Had a client present me with a balance sheet for his business recently that had a negative balance on all the business bank accounts. Since he didn’t handle the books he checked into it for me. The answer he got from the family member doing the books was that was the way “accounting program” handled it. I wasn’t to worry. There was money in the bank. They’ve never been overdrawn.
No, sorry but that is not the way the program will handle it unless someone puts it in wrong. It’s a classic example of GIGO.
GIGO is an old computer term; garbage in, garbage out. Basically, if you put in bad info into the computer you can’t expect to get accurate results out. It doesn’t matter how good the program is it needs correct information to operate properly. GIGO applies to taxes and bookkeeping programs too.
Tax software and bookkeeping programs can be a great help. But they can also let you do things you shouldn’t. This is especially true with tax software since so much of tax preparation is based on judgement calls. Is it a business or a hobby? Can you claim your deadbeat brother? Do you qualify for that credit or deduction? If you don’t answer the software’s questions properly, you might lose the credit. Or, the software may let you have the credit when you don’t qualify.
It’s up to you know why the software spits out a form. It’s not hard; the IRS has lots of information on their website to help you. If you’re going to use an accounting program, take the time to understand the basics of bookkeeping. And with either program, read the messages and notes the program gives you. Just because you can override the system doesn’t mean you should. GIGO.