I've noticed that quite a few people create a separate set of accounts for each financial year, entering the closing balances from the previous year's books as the opening balances on the new year's books. What's the downside here, please? What circumstances would make this undesirable or complicated?
The answer depends on the complexity of the company's books and the type of reports required by management.
You are not giving us enough for an informed answer.
Is a general answer impossible? How about a hypothetical SOHO, small turnover (1-200,000), three family employees, three lines of business (services), not much in the way of fixed assets, tracking receivables and payables, monthly reports for income and expenses. (The monthly reports are sent to Excel and printed to PDF for analysis and quick visual comparison.)
I don't know anyone who does what you describe.
I see no benefit in the hypothetical situation you describe. Downsides are unnecessary extra work and no easy access to historical data.
Of the many people you know who do this, why don't you ask one or more of them why THEY do it? I suppose a general answer is possible, but why bother guessing at hypothetical reasons? My "general" answer would be, don't do something unusual unless you've got a good reason.
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You must be reading those old DIY accounting for dummies books. They were written before computers for small business were possible. They are talking about doing it on paper with pencil.
One of the big downside is the detail available in reports. You get asked what was our spending for natural gas in January for the last three years and you can't answer it. Management is trying to guess what the cost will be for the coming January.
As an upside your file will be smaller. Of course that is the downside too! I can't think of a single reason to delete data from the file, until forced to.
Since receivables and payables are being tracked a lot more work will be involved in starting over. An answer still can't be given until we know the reason why the start over is desired.
Quite often end users that are new to QB and accounting in general set up their books so poorly that a fresh start is a viable and worth while exercise. Sometimes it is really nice to completly eliminate all of our screw ups and start over again.
I actually use a new file each year. I find that my Customers/jobs gets huge during a year and unmanagable. Unless of course I am missing something. I am in the property maintenance business and one customer alone could have 1000 jobs per year.
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You're dead right of course. How can you tell someone the pros and cons without knowing why it is they do what they do.
I assume it is just ignorance.
What if you want to run a Profit and Loss comparison over two years?
Gosh, you do know you can hide those inactive jobs. ...
Got a question, why QuickBooks? If you really need that many customer/jobs you should be loking at a more capable program.
Do you have MYOB where you live? Or Sage?
Or Great Plains?
What is it about this group that fosters this desire to make points rather than be helpful? If somebody asks me the pros and cons of doing something in my line of business, I can give them a general outline of why people might do something that way, and what I see as the downside. This gives them a framework for organising their thinking about why they might want to do something that way, and enables them to ask further questions with a better understanding of what information is relevant to the discussion.
It is necessary to make the point in order to be helpful. If you are trying to do a cost / benefit analysis of a particular course of action you need to know what it is the person is trying to achieve.
This gives them a
The time to "organise their thinking" is before they set the file up at the beginning. I always argue you start with the fewest restrictions (unless it is in the area of security) so that you give yourself maxmimum flexibility as you go down the track. Closing off the file is unnecssary - it used to be a factor when files could get quite large and memeory was at a premium, that is no longer the case. In fact it is a significant strength of Quickbooks that it allows you to have several years in the one file. It helps with comparisons as I have stated before, it is also useful for budget purposes.
A completely pointless exercise and unnecessary to boot. You can do the comparison in Quickbooks and then send it to Excel / Lotus. (Have you seen some of the Excel spreadhseets and what people do with macros - it can get pretty scary)
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