QuickBooks News

• QuickBooks Basic/Pro/Premier 2003 Release 7 (R7)
• Complete Payroll for QuickBooks Online Edition
• E-File & Pay for QuickBooks Do-It-Yourself Payroll
• Complete Payroll HR Assistant

QuickBooks Features

• Bank Reconciliations
• Reconciling Credit Card Transactions

QuickBooks Common Questions

• Why Is The Beginning Balance Incorrect In The Begin Reconciliation Window?
• How Do I Handle A Bounced Check From A Customer?
• How Do I View My Bank Reconciliation Reports?

QuickBooks Tips

• Cash Transactions
• Petty Cash Transactions
• Credit Card Transactions

QuickBooks Product Updates

• QuickBooks Basic/Pro/Premier 2003 Release 7 Summary

Articles

• The Hottest CEO in Tech

Prior Issues

Complete Payroll for QuickBooks Online Edition
Intuit's Complete Payroll is the only full service payroll solution that seamlessly updates data not only into QuickBooks, but now also into QuickBooks Online Edition, providing small businesses with a comprehensive anytime, anywhere accounting and full-service payroll solution. The new offering maximizes productivity and provides business insight through flexible service and powerful reporting capabilities that can be accessed on the road, at home or the office.

E-File & Pay for QuickBooks Do-It-Yourself Payroll
Fully integrated with QuickBooks accounting software, QuickBooks Do-It-Yourself Payroll gives business owners all of the tools and tax tables they need to manage their payroll, plus timely updates to ensure they stay compliant. Do-It-Yourself Payroll is now available with E-File & Pay options for federal and quarterly state payroll tax electronic filing and payment, which provide significant productivity gains for payroll users. The state forms and eFiling are licensed from Aatrix Software Inc. With the click of a button, federal and quarterly state forms are filed and tax liability paid, allowing small businesses to save time by filing and paying federal and state payroll taxes electronically. Intuit guarantees that filings will be made on time, reducing the possibility of costly fines. Due to the QuickBooks integration, E-File & Pay eliminates the need to manually re-enter data into payroll tax forms and reduces the risk of errors.

Complete Payroll HR Assistant
Available beginning in July 2003, Complete Payroll's HR Assistant helps business owners manage employee information and stay in compliance with federal and state employment laws and regulations. Integrated directly with Complete Payroll's PC Entry software, HR Assistant provides employers with guidance to perform key HR events and processes, answers common employee administration questions, and provides the forms and templates required for managing employees. HR Assistant integrates with information already in Complete Payroll - eliminating duplicate data entry and helping to ensure greater accuracy, while expediting employee administration and payroll. Regular updates are provided by CCH, the nation's tax and business law leader since 1913, to help ensure that employers stay compliant.

Reconciliation Procedures
QuickBooks allows users to reconcile bank statements by selecting “Reconcile” from the “Banking” menu. Users should select the bank account to be reconciled from the “Account” drop-down list in the “Begin Reconciliation” window. Then, enter the statement date, the ending balance from the current bank statement, the service charges or interest earned from the bank statement, and the applicable account to charge such amounts. Click “Continue” and QuickBooks automatically displays:

• Beginning Balance - This amount should equal the ending balance from the prior month’s bank statement (which should be the beginning balance on the current bank statement).
• Deposits and Other Credits - These amounts represent uncleared deposits and other credits recorded in QuickBooks through the current date.
• Checks and Payments - These amounts represent uncleared checks and other payments recorded in QuickBooks through the current date.

Note: The “Begin Reconciliation” window is not available in versions prior to QuickBooks 2002. When users of earlier versions select “Reconcile” from the “Banking” menu, the “Reconcile” window is automatically displayed. Users should enter the ending balance from the current bank statement, service charges or interest earned from the bank statement, and the applicable account to charge such amounts in this window.

QuickBooks users should perform the following procedures in the “Reconcile” window:

• Check all deposits and other credits, as well as all checks and other payments that appear on the bank statement. Do not check transactions that have occurred but that have not been posted to the bank statement.
• Enter any transactions that appear on the bank statement but that are not listed in the “Reconcile” window. Enter such transactions by selecting “Use Register” from the “Banking” menu and recording the applicable information in the blank line at the end of the register. (Alternatively, users can select “Chart of Accounts” from the “Lists” menu and double-click on the applicable bank account to access the account register.)
• Change any incorrect transaction by double-clicking on the transaction and making any necessary corrections to the source document.
• Click the “Reconcile Now” button after reconciling the difference between the ending balance and the cleared balance to zero.
• Print the “Reconciliation Report.”

QuickBooks allows users to have both the bank account register and the “Reconcile” window open at the same time, which users may find helpful while reconciling the bank statement. Having both windows open allows users to locate reconciling differences more easily. In addition, QuickBooks automatically updates any affected information in the “Reconcile” window when users correct transactions in the bank account register. QuickBooks users can open the bank account register by selecting “Chart of Accounts” from the “Lists” menu and double-clicking the applicable bank account.

Reconciling Beginning Balance Differences
The beginning balance in the “Reconcile” window may not match the bank statement beginning balance the first time a bank account is reconciled in QuickBooks. Users should enter beginning bank account balances as of the last bank statement date on or before the QuickBooks start date. However, users erroneously may enter the general ledger balance as of the QuickBooks start date (or setup date) as the bank account beginning balance. In that case, the amount displayed as the “Beginning Balance” in the “Reconcile” window will not agree to the beginning balance on the bank statement the first time an account is reconciled. QuickBooks users can correct the beginning balance by selecting “Chart of Accounts” from the “Lists” menu and double-clicking on the applicable bank account. Users then can locate the beginning balance transaction in the account register and correct the amount and transaction date. (QuickBooks automatically posts the offsetting entry to “Opening Balance Equity.”) QuickBooks then updates the beginning balance in the “Reconcile” window. Users cannot edit the beginning balance amount directly in the “Reconcile” window.

After a bank account is reconciled in QuickBooks for the first time, the beginning balance in the “Reconcile” window may not match the bank statement beginning balance if:

• The QuickBooks user erroneously cleared a transaction for the current bank statement period in the bank account register. In that case, QuickBooks automatically changes the beginning balance in the “Reconcile” window, as if the transaction had been cleared in a prior reconciliation. The current “Reconcile” window does not list the cleared transaction as a deposit or payment.
• The QuickBooks user “uncleared” a previously cleared transaction for a prior bank statement period in the bank account register. In that case, QuickBooks automatically changes the beginning balance in the “Reconcile” window, as if the transaction had not been cleared in a prior reconciliation. The current “Reconcile” window lists the uncleared transaction as a deposit or payment with a checkmark beside it.
• The QuickBooks user changed, voided, or deleted a previously cleared transaction after the prior reconciliation.

If the beginning balance in the “Reconcile” window does not match the bank statement beginning balance for a particular month, QuickBooks users should perform the following procedures:

• Calculate the difference between the bank statement beginning balance and the beginning balance in the “Reconcile” window.
• Look for the difference in the “Payment” and “Deposit” columns of the bank account register.
• Look for checkmarks in the bank account register for transactions dated in the current bank statement period. (Checkmarks indicate that a transaction has been “cleared.” Asterisks beside a transaction that has not been reconciled indicate that the cleared status of the transaction is pending because the bank reconciliation is not complete.)
• Look for asterisks in the bank account register for transactions dated in a prior bank statement period. (Asterisks beside a transaction that has been reconciled previously indicate that a previously cleared transaction has been “uncleared.”)
• Look for voided transactions in the bank account register.
• Review the prior month’s bank reconciliation report for the difference.
• Look for the difference in the “Audit Trail” report. Also look for deleted or modified transactions in the report.
• Review differences in the “Reconcile Discrepancy” report (QuickBooks Premier and Premier-Accountant only).
• Look for entries that were changed after the last reconciliation by reviewing the “Transaction Report by Date.” (From the “Reports” menu, select “Custom Transaction Detail Report.” Click the “Filters” tab, choose “Account,” and select the account. Choose “Date,” and select the date from the earliest transaction to the date of the last reconciled bank statement. Choose “Entered/Modified” and enter the date the last reconciliation was completed to today’s date. Choose “Cleared,” and select “Yes.”)

QuickBooks users can change the status of an erroneously “cleared” or “uncleared” transaction by selecting “Chart of Accounts” from the “Lists” window and double-clicking on the applicable bank account. Users then can click on the field between the “Payment” and “Deposit” fields for the applicable transaction and (a) remove a checkmark if the transaction has been “cleared” erroneously, or (b) enter a checkmark if the transaction has been “uncleared” erroneously. QuickBooks then automatically changes the beginning balance when the “Reconcile” window is reopened. QuickBooks users cannot edit the beginning balance amount directly in the “Reconcile” window.

Reconciling Ending Balance and Cleared Balance Differences
If the difference between the ending balance and the cleared balance is not zero after following the procedures above, QuickBooks users should:

1. Verify that the amount in the “Beginning Balance” field matches the beginning balance on the bank statement.
2. Verify that the amount entered in the “Ending Balance” field matches the ending balance on the bank statement.
3. Verify that the number of transactions listed on the bank statement equals the number of transactions checked in the “Reconcile” window. Entries in the “Service Charge” or “Interest Earned” fields should be counted as transactions. (QuickBooks specifies the number of cleared transactions at the lower left corner of the “Reconcile” window.) If the transaction numbers are not equal:
   1. Verify that all transactions marked as cleared in the “Reconcile” window are included in the bank statement.
   2. Verify that all transactions included in the bank statement are marked as cleared (or entered as a service charge or interest earned) in the “Reconcile” window.
4. Verify that the amounts checked in the “Reconcile” window match the amounts on the bank statement.
5. Review the “Missing Checks” report to verify that all checks have been entered. Generate the report by selecting “Banking” and then “Missing Checks” from the “Reports” menu.
6. Look for the difference between the ending balance and the cleared balance in the “Payment” and “Deposit” columns of the bank account register.
7. Verify that a payment checked as cleared was not entered as a deposit (or that a deposit checked as cleared was not entered as a payment) by dividing the difference by two and looking for that amount in the “Payment” and “Deposit” columns of the bank account register.
8. If the difference is evenly divisible by nine, search for transposition errors by comparing cleared amounts in the “Reconcile” window to amounts in the bank statement.
9. Look for the difference in the “Audit Trail” report.
10. Look for the difference in the “Reconcile Discrepancy” report (QuickBooks Premier and Premier-Accountant only).

QuickBooks users can search the bank account register for errors by selecting “Chart of Accounts” from the “Lists” menu and double-clicking on the applicable bank account. Users then can click the “Go to” button at the upper left corner of the bank account register and enter the desired search criteria in the “Go To” window.

The difference between the ending balance and the cleared balance may not be zero the first time a bank account is reconciled in QuickBooks. QuickBooks users should enter all cash transactions occurring between the last bank statement date on or before the QuickBooks start date and the QuickBooks start date, as well as all cash transactions occurring between the QuickBooks start date and the actual set-up date. To verify that all such transactions have been entered, QuickBooks users should compare the transactions listed in the “Reconcile” window to those listed in the first bank statement after the QuickBooks start date. Any “missing” transactions should be entered. That is, cash transactions occurring between the prior bank statement date and the QuickBooks start date should be entered with an offsetting entry to “Opening Balance Equity.” Cash transactions occurring between the QuickBooks start date and the actual set-up date should be entered with an offsetting entry to the applicable expense, income, asset, or liability account.

Adjusting Unresolved Differences
QuickBooks allows users to adjust unresolved differences by clicking the “Reconcile Now” button and then clicking the “Enter Adjustments” button in the “Reconcile Adjustment” window. However, QuickBooks offsets the entry to the bank account against “Opening Balance Equity.” Consequently, users should not adjust unresolved differences via the “Reconcile Adjustment” window. Instead, users should click “Cancel” in the “Reconcile Adjustment” window and returning to the “Reconcile” window. Next, the users should record a journal entry for immaterial unresolved differences. The adjustment to the bank account can be offset against a charge or credit to miscellaneous expense or income. QuickBooks then lists the adjustment to the bank account in the “Reconcile” window, and users can check the adjustment as cleared. If QuickBooks users subsequently determine the cause of the difference, a journal entry can be recorded to reverse the charge or credit to miscellaneous expense or income and post the difference to the correct account(s). This procedure does not affect the balance in the bank account or subsequent bank reconciliations.

Leaving the Reconciliation Process
If QuickBooks users do not have enough time to finish the bank reconciliation, they can click the “Leave” button at any time during the reconciliation. QuickBooks retains the information related to cleared transactions in the “Reconcile” window so that the reconciliation can be finished later. However, users must re-enter the ending balance, service charges, and interest earned each time the “Reconcile” window is opened.

Printing the Reconciliation Detail Report
After the reconciliation is complete (i.e., the ending balance equals the cleared balance), QuickBooks users should click the “Reconcile Now” button. QuickBooks then displays the “Select Reconciliation Detail Report” window that asks users which type of reconciliation report they would like to print. Users can choose to print a summary report or a detail report. Although QuickBooks does not require users to print a reconciliation report, (users can click on “Cancel” to leave the “Select Reconciliation Detail Report” window without printing a report) users should print a detail report for each reconciliation.

The information in the detail report provides documentation of the reconciliation, as well as an audit trail. In addition, if the opening balance in the subsequent month’s reconciliation is incorrect, users can review the prior month’s reconciliation report to help resolve the discrepancy. The “Reconciliation Detail” report lists the detail for all cleared transactions, as well as all uncleared transactions dated on or before the bank statement closing date. In addition, the report lists the detail for all new transactions dated after the bank statement closing date. The “Reconciliation Summary” report lists the totals (but not the detail) for all cleared transactions, uncleared transactions dated on or before the bank statement closing date, and new transactions dated after the bank statement closing date. Basically, the summary report is the first page of the detail report.

Note: The “Select Reconciliation Detail Report” window was not available prior to QuickBooks 2002. When users of earlier versions of QuickBooks click the “Reconcile Now” button, QuickBooks displays the “Reconciliation Complete” window that asks users which type of reconciliation report they would like to print. Users can choose to print no report, a summary report, or a full report. Users of these versions should also specify the bank statement closing date in the “Reconciliation Complete” window before printing the “Reconciliation Report.”

QuickBooks users can choose to display or print the “Reconciliation Detail Report.” If they choose to display the “Reconciliation Report,” they have the option to customize or filter the report and, if they wish, export the report to Excel. Exporting the report to Excel and saving it is recommended if they want to print the report again at a later time. Once the reconciliation is performed, QuickBooks stores the most recent reconciliation report and overwrites the data in the “Reconcile” window. Consequently, the next time the “Reconcile” window is opened, data pertaining to the next reconciliation appears. However, QuickBooks users can print the most recent reconciliation by clicking the “Last Report” button at the lower left corner of the “Reconcile” window. QuickBooks adds the company name to the bank reconciliation reports to help users that work with multiple companies.

Note: The company name is not printed on bank reconciliation reports in QuickBooks Version 2000 and earlier. QuickBooks Version 2001 and earlier do not have the option of displaying the “Reconciliation Report.” Users should print the “Reconciliation Report” to a file rather than a printer if they want to print the report again at a later time.

QuickBooks Premier and Premier-Accountant provide a “Reconcile Discrepancy” report that lists the cleared transactions that have changed since the last reconciliation. This report is helpful when the beginning balance in the “Reconcile” window is different than the beginning balance on the bank statement. QuickBooks users can generate the “Reconcile Discrepancy” report by selecting “Banking” and then “Reconcile Discrepancy” from the “Reports” menu.

“Catching up” on Reconciliations
QuickBooks users that have skipped reconciling their bank statements for several months or that have never reconciled their statements should “catch up” by reconciling each statement separately, beginning with the earliest month. However, if separate reconciliations are not feasible, QuickBooks users can reconcile the most recent bank statement and work backwards as follows:

1. Manually reconcile the most recent bank statement
2. Enter the ending balance from the manually reconciled bank statement in the “Ending Balance” field in the “Begin Reconciliation” window
3. Click the “Mark All” button at the lower left corner of the “Reconcile” window to clear all outstanding transactions
4. Delete the checkmarks from the transactions listed as outstanding in the manual reconciliation
5. Click the “Reconcile Now” button if the difference between the ending balance and the cleared balance is immaterial. Record a journal entry record an adjustment for the difference.
6. Manually reconcile the preceding month if the difference between the ending balance and the cleared balance is significant, and repeat the preceding steps

Printing Sequential Check Registers
QuickBooks automatically sorts bank account registers by date, type, and document number. However, QuickBooks users may find it useful to print registers sorted by document number to assist in the bank reconciliation process. (QuickBooks does not allow users to sort the register by type and then document number. For example, users cannot sort the register first by type so that all deposits are listed together and all checks are listed together.) Sorting the register by document number lists all checks sequentially in check number order. To sort the register in document number order, QuickBooks users should:

• Select “Chart of Accounts” from the “Lists” menu
• Double-click on the applicable bank account
• Select “Number/Ref” from the “Sort by” drop-down list in the lower left corner of the register window

QuickBooks users also may find it helpful to sort the bank account register by cleared status. That sort lists transactions that have been reconciled with a bank statement (i.e., transactions with a checkmark) first. Transactions in which the cleared status is pending because the bank reconciliation is not complete (i.e., transactions marked with an asterisk) are listed next. Uncleared transactions are listed last. Sorting the register by cleared status may be helpful when searching for transactions that have been cleared or uncleared erroneously.

QuickBooks users also may generate the “Check Detail” report by selecting “Banking” and “Check Detail” from the “Reports” menu. The “Check Detail” report can be filtered by check number so that it includes only check numbers in a specified range.

Limitations on Using the Accountant’s Review Copy
QuickBooks users can generate an accountant’s review copy that allows their QuickBooks Advisors to enter adjustments to the client’s QuickBooks files while the client continues to use QuickBooks for daily operations. However, Advisors should be aware that they cannot use the accountant’s review copy to reconcile their client’s bank accounts. QuickBooks allows Advisors to open the “Begin Reconciliation” window and enter the ending bank statement balance and the service charges or interest earned using the accountant’s review copy. However, QuickBooks does not allow Advisors to:

• Check transactions as cleared or uncleared
• Edit transactions

Consequently, Advisors cannot reconcile their clients’ bank statements using the accountant’s review copy in QuickBooks.

Note: The “Begin Reconciliation” window is not available in versions prior to QuickBooks 2002. In QuickBooks 2001 and earlier versions, users will select “Reconcile” from the “Banking” menu and the “Reconcile” window is automatically displayed. QuickBooks then allows Advisors to enter the ending bank statement balance; however, they are not able to enter any service charges or interest earned from the bank statement, check transactions as cleared or uncleared, or edit transactions.

Reconciling the Bank Account Register to the Balance Sheet
The ending balance in the bank account register (which is also the chart of accounts balance) may not equal the balance in the general ledger since QuickBooks allows transactions with future dates (such as postdated checks) to be recorded. Transactions with future dates are listed in the bank account register and included in its balance. However, future transactions are not included in the general ledger balance for the bank account as of a specified date. QuickBooks users can reconcile the bank account register to the general ledger by sorting the register by date (the way QuickBooks automatically sorts the register) and scrolling to the general ledger date. The balance as of the last date on or before the general ledger date should equal the general ledger balance.

Reconciling Credit Card Transactions
QuickBooks users can reconcile credit card purchases to the monthly card statement by selecting “Reconcile” from the “Banking” menu. Users should select the credit card account to be reconciled from the “Account” drop-down list in the “Begin Reconciliation” window. Then, enter the statement date, the ending balance from the current credit card statement, the finance charges or fees from the credit card statement, and the applicable account to charge such amounts. Click “Continue” and QuickBooks automatically displays:

• Beginning Balance - This amount should equal the ending balance from the prior month’s credit card statement (which should be the beginning balance on the current credit card statement).
• Payments and Credits - These amounts represent uncleared credit card payments and credits recorded in QuickBooks through the current date.
• Charges and Cash Advances - These amounts represent uncleared credit card purchases and cash advances recorded in QuickBooks through the current date.

Note: The “Begin Reconciliation” window is not available in versions prior to QuickBooks 2002. When users of earlier versions select “Reconcile” from the “Banking” menu, the “Reconcile” window is automatically displayed. Users should enter the ending balance from the current credit card statement, finance charges or fees from the credit card statement, and the applicable account to charge such amounts.

QuickBooks users should perform the following procedures in the “Reconcile Credit Card” window:

1. Check all payments and charges that appear on the credit card statement. Do not check transactions that have occurred but that have not been posted to the credit card statement.
2. Enter any transactions that appear on the credit card statement but that are not listed in the “Reconcile Credit Card” window. Enter such transactions by selecting “Use Register” from the “Banking” menu and recording the applicable information in the blank line at the end of the register. (Alternatively, users can select “Chart of Accounts” from the “Lists” menu and double-click on the applicable credit card account to access the account register.)
3. Change any incorrect transaction by double-clicking on the transaction and making any necessary corrections to the source document.
4. Click the “Reconcile Now” button after reconciling the difference between the ending balance and the cleared balance to zero.

Note: Version 99 users should click the “Done” button after reconciling the difference to zero.

If the difference between the ending balance and the cleared balance is not zero after following the procedures above, QuickBooks users should:

• Verify that the number of transactions listed on the credit card statement equals the number of transactions checked in the “Reconcile Credit Card” window. An entry in the “Finance Charges” field should be counted as a transaction. (QuickBooks specifies the number of cleared transactions at the lower left corner of the “Reconcile Credit Card” window.)
• Verify that the amounts checked in the “Reconcile Credit Card” window match the amounts on the credit card statement.
• Verify that the amount entered in the “Ending Balance” field matches the ending balance on the credit card statement.

QuickBooks allows users to adjust unresolved differences by clicking the “Reconcile Now” button and then clicking the “Enter Adjustment” button in the “Reconcile Adjustment” window. However, QuickBooks offsets the entry to the credit card liability account against opening balance equity. QuickBooks users should not adjust unresolved differences via the “Reconcile Adjustment” window. If QuickBooks users do not have enough time to finish reconciling the difference, they can click the “Leave” button at any time during the reconciliation. QuickBooks retains the information related to cleared transactions in the “Reconcile Credit Card” window so that the reconciliation can be finished later.

Note: Versions 2000 and 2001 allow users to adjust unresolved differences by clicking the “OK” button.

Paying Credit Card Charges
After reconciling the credit card account and clicking on the “Reconcile Now” button, QuickBooks displays the “Make Payment” window after the reconciliation report is printed or displayed. As illustrated by the following, this window specifies the outstanding balance on the account and allows users to pay all or part of the balance either by writing a check for payment or entering a bill for payment later.

Note: Version 2001 or earlier will display the “Made Payment” window.

If QuickBooks users enter a bill for payment later, QuickBooks records a debit to the credit card liability account and a credit to the accounts payable account for the amount specified in the “Enter Bills” window. That amount also is reflected as a payment the next time the “Reconcile Credit Card” window is opened. If the user subsequently pays a different amount than the amount entered in the “Enter Bills” window, QuickBooks debits accounts payable for the actual amount paid but does not change the balance in the credit card liability account. Consequently, the accounts payable balance and the credit card liability balance both are incorrect by the difference between the amounts entered in the “Enter Bills” and “Pay Bills” windows. In addition, QuickBooks lists the amount in the “Enter Bills” window rather than the actual payment amount the next time the “Reconcile Credit Card” window is opened.

QuickBooks users that want to pay a bill for an amount different from the amount entered in the “Enter Bills” window should edit the amount in the “Enter Bills” window before paying the bill. For example, a QuickBooks user may enter the bill for the entire amount due but later decide to pay less than the amount due. In that case, the amount in the “Enter Bill” window should be changed to the actual amount to be paid before paying the bill. That procedure corrects the accounts payable and credit card liability balances. In addition, the actual payment amount is listed the next time the credit card account is reconciled.

Recording Credit Card Purchases Monthly
Some QuickBooks users do not record credit card purchases as they occur. Instead, those users record credit card charges monthly after receiving the credit card statement. Users record such charges by selecting “Chart of Accounts” from the “Lists” menu and double-clicking on the applicable credit card account. QuickBooks then displays the credit card account register, and users generally enter the entire credit card statement balance as one transaction and split the total amount among the applicable accounts to be charged. Even though it may seem easier to record all credit card charges in total at the end of the month after receiving a statement, that method causes the following problems:

• Credit card liability accounts are understated during the month.
• Expense accounts are understated during the month.
• Inventory balances may be understated if inventory items are purchased with credit cards.
• QuickBooks cannot report purchases by vendor accurately because the credit card charges are posted as one transaction. (Information for 1099 vendors will not be available.)
• QuickBooks users must remember to charge the credit card liability account when entering the transaction in the “Enter Bills” or “Write Checks” windows. Otherwise, expense accounts may be double-charged and the credit card liability account will not be cleared.
• Balances must be paid in full.

Some QuickBooks users treat credit card purchases like purchases from any other vendor. Those users do not set up a separate credit card account by which to record credit card purchases. Instead, those users record credit card statement charges directly in the “Enter Bills” window as they would for any other vendor. QuickBooks automatically offsets such charges against the accounts payable account.

The QuickBooks Platinum Business MasterCard allows QuickBooks users to download their transactions from the MasterCard directly into QuickBooks; credit card transactions do not have to be manually entered. However, downloading these transactions at the end of the month after receiving a statement may cause many of the same problems stated above.

The beginning balance in the Begin Reconciliation window may be incorrect if any of the following have occurred:

• A transaction was cleared directly in the account register, causing the transaction to be excluded from the beginning balance in the Begin Reconciliation window. To include the transaction in the beginning balance, you must clear it in the Reconcile [Account] window.
  Note: Unlike QuickBooks 2001 and earlier versions, transactions cleared directly in the register are no longer used to calculate the beginning balance for reconciliation. If you are familiar with the way QuickBooks formerly calculated beginning (opening) balances, the amount may be different than expected.
• A previously cleared transaction was somehow modified since the last reconciliation. This includes:
  • Voiding or deleting a cleared transaction.
  • Changing the amount of a cleared transaction.
• There may be data damage in the company data file.

If you are certain that the discrepancy is due only to transactions cleared in the account register, choose one of the following options:

• Complete the reconciliation with the beginning balance discrepancy:
  If you ignore the discrepancy in the Begin Reconciliation window and click Continue to proceed to the Reconcile [Account] window, any transactions cleared through the register will appear and will already have checkmarks next to them. Use your bank statement to select all other cleared transactions for the period. Assuming there are no other issues, the reconciliation should balance correctly.
• Complete the reconciliation of the transactions cleared in the register before reconciling to the bank statement:
  Because the sum of transactions cleared in the register is causing the variance between the QuickBooks and the bank statement beginning balances, if you complete the reconciliation of these items, you should then be able to reconcile properly to the bank statement.
  1. Enter the beginning balance from the bank statement in the Ending Balance field of the Begin Reconciliation window, and then click Continue to proceed to the Reconcile [Account] window.
  2. The transactions cleared in the register will already have checkmarks next to them, and the Difference amount in the lower right corner should be 0.00.
  3. Click Reconcile Now to finish reconciling these transactions only, and then begin the reconciliation process again. The QuickBooks beginning balance will now match the bank statement beginning balance.

If you suspect that any transactions have been altered or deleted, choose one of the following options:

• Run a reconciliation detail report:
  With this report, you may be able to find transactions that have been changed or deleted since your last reconciliation.
  1. From the QuickBooks Reports menu, choose Banking, and then choose Reconciliation Detail.
  2. Select the appropriate account, and then click Display. Compare this report to reports printed for past reconciliations to look for differences.
• Locate the discrepancy amount:
  (This option will work only if the discrepancy was caused by a single transaction.)
  1. From the QuickBooks Edit menu, choose Advanced Find.
  2. Select Amount in the Filter list, select the equals (=) option, and then enter the discrepancy amount in the field to the right.
  3. Click Find. If a transaction is found, determine whether it is the transaction causing the discrepancy, and correct it as needed.
     Note: If the transaction was previously reconciled but is now uncleared, correct the status through the account register by clicking in the checkmark column, and then clicking Record to save the change. If the transaction has been marked cleared but has not been reconciled, see the solutions above regarding how to handle transactions cleared in a register.
• Run an account QuickReport:
  Use this report to determine if transactions have an incorrect cleared status.
  1. From the QuickBooks Lists menu, choose Chart of Accounts.
  2. Select the account you want to reconcile.
  3. Click the Reports button at the bottom of the list, and then choose QuickReport.
  4. Click Modify Report, and then click the Display tab.
  5. Select Clr in the Columns list.
  6. Click the Filters tab.
  7. In the Filter list, select Cleared.
  8. To the right of the Filter list, select either Yes (to filter for cleared transactions) or No (to filter for uncleared transactions), and then click OK to return to the report.
  9. Look at recent transactions. If you see transactions incorrectly cleared or uncleared, update them in the account register by clicking in the checkmark column, and then clicking Record to save the change. (See the solutions above regarding how to handle transactions cleared in a register.)
• Run an audit trail report:
  This report can help identify transactions that have been deleted, changed, or added since the last reconciliation. A close examination of this report can often help locate a problem, however, if the audit trail feature has not been active, you will not be able to see changes or deletions that occurred while the audit trail was inactive.
  1. To activate the audit trail feature:
     1. From the QuickBooks Edit menu, choose Preferences.
     2. Click the Accounting icon on the left.
     3. Click the Company Preferences tab.
     4. Select the Use audit trail option, and then click OK.
  2. To run the report, from the QuickBooks Reports menu, choose Accountant & Taxes, and then choose Audit Trail. You may need to adjust the report dates to see modifications for the appropriate time period.

How Do I Handle A Bounced Check From A Customer?

When a customer's check has "bounced" (returned to you for insufficient funds), handle it in the following manner:

1. First, create items for tracking bounced checks and their associated charges if these items do not already exist in your company data file (otherwise, skip to Step 2):
   1. From the QuickBooks Lists menu, choose Item List.
   2. Click the Item button and choose New.
   3. Select Other Charge from the Type drop-down list and name this item Bad Check or similar.
   4. Leave 0.00 in the Amount or % field and select Non from the Tax Code drop-down list.
   5. Select your bank account from the Account drop-down list and then click Next.
   6. Repeat Steps 1.c and 1.d to create a second item named Bad Check Charge or similar. This is for the service charge you will assess customers for bounced checks when you send them another invoice. (See Step 4.)
   7. Select an income account (such as Returned Check Charges) from the Account drop-down list. If the account does not exist, click the drop-down arrow and choose Add New, and add the new income account.
   8. Click OK to save both items.
2. Record your bank's charges for a bounced check:
   1. From the Banking menu, choose Use Register. If prompted, select the appropriate bank account and click OK.
   2. Create a new transaction, naming it NSF Fee or similar.
   3. Enter the bank charge amount in the Payment field.
   4. In the Account field, enter the income account you used in Step 1.g.
   5. Enter a memo if desired, and then click Record.
3. Record a credit memo to reverse the original sale:
   1. From the Customers menu, choose Create Credit Memo/Refunds.
   2. Enter all of the items from the original invoice or sales receipt, including the sales representative and sales tax if applicable.
   3. Enter the Bad Check line item from Step 1.c with a negative amount. This amount should match the total of all the items on the credit memo, creating a credit memo with a zero total.
   4. Click Save & Close to record the credit memo.
4. Choose Create Invoices from the Customers menu to send the customer a new invoice, which should include all of the items from the original invoice, plus a line item for Bad Check Charge created in Step 1.f.
   • If the original transaction was a statement charge, print a new statement charge.
   • If the original transaction was a sales receipt, you still need to recreate an invoice to send to your customer.

Tip: QuickBooks Pro and Premier versions have a "bounced check" letter that you can send in addition to the new invoice. This is one of the prewritten letters available through the Write Letters feature in the QuickBooks Pro and Premier versions. For more information, from the Help menu, choose Help Index, and then type writing letters.

How Do I View My Bank Reconciliation Reports?

To view your most recent bank reconciliation report:

1. From the QuickBooks Reports menu, choose Banking, and then choose Reconciliation Detail or Reconciliation Summary.
2. Select the desired account from the drop-down list and click Display.

To save a previous reconciliation report for later viewing, memorize the report.

Entering Beginning Balances
QuickBooks users should enter balances for each bank account as of the last bank statement date on or before the QuickBooks start date. QuickBooks considers all checking, savings, and money market accounts to be bank accounts. In addition, petty cash accounts also should be set up as bank accounts. QuickBooks users can set up bank accounts and enter their balances during the “Opening Balances” portion of the “EasyStep Interview.” QuickBooks users also can set up bank accounts by selecting “Chart of Accounts” from the “Lists” menu. When setting up bank accounts via the chart of accounts, users should select “Bank” as the “Type” in the “New Account” window.

The opening balances for bank accounts should be set up as of the last bank statement date on or before the QuickBooks start date. Entering actual bank balances as of the statement date rather than entering general ledger cash account balances as of the QuickBooks start date allows QuickBooks users to reconcile bank accounts more efficiently. Users also should enter any cash receipts or disbursements occurring between the last bank statement date and the QuickBooks start date, as well as between the start date and the set-up date.

Using Subaccounts to Distinguish Check Types
Maintaining the proper check sequence in QuickBooks can be difficult when both manual and computer checks are drawn on the same bank account. To distinguish manual checks from computer checks, consider creating a parent cash account in QuickBooks with two subaccounts—one for manual checks and another for computer checks. Beginning balances and deposits could be recorded in the parent account, and the parent account could be reconciled to the bank statement each month. Checks could be written to the applicable subaccounts, however (note that subaccounts will carry negative balances). To avoid writing checks against the wrong subaccount, consider using different colors for each subaccount by selecting “Chart of Accounts” from the “Lists” menu, opening the applicable checking account/subaccount register, and selecting “Change Account Color” from the “Edit” menu.

Transferring Cash between Accounts
QuickBooks users may erroneously record transfers of cash from one bank account to another as a disbursement from one account and a deposit to the other account. However, such transactions should be recorded as transfers by selecting “Transfer Funds” from the “Banking” menu. The “Transfer Funds between Accounts” window allows users to select which bank accounts to transfer funds from and to, as well as the amount to be transferred.

Voiding vs. Deleting Checks
One of the most common errors made by QuickBooks users is deleting a check that should be voided. Users should not delete checks that already have been printed. If a check that already has been printed needs to be voided because it was issued in error or with a mistake, QuickBooks users should:

1. Select “Use Register” from the “Banking” menu. (Alternatively, users can select “Chart of Accounts” from the “Lists” menu and double-click on the applicable bank account)
2. Select the applicable bank account from the “Use Register” window
3. Select the check to be voided
4. Select “Void Check” from the “Edit” menu

QuickBooks retains the check number and other information about a voided check; however, no record of a deleted check is maintained (unless the audit trail is turned on). Consequently, deleting a check creates a gap in check numbers. Even though QuickBooks allows users to delete checks that already have been printed, such checks should be voided rather than deleted. QuickBooks users may delete an incorrect check only if the check has not yet been printed. QuickBooks does not display voided or deleted checks when reconciling bank accounts. Consequently, if a check listed as outstanding in a prior month’s reconciliation is voided or deleted in a subsequent month, QuickBooks does not list the check in the reconciliation for the subsequent month.

QuickBooks users should not void a check that already has been cleared during the bank reconciliation for a prior month. If a QuickBooks user voids a check issued in a prior fiscal period that already has been “closed,” QuickBooks changes the cash and other affected general ledger account balances as of the prior balance sheet date. Consequently, to restore balances as of the prior balance sheet date, the practitioner would need to record a journal entry as of the prior balance sheet date to credit the cash account and debit the account to which the check was charged originally. In addition, a journal entry would need to be recorded in the fiscal period in which the check actually was voided to debit cash and credit the account to which the check was charged originally. If the amount of the voided check is material, the user should consider whether a prior-period adjustment should be recorded.

Recording Bounced Checks
When a customer’s check is returned for insufficient funds, the company must reduce its cash account in QuickBooks and record a receivable from the customer for the amount of the bounced check. Additionally, the company may be charged a fee by its bank for processing the bad check, and charge its customer a returned check fee. To record such transactions, do not delete the invoice or deposit. Instead:

1. Remove the bad check from the cash account, and establish a receivable from the customer by creating an entry in the bank register that lists NSF as the check number, the customer’s name as the payee, and accounts receivable as the account charged.
2. Record bank charges by creating an entry in the check register with NSF as the check number, the bank’s name as the payee, and bank service charge as the account charged.
3. Resubmit the original invoice to the customer with an NSF letter and issue another invoice to the customer for any fees the company charges for returned checks.

Correcting a Customer Deposit
Customer deposit errors in QuickBooks may be corrected in the screen on which it was originally entered (i.e. “Received Payments,” “Enter Cash Sales,” or “Create Invoices”), but there are additional steps required for companies that use “other undeposited funds” and have subsequently deposited those amounts in the “Make Deposits” window.

To correct an error on a customer payment that has not been deposited, follow these steps:

1. Select the window of the original payment (“Receive Payments,” “Enter Sales Receipts,” or “Create Invoices”) from the “Customer” menu and locate the original transaction.
2. Edit the transaction and click on “Save and Close.” (If the message “You need to delete this line item from the deposit before you can edit its name or amount. Discard changes and continue?” appears, proceed with the steps for the “Make Deposits” window.

To correct an error on a customer payment previously deposited in the “Make Deposits” window, follow these steps:

1. Select “Make Deposits” from the “Banking” menu and locate the original transaction.
2. Select the line containing the payment to be corrected and select “Delete Line” from the “Edit” menu. Alternatively, QuickBooks users can right-click and select “Void Deposit” to void the entire deposit. (The transaction still exists for companies that use “undeposited funds.” QuickBooks changes only the status to undeposited so the amount can be corrected and redeposited. Companies that post directly into a bank account will actually delete the transaction.)
3. Click on “Save and Close.”
4. Select the window of the original payment (“Receive Payments,” “Enter Sales Receipts,” or “Create Invoices”) from the “Customer” menu and locate the original transaction.
5. Edit the transaction and click on “Save and Close.”
6. Select the payment for redeposit from the “Make Deposits” window.

Petty Cash Transactions

Setting up Petty Cash Accounts
QuickBooks users that maintain petty cash should set up a petty cash account. A petty cash account can be created when setting up bank accounts during the “Opening Balances” portion of the “EasyStep Interview.” If the petty cash account is new, the “Statement Ending Balance” field should be left blank. Otherwise, the petty cash balance as of the QuickBooks start date should be entered in the “Statement Ending Balance” field. QuickBooks users also can create a petty cash account by selecting “Chart of Accounts” from the “Lists” menu. In that case, “Bank” should be selected as the “Type” in the “New Account” window. The “Opening Balance” field should be left blank if the petty cash account is new. Otherwise, the petty cash balance as of the QuickBooks start date should be entered in the “Opening Balance” field. Users should enter any cash transactions occurring between the QuickBooks start date and the set-up date. If the petty cash account is new, its opening balance should be recorded via a funds transfer, as discussed in the following paragraph.

Transferring Funds to Petty Cash
QuickBooks users should record a funds transfer, when withdrawing funds from a bank account to set up or replenish petty cash. The “Petty Cash” account should be entered in the “Transfer Funds To” field. QuickBooks users that replenish the petty cash account by writing a check payable to “Cash” should set up “Cash” as an “Other Name” and select “Petty Cash” as the account in the “Expenses” portion of the check.

Recording Petty Cash Disbursements
QuickBooks users should record petty cash disbursements by selecting “Chart of Accounts” from the “Lists” menu and double-clicking on the “Petty Cash” account. Users can enter each petty cash expense as an individual payment in the petty cash account register or enter a single transaction on a daily or weekly basis to record multiple petty cash expenses. If a single transaction is entered for multiple expenses, users should (a) enter the employee receiving the petty cash in the “Payee” field, (b) enter the total amount in the “Payment” field, and (c) click the “Splits” button before entering the individual expense accounts in the “Account” field. The “Splits” function allows users to allocate the payment amount among multiple expense accounts. Users may want to review the petty cash account register to verify that they have not posted all petty cash transactions to a single expense account (such as “miscellaneous expense”).

Credit Card Transactions

Setting up Credit Card Accounts
QuickBooks users should set up separate accounts for each credit card used for business purchases. Credit card accounts can be set up during the “Opening Balances” portion of the “EasyStep Interview.” Users should enter the ending balance on the last credit card statement with an ending date on or before the QuickBooks start date. QuickBooks users also can set up credit card accounts by selecting “Chart of Accounts” from the “Lists” menu. In that case, “Credit Card” should be selected as the “Type” in the “New Account” window. The ending balance on the last credit card statement with an ending date on or before the QuickBooks start date should be entered in the “Opening Balance” field. Subaccounts may be used to track purchases by multiple users of a credit card. The user should reconcile and pay against the “parent” account, however.

QuickBooks sets up a liability account in the chart of accounts for each credit card account. QuickBooks users that assign account numbers rather than account names to their accounts should assign numbers used for current liabilities to credit card liability accounts.

Recording Credit Card Purchases as They Occur
QuickBooks users should record each credit card purchase as it occurs and reconcile the charges to the credit card statement after it arrives. Individual credit card purchases can be recorded when they occur by selecting “Enter Credit Card Charges” from the “Banking” menu and entering the applicable information.

The following list summarizes all changes or improvements made in Release 7:

• Data File
  QuickBooks now allows you to rebuild a data file without first opening it.

• Do-It-Yourself Payroll
  New add on services available to Do it Yourself Payroll:

  E-File & Pay Federal Service
  E-File & Pay Federal and Quarterly State Service

• Financial Statement Reporter

  The R7 update is required for customers using the new Financial Statement Reporter product with QuickBooks.

• Help and Support
  The Progress Invoice link in the Help & Support Center now correctly opens the appropriate Help topic.

  The Payroll item interview Help button now correctly opens the desired Help topic.

• Integrated Applications
  Some third-party vendors of integrated software applications (applications that exchange data with QuickBooks) may require their users to upgrade to R7 to take advantage of additional data integration capabilities.

• Inventory
  The Make Pending dialog box is no longer displayed when a component of an assembly falls below zero and you tab past the quantity to build without entering a quantity.

  QuickBooks now correctly prompts the customer to create an invoice from an existing sales order, even if that sales order has already been used to create multiple other invoices.

• Merchant Account Service
  QuickBooks now displays a message when an error occurs while reading a credit card. Previously, the swipe screen was closed when a card with only Track 1 data was swiped.

  The Ref./Check # field no longer overlaps the QuickBooks Transaction ID field on printed credit card receipts.

  QuickBooks now displays the message, "An error was detected in the data read from the credit card" in every screen in which an invalid card is swiped.

  Credit Memo refunds now correctly process credit card transactions when saved in QuickBooks.

  Receive Payments Transactions are now correctly retrieved and displayed. Previously, an error resulted when reviewing 40 or more of these transactions.

  The Merchant Account Demos now fit better in screens with larger fonts or lower resolution.

• Online Banking
  QuickBooks no longer opens extra register screens when using the Go To button in the Match Transactions feature.

  QuickBooks no longer displays an Invalid Page Fault in QBCHAOS.DLL after a Bank ID change is completed.

• Payroll
  There is no longer an extended delay when opening the Send Payroll window.

  QuickBooks can now more quickly open existing paychecks in Multi-User Mode.

  Customers who are already signed up for a Payroll service are no longer prevented from setting up additional states through the Payroll Setup system.

  QuickBooks no longer fails to print W-3 forms that contain long city names in the address.

  QuickBooks no longer incorrectly changes the Used balance for sick or vacation time when previous year transactions are changed.

  There is no longer an extra data sheet created when using the Send Payroll Data to Excel feature with Microsoft Excel XP.

• Printing
  QuickBooks now supports printing on Intuit pre-printed shipping labels.

• QuickBooks Updates
  QuickBooks updates now install the Common Files updates to the correct location. The error, "Neither Command Line Parameter Exists," should no longer be seen when installing a QuickBooks update.

  Updates no longer fail during installation and present the message, "Some Files were Open."

• Sample Company
  There is now a message when trying to sign up for the Employee Organizer in the sample company. Previously, all signup screens disappeared.

• User Interface
  In Product Messages containing hyperlinks to an Internet Web page now show are displayed with a lightning bolt.

  The Non-Profit Edition of QuickBooks now allows a customer to set up new accounts in the Easy Step Interview.

  QuickBooks now uses the correct account when the customer right-clicks an account and selects Make Deposit. Previously, the Parent Account was used when a parent account was chosen for the account.

  QuickBooks no longer displays the message when entering a time activity but the class requirement option is not selected: "Items not assigned classes. One or more items have not been assigned a class. Save anyway or cancel and return to the form?"

He was about to meet his new boss -- and he didn't have good news for him. A seven-year veteran of software maker Intuit (INTU), Larry King Jr. had been running the company's payroll outsourcing business for only a few months when Steve Bennett was hired as CEO. The operation was a mess. It was losing money. Its technology was outdated. Execution was grindingly slow, and nothing was documented. The Intuit management team had thrown tough problems at King before, but he had no illusion that this would be an easy fix. Neither, he decided, would the new chief. He encouraged Bennett to tour the operation.

After his walk-through, Bennett sat down in King's office. The Intuit vet braced himself. "Larry, let me tell you something," Bennett began. "I've had 23 years of GE experience, and I can tell you that your operation is a classic, classic process-excellence need."
King gazed at Intuit's new leader. Bennett, then 46, looked like a casting agent's idea of a modern CEO: tall, tanned, trim, blue-eyed. His demeanor was authoritative but informal, almost folksy. And King hadn't the faintest idea what the man was talking about. "OK," he said. Then a pause. "What's process excellence?"

The tale of Steve Bennett and Intuit is the story of one of the most successful makeovers in recent corporate history. It is also -- in its opening scenes, at least -- a comedy of mutual incomprehension. Some of that, perhaps, was inevitable. Bennett had spent his entire career at General Electric (GE) and was steeped in its culture of results and its near-religious faith in process excellence (basically shorthand for the so-called Six Sigma quality-control techniques used by GE and others). When he parachuted into the top job at Intuit in January 2000, he landed in a $900 million SiliconValley institution that still ran as haphazardly as a startup. But the newcomer soon made himself understood. In Intuit's troubled payroll business, for example, Bennett dispatched a Six Sigma consultant who helped King double revenues in two years. And during the next 40 months, he remade an indecisive, complacent organization into one of the most spectacular performers in the industry.

Consider the numbers. Since August 2000, the beginning of Bennett's first full fiscal year as CEO, Intuit's revenues have expanded annually at double-digit rates. Operating profits have jumped between 40 and 50 percent each year, and operating margins widened steadily from 14.6 to 22.4 percent. That would be robust performance in a growing market. In the midst of the worst tech crash in living memory, it's positively stunning. The stock market certainly seems to think so: As of early May, Intuit had become the eighth-largest software company on the planet in terms of market capitalization, ahead of far-higher-profile companies such as BEA Systems (BEAS), PeopleSoft (PSFT), and Siebel Systems (SEBL).

While Bennett is barely known outside Intuit's Mountain View, Calif., headquarters, that is beginning to change. "You'd have to call Steve Bennett one of the top tech managers out there," says David Farina, an analyst with William Blair & Co. (which has done no recent investment banking business with Intuit). "Look at the numbers. They're pretty incredible." William Sahlman, professor of entrepreneurial management at Harvard Business School and coauthor of an HBS case study on Intuit, compares Bennett to eBay's (EBAY) Meg Whitman. And then there's Scott Cook, the 50-year-old tech pioneer who co-founded Intuit 20 years ago and is now chairman of its executive committee. He has more at stake in his company's continued prosperity than anyone, and he fairly gloats when describing the man he hired. "He may well be the best new CEO in America," he says.

For all its problems, the company Bennett inherited in January 2000 came with two important strengths: a fiercely loyal customer base and three of the most powerful brands in retail software: Quicken, the personal finance program that is all but synonymous with Intuit, has 15 million active users and owns 73 percent of its market. TurboTax holds 81 percent of its market. And QuickBooks, the accounting program for small businesses, has an 84 percent share.

All are legacies of Cook, who insisted from the start in 1983 that Intuit's products be designed for nontechies. A graduate of the marketing department of Procter & Gamble (PG), Cook made a fetish of usability: In an episode that has risen to the status of Intuit creation myth, Cook tested the original Quicken on a bevy of Junior Leaguers, because they were the least tech-savvy people he could think of. Intuit managers followed customers home from stores to watch them install Quicken. They cold-called them from product registration cards to ask for suggestions on improving the software. As they drove to work, they listened to tapes of customer service calls.

Cook insisted that his programmers incorporate what they learned into future versions. He called it "customer-driven innovation," and it made Intuit software dominant wherever it competed. Customer-driven innovation is why TurboTax leads users through a nonthreatening "interview" rather than forcing them to confront tax forms directly. And it's why QuickBooks's user interface resembles a checkbook rather than traditional double-entry bookkeeping -- because most small-business owners are not trained accountants. "Eleven years later some traditional accounting software companies still tell me we're doing it wrong," Cook laughs.

By the late 1990s, however, customer-driven innovation was no longer enough. Listening obsessively to customers, after all, doesn't necessarily alert you to new markets. Internally, the customer-friendly culture had congealed into a feel-good, consensus-hobbled management style that shied away from hard choices. Employees of the time describe the atmosphere as "nurturing." (In fact, one of Bennett's CEO predecessors, the popular Bill Campbell, was nicknamed Coach.) But there were few incentives to excel. The compensation system, more appropriate to a government bureaucracy than a tech company, made little distinction between top performers and deadwood, awarding almost everyone the same annual raise. "We were slow and indecisive," Cook recalls. "We weren't tough." In late 1999, when Campbell's replacement washed out, Cook went looking for a new CEO.

Bennett was not an obvious candidate. While Jack Welch's GE is legendary for exporting CEO-caliber execs -- Home Depot's (HD) Robert Nardelli and 3M's Jim McNerney, to name just two -- Bennett had zero software experience. "I'm not a technology guy," he says without apology. Then there was the culture thing: In 23 years at GE, he had fully internalized its relentless drive, its emphasis on accountability, and the let's-measure-everything philosophy of Six Sigma; Cook knew that Bennett would hit laid-back Intuit like a locomotive. To complicate matters, Bennett held the choice job of executive VP at GE Capital, and just days before Cook's headhunter called, he had gotten the biggest raise of his career.

Still, Bennett found he couldn't turn Intuit down. He liked the strength of the company's brands, which fit with the Welchian principle of competing only in businesses where you can be No. 1 or 2. He also saw the offer as a chance to prove to himself that he could thrive outside the GE hothouse. "I wanted to see if I was more than a one-trick pony," he says. For his part, Cook was unconcerned by Bennett's slender tech experience and the Kulturkampf he would undoubtedly set off. In fact, he saw those as advantages. He wanted someone to shake things up.

That's exactly what he got. In his first six weeks on the job, Bennett visited dozens of locations, addressed the bulk of Intuit's 5,000 or so employees, and had one-on-one conversations with, by his reckoning, at least 100 of the company's top executives.
The exchanges were often eye-opening. In one early meeting, Bennett reviewed budget proposals from a parade of department heads. The first told him that the department had spent $15 million last year and needed $17 million next year. The head went on to describe how the additional $2 million would be spent. "So I asked what they spent the $15 million on, and the person didn't know," Bennett says incredulously. "I thought, this executive has a problem. But every one of them gave me the same answer. They didn't know." Zero-based budgeting, a bedrock practice at GE, was apparently as foreign to Intuit's culture as Samoan slap dances.

Two months into his tenure, Bennett used his first public appearance, a Wall Street analysts' meeting, to alert Intuit employees that things were going to be different. "I stood up and said, 'With our brands and customer base, we should be doing much, much better,'" he recalls. "'We're underperforming.'" The reaction? "They thought I was smoking dope," he says. "The mind-set was, 'Let's budget 10 percent, grow 11 percent, and aren't we great?' We should have been growing 20 or 30 percent."

Bennett's first task was to jolt his new colleagues into expanding their definition of the possible, to engender what he calls "bullet-train thinking." (The phrase comes from the creative problem-solving that arose when Japanese engineers were challenged to build a train that could go from Tokyo to Osaka in three hours instead of six.) A few weeks later, at a meeting of the company's top 200 executives, Bennett got his chance. He presented a document titled "Steve's Dream for Intuit," a set of highly ambitious growth targets for revenues, profits, stock price, and other yardsticks. Rich Walker, head of Intuit's accountant services group, was one of those present. "My first reaction was 'Oh, my God, how are we going to do that?'" he recalls. "The next reaction was 'Oh, my God, wouldn't that be great?'"

Before the dream could become reality, of course, a lot of cozy Intuit practices had to become history. Within weeks of his unnerving meeting with the department heads, Bennett had trashed Intuit's old budget system; today execs with P&L responsibility must justify every dollar they plan to spend. He replaced the old system of guaranteed raises with a pay-for-performance model. He laid off 60 employees at money-losing Quicken.com and sold weak units. He also increased the number of execs who report directly to him from 8 to 20, seeing that as a way to drive change directly and, incidentally, keep himself from micromanaging. Any CEO with 20 direct reports, after all, has no choice but to delegate. "I work maybe 50 or 60 hours a week," he says. "There are other things I want to do with my life." (Like golf; a 3.3-handicap player, Bennett got in 102 rounds last year.)

Bennett -- along with a trusted handful of GE executives he lured to Intuit -- also began to push process excellence (PE), a commitment to customer satisfaction built on Six Sigma surveying and quality-control techniques. Six Sigma is rare at software companies and it led at first to much head-scratching at meetings with Bennett's lieutenants. Tom Allanson, hired from GE to run Intuit's consumer tax group, spent three months of energetic, acronym-laden whiteboarding with his staff before they worked up the nerve to tell him they had no idea what he was talking about. Allanson dumped the jargon and started over from scratch.

With some of the firm's software engineers, bemusement gradually turned to resentment. A key issue is that coders must submit their work weekly to PE review, a violation of the princely status most Silicon Valley engineers are accustomed to. Some grumble that reviews are a wasteful bureaucratic burden; one, who wished to remain anonymous, recently claimed that colleagues have talked of resigning once the economy picks up. "It stopped being fun working here," this programmer said.

Most other Intuit employees have come around, however, as they've begun to see the payoff of Bennett's disciplined approach. One of the most fervent converts is Larry King. Now fully clued in to the meaning of process excellence, King saw Six Sigma help make his payroll division one of Intuit's stars. When Bennett came onboard, it took King's unit 45 days to get a new customer up and running. Using Six Sigma to analyze the operation, King mapped out every step of his unit's order process, filling dozens of yellow stickies that he later pasted on a conference room wall. He and his team then tossed every one that wasn't life-or-death essential on the floor. Two-thirds of the stickies ended up on the pile, and King had a clear vision of how to streamline order fulfillment. Now, Intuit payroll customers wait just 7 days for service. "This has changed me as a manager for the rest of my life," King says.

Similar cubicle conversions popped up all across the company. Intuit's accountant services group used Six Sigma customer survey techniques to price new products. "Before," Walker says, "we'd have sat in a room and come up with informed guesses." The new process, he says, yielded "uncannily" precise predictions of how variously priced packages would sell.

Many around Intuit also found themselves won over by Bennett's direct managerial style. Dan Gilbert, chairman of former subsidiary Quicken Loans, recalls being frustrated by the old regime's continual groping for a strategy. "There was a lot of vagueness at Intuit," he says. Gilbert eventually bought the business back from the company, but not before coming to appreciate Bennett's leadership. "No bullshit, right to the point," he says. "Frankly, Steve Bennett was our kind of guy."

Firing up the troops is one thing, but Intuit desperately needed to start growing again, and Bennett had a plan. "When Steve came in, he said the QuickBooks group was a slow-growing unit and a giant opportunity, and we should be growing much faster," Cook recalls. The evidence, as it happened, had been staring Intuit in its customer-focused face: The standard version of QuickBooks is designed for companies with fewer than 20 employees, yet 5 to 10 percent of its most loyal users were larger -- some had as many as 200 employees. In fact, more of them used QuickBooks than brands of software intended for companies their size.

As Bennett looked closer, he realized there was room for more than just an expanded version of QuickBooks. Many small businesses still run with pencil and paper, and of those that embrace PCs, few have moved beyond spreadsheets or simple accounting programs. Intuit estimates that North American small businesses, which it defines as companies with fewer than 250 employees, will buy $7 billion in business software and $11 billion in related services this year. Analysts expect double-digit growth for years to come. In an era when corporate IT budgets have been squeezed dry, this was a rare thing: an expanding market for business software.

Even so, by mid-2001, Intuit had made no move to capitalize on it. The executives in the small-business group dithered over the business model, organizational design, partnerships, and so on -- even as Microsoft (MSFT), Oracle (ORCL), and SAP (SAP) announced that they were entering the market. Losing patience, Bennett went looking for a replacement to run the group. He soon found one in a former colleague, 20-year GE veteran Lorrie Norrington, whom he lured away with the help of a $750,000 signing bonus and a $5 million interest-free relocation loan.

In her new job, Norrington took all of a month to announce, essentially, that Intuit intended to become the SAP or Oracle of small business. The company would offer software and services for a wide variety of enterprises, from the smallest shops to those with a couple hundred employees. Intuit would help not just with accounting but also with payroll and benefits, keeping track of customers, and managing computer systems. It would also customize its software for specific kinds of businesses, like accountancies or construction firms. The initiative, she explained, would be called "Right for My Business."
Norrington first turned her attention to QuickBooks. With nearly 3 million users, the accounting program was the obvious beachhead for a push deeper into the small-business market. Bennett had already ordered up a new version -- QuickBooks Enterprise Solutions -- for businesses with more than 20 employees. Within 18 months, Norrington added 13 more "flavors," and by the end of this year, QuickBooks will have sliced the accounting market 25 ways, with special editions for the smallest small companies and larger small companies, and specific versions for retailers, distributors, contractors, and nonprofits.

In another example of bullet-train thought, Intuit agreed to open QuickBooks's source code to independent software developers. The developers write highly specialized applications for specific businesses; with an open interface, they can easily tie their programs into QuickBooks and other Intuit software, creating a kind of small-business enterprise-resource-planning package. To recruit developers, Bennett, Norrington, and Cook have been stumping conferences, including Intuit's first-ever QuickBooks developers conference, held in November near San Francisco. One of the roughly 6,500 companies actively developing applications is Clip Software in Ijamsville, Md. Some 8,000 landscape maintenance outfits use Clip to streamline tasks such as scheduling fertilizing and making estimates on new jobs. CEO Dave Tucker explains his partnership with Intuit this way: "We don't want to write general ledger or payroll applications. Intuit can do that."

To serve the largest and richest companies in their target audience, Bennett and Norrington have begun acquiring small companies that make fully integrated suites of business applications for specific industries. The packages, which Intuit sells for as much as $100,000 per customer, now cover property management, the public sector, construction, and distribution, and there are plans to buy as many as six more in different industries.

These acquired companies get the full PE treatment. "The day we started with Intuit, our process-excellence person started with us," says Michael Potts, the former CEO of the Flagship Group, a Denver software firm Intuit bought in June 2002. Like most small software companies, Flagship had never given a thought to business process. Now Potts can't imagine life without PE. For example, he had assumed that when Flagship lost bids, it was because the customer preferred the winner's technology. But the new PE czar ran a survey of lost clients and found that the decisive factor was actually price. "If you'd asked me a year ago, I'd have said I knew all this," Potts says with a grin. "But I didn't really."

Other software companies, of course, have no intention of allowing Intuit to become the SAP or Oracle of small business. SAP and Oracle themselves, as it happens, have announced plans to offer scaled-down versions of their software for small businesses. Microsoft, however, is the most formidable competitor. Although QuickBooks drove Microsoft accounting programs like Profit (1993) and Finance Manager (2001) off the field, the world's largest software company is nothing if not relentless. Gates & Co.'s $1.1 billion acquisition in 2001 of Great Plains Software, which caters to businesses with up to 1,000 employees, shows just how serious Microsoft is. At the moment, its sweet spot is among clients somewhat larger than Intuit's. But the two are converging on clients in the middle, and when they do, Microsoft will be fierce competition.
On the other hand, Bennett has turned Intuit into a serious competitor itself. The company is now much more agile, driven by 6,800 (mostly sincere) converts to process excellence. But the decisive weapons in any competition with Microsoft may well be the ones Bennett inherited.

To understand why, consider Lone Star Doughnuts, a Houston company that runs seven Krispy Kreme shops and distributes to 350 hospitals, grocery stores, and other outlets. As it expanded, it outgrew QuickBooks a couple of years ago and went looking for something new.

At that time, says Jason Gordon, Lone Star's CFO, Great Plains software seemed his best choice, since it easily handled the number crunching. But it cost $85,000, required consultants to install, and would force Lone Star to retrain the six people who would have to use it. Then, just before signing the purchase order, Gordon heard that Intuit was about to introduce a heavier-duty version of QuickBooks known as Enterprise Solutions. As soon as it was ready, he bought it. "I just plugged it in and was ready to go." No consultants, no retraining. And it cost just $3,500.

In this arena, Intuit's brands remain the ones to beat. The products' reputation for friendliness has apparently survived the flap caused by a copy protection feature introduced on TurboTax this year. "Customer-driven innovation is our heart, and strategic and operational rigor is our brain," Bennett says. "This company once had lots of heart but no brain. By combining the two, we can perform at a much higher level." And now no one at Intuit wonders what he means.