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QBO Cash Basis Report Flaw

October 5, 2020 by Jeanette

A Silver Club member using QB Online posted in the forum and said that their tax preparer questioned why the COGS on the Cash Basis report was so very different than on the Accrual Basis report.

At QB Winery Solutions we do not recommend running a cash basis report to prepare the tax return, because we strongly believe that even though you file your tax return on the Cash Basis, you should view all of your reports on the Accrual Basis. We also recommend that  you use GAAP or full-absorption costing for your wine in QuickBooks. We call this the True Cost, and it  includes the winemaking payroll, rent, equipment, supplies, and other winemaking overhead in addition to the grapes and packaging materials. Where as the Tax Cost only includes the grapes and the packaging material. If you use estate grapes, your Cash Basis Tax Cost only includes the packaging material.

All manufacturing type business will have a difference between the True Cost and Tax Cost of their products. This mean that calculating the COGS for the tax return is more complicated than adjusting for the timing of the payment of the invoices. All manufacturing businesses including wineries have these additional issues to consider when calculating the Cash Basis COGS:

  • The Cash Basis Cost is different than the True Cost
  • If the Accounts Payable includes grapes or packaging material (which it almost always does at the end of the year) you have to handle those amounts separately from the bills for overhead expenses.

If you had a retail shop that bought and sold wine, and you used QuickBooks Desktop, you could run a Cash Basis P&L and get an accurate COGS for the tax return. HOWEVER QB Online has a flaw, because the Cash Basis reports do not calculate inventory at all. When you use the Cash Basis reports in QBO your inventory purchases are booked directly to COGS.

This is what Intuit says about Cash Basis reports in QBO

If your business operates on a cash basis, you’ll need to customize the Profit & Loss report and change the accounting method to Accrual in order to see the correct Gross Profit amount.

In other words, in QBO the Cash Basis COGS calculation is not correct. The Tax Preparer must calculate an M-1 adjustment for the COGS. If you use our recommended costing book, this is actually a fairly simple calculation.

Despite my pleas and rants, I am aware that many folks enter the tax cost for the wine in QuickBooks because they were told that this was the only cost. Or their tax preparer told them that the tax preparation process would be easier this way. Would you prefer “easy” or “accurate”? Do you really want to risk making a fatal error by basing your sales price on a cost that is much lower than your True Cost? 

Check out our free course Wine Costing in 6 Minutes for more.

Filed Under: Comments

I’m About to Launch a New Course, Can You Help?

October 1, 2020 by Jeanette

Did you try to follow our Using QuickBooks in the Wine Industry course, but you got stuck and never finished? Or did you consider doing the course but are still on the fence?

If so, I would like to ask you some questions about your experience. In exchange, I will answer whatever questions you have for me.

Let’s trade 20 minutes of questions for 20 minutes of answers.

The reason I am asking is because we will be launching a new course on November 2 called The Fundamental Five: Setting up QuickBooks for a Winery.

The original course showed what the system looked like, but it didn’t explain how to get from mess to success. I would like to ask you questions to make sure that we cover all of the details and include the elements that are most important to you.

I only have time for 5 of these sessions. Please complete this survey by Saturday, October 3rd to apply for an appointment.

Filed Under: News

Office Hours 9-29-2020

October 1, 2020 by Kristina

Here is the recording for Office Hours from September 29, 2020.

Silver Club members, please log in to view the recording

Filed Under: Office Hours

When planning falls short

September 24, 2020 by Jeanette

One morning these rag-a-muffins decided to venture into the jungle (Maui’s north shore) to explore. They figured that they might get hungry so they tossed a muffin and a few bananas into a knapsack and headed out. Several hours later they returned home, muddy and starving (but otherwise safe and healthy). That was over 10 years ago, yet when they tell the story about that day what they remember is that they wished they had planned a little better. Apparently one muffin and a few bananas for 4 kids was just not enough food. They were not fazed by the “getting lost” part.

The quarantine, social distancing rules, and fires have created a new world that is more like a jungle than anything we are used to. You might need more than a muffin and a few bananas for the journey.

Now is the time to get your QuickBooks file set up with our Fundamental Five so that you can make a plan for next year. Stay tuned for more.

What are the Fundamental Five? Check out the Discover QuickBooks for Wineries course.

Filed Under: Uncategorized

Office Hours 8-25-2020

September 1, 2020 by Kristina

Here is the recording for Office Hours from August 25, 2020.

Silver Club members, please log in to view the recording

Filed Under: Office Hours Tagged With: bookkeeping, Bottling, Chart of Accounts, Cost of Goods Sold, covid-19, Expenses, Office Hours, small barrel winery, small business accounting, wine clubs, wine industry, Winery Accounting, winery pos

EIDL Loan = Crash Protection

August 20, 2020 by Jeanette

On June 15th the SBA resumed accepting applications for the EIDL program. If you missed this during the early days of the pandemic, it is not too late to apply.

I recommend that you consider getting this loan, because it provides you with working capital in case the economy collapses. The re-opening of the economy has not gone smoothly, and the earliest that we might be back to “normal” is sometime in 2022. This is my full recommendation:

  1. Obtain the largest loan you are comfortable with (the maximum seems to be $150,000). You may need to pledge some assets
  2. Park all of this in a savings account and do not spend it unless it is absolutely necessary (see the restrictions below)
  3. Pay the monthly interest that is incurred. Technically you do not need to make this payment, but if you pay it each month when it is time to return the funds you will only owe the original principal.

This is a true loan, and it must be paid back in full with interest. The interest rate is 3.75% and the loan term is 30 years. To qualify, you must have “suffered significant economic injury”. Right now, many of you have been able to pivot to online sales and you have cut back on expenses, so things are not as bad as we imagined when the shelter-in-place orders began, and having a smaller profit than the previous year does not qualify. However, if the economy tanks then you might experience “significant economic injury”.  That is why I am calling this “crash protection”.

Be aware that the fine print of the loan documents lists many restrictions. Here is a list of a few of them (there are more) and these are in place until the loan is repaid:

  • No payments of dividends or bonuses
  • No disbursements to owners (except for services), no repayment of stockholder loans
  • No expansion of facilities or purchases of fixed assets (barrels are ingredients, so they are OK)
  • No repair or replacement of physical damages
  • No refinancing of long term debt

For a more complete discussion about the EIDL program check out Alan Gassman’s 7/28/20 article on Forbes.com

Again, the concept is that these are rainy day funds. Even though the virtual tastings and email marketing programs did remarkably well during the first three months of the pandemic, nobody knows yet if we have seen a permanent shift in wine buyer’s habits. Since there is a cost to this ($470 per month for a $150k loan), plan carefully. Only you can decide your level of pessimism with the future state of things and whether this loan will give you some peace of mind. Let’s hope for the best, but plan for the worst.

Filed Under: News

Executive Order for Payroll Tax Deferment

August 20, 2020 by Jeanette

9/2/20 UPDATE

On 8/31/20 Intuit sent out a letter saying that they were still in discussions with the IRS on how to implement the Executive Order. As of 9/2/20 (which is 2 days after the order went into place) their answer was still “we will get back to you”. Here is the post.

The IRS issued a notice on 8/28/20 that did not answer all of the questions the payroll providers asked. Here is IRS notice 2020-65

The recommendations fromAccountingToday.com and SHRM.org are:

  1. The deferral is not mandatory
  2. Employer makes the election whether they will implement the deferral, not the employee
  3. Employers should consider whether not implementing the deferral would affect their employee relations
  4. Few companies are participating because of the complexity of the tracking
  5. This is not a “tax holiday” but rather a “deferral” of tax payments. If this program converts to a “tax holiday” everyone will benefit at that time.

Here is the article on SHRM.org

8/20/20 ORIGINAL POST

On September 1st, an Executive Order signed by the President to defer the payment of some payroll taxes is expected to become effective. Unfortunately, there are many details that have not been clarified. The AICPA sent a letter to the Treasury listing their recommendations. As of 8/19 there has been no response. The payroll providers are also waiting for guidance, because the payroll software and the IRS forms will need to be modified.

These are the key points

  • The deferral is for the employee’s portion of Social Security taxes only (not the medicare) that would have been incurred between Sept 1 and Dec 31, 2020
  • This is a “deferral” which means that the tax would need to be paid at a later date, although the President said that he would ask Congress to forgive the tax liability.
  • If the forgiveness does not happen, the AICPA and others are concerned that the employers could be left holding the bag.
  • Many are hoping that the deferral will be voluntary. Again, some are recommending that the employers make the election, others are recommending that the employees make the election.

Stay tuned for more updates. They will be rolling in at the last minute.

Here are a few resources

Executive Order by the President

US Chamber of Commerce letter to Secretary Mnuchin

Secretary Mnuchin’s Comments

AICPA letter to the Treasury

 

Filed Under: News

EIDL Grant & PPP Forgiveness

August 18, 2020 by Jeanette

There has been nothing easy about the PPP Loan, and how the SBA is handling the EIDL Grant continues in this same fashion. THIS IS SUPER IMPORTANT: If you received an EIDL Grant  (if one day the SBA deposited into your bank account $2,000 to $10,000 and you got no other paperwork, that’s the EIDL Grant), your PPP forgiveness will be reduced by this amount. That means that your PPP Loan will have a balance due and interest will start accruing. You will still owe this to your lender.

Here is the step-by-step on how to handle the EIDL Grant. Let’s say that you received $120,000 PPP loan and $3,000 EIDL Grant

  1. Create a current liability account called “PPP Loan”. Use this account when you record the deposit of the funds.
  2. Create a current liability account called “EIDL Grant”. Use this account when you record the deposit of the funds.
  3. If you also received an EIDL Loan, create a long term liability account called “EIDL Loan” (more on this later). Use this account when you record the deposit of the funds.
  4. Create an account called “Grant Funds”. If you have a group of expenses called “Other Expenses” that are regular expenses, put it in that group. Otherwise, create an Other Income account for this.
  5. When you receive the notice that your PPP Loan is forgiven, record a journal entry DR PPP Loan/CR Grant Funds for $117,000. (Assume you received full forgiveness) This will leave $3,000 as a balance in the PPP Loan.
  6. Write a check to the bank that gave you the PPP Loan for $3,000, and use the PPP Loan account when you record this check. The PPP loan account is now zero.
  7. Record a journal entry DR EIDL Grant/CR Grant Funds for $3,000. The EIDL Grant account is now zero. And the Grant Funds account will show $120,000 ($117,000 from the PPP and $3,000 from the EIDL)

I recommend using the date 12/31/20 for the journal entries so that your Profit & Loss reports for the rest of the year are not goofy, but this is a minor detail. Your tax preparer will handle the grant funds when the tax return is completed. And of course, we are still waiting for rulings on exactly how the expenses related to the PPP program will be handled.

For my comments about the EIDL loan see this post.

Filed Under: News

Office Hours 7-28-20

August 6, 2020 by Kristina

Here is the recording for Office Hours from July 28, 2020. You can find the following wine accounting & QuickBooks topics in this month’s recording:

1:00 – Sales receipt procedure and Journal Entries for the movement of the “Bottling Costs Transferred In.”
10:00 – The importance of doing monthly Journal Entries.
16:00 – Finished Goods Inventory.
21:00 – FTE calculation and your PPP forgiveness application.
27:00 – Virtual tastings and wine clubs.
40:00 – 2-Step customer jobs.

Silver Club members, please log in to view the recording

Filed Under: Office Hours Tagged With: bookkeeping, QuickBooks, small, small barrel winery, small business accounting, wine industry, Winery Accounting, winery pos

Office Hours 6-30-20

July 9, 2020 by Kristina

Here is the recording for Office Hours from June 30, 2020. You can find the following wine accounting & QuickBooks topics in this month’s recording:

1:00 – Processing transactions and payments divided between Square and Venmo in QuickBooks.
16:00 – Searching credits by customer in QuickBooks.
23:00 – Reporting via Weebly, Sqaure and QuickBooks, manual vs. automated reports and mapping via Transaction Pro.

Silver Club members, please log in to view the recording

Filed Under: Office Hours Tagged With: bookkeeping, Office Hours, QuickBooks, small barrel winery, small business accounting, Square, venmo, weebly, wine industry, Winery Accounting, winery pos

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