you know how to use the right tools. In this course, Ken Boyd offers an in-depth introduction to the accounting and QuickBooks skills that are the foundation of every thriving small business.

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Ken covers everything you need to know about understanding and managing your business’s cash flow to insure that your business stays profitable and that you have the right amount of money at the right time. You’ll explore the principles of making sound business decisions that both grow your company and protect your bottom line. Ken will also cover best practices for integrating QuickBooks as an accounting tool, from setting up payment and invoicing systems to generating accounting reports to paying your company’s bills, and much more.

Whether you’re a first-time entrepreneur ready to learn the basics or a long-time business owner looking to sharpen your skills, this course will give you the tools you need to confidently manage your company’s finances -- no stress or guesswork required.

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