QuickBooks: Transactions Containing Both Income and Expense

You are probably already familiar with recording income through a deposit or recording an expense. There may be times that one transaction contains both. Do you record each separately? NO. You want to record a single transaction, so that the transaction amount matches the amount hitting your bank account. This makes for better tracking and easier reconciling.

An example of when this type of transaction occurs is when you pay a vendor a monthly subscription, but you also receive a sales commission. The vendor processes one statement each month that has both pieces combined.

Expense is More Than the Income

Let’s say you’ve just started a new vendor relationship where each month you pay $100 subscription fee to utilize their online shopping platform. You are also paid a monthly commission on the sales processed through their platform. Your first month’s commission is $60. In this scenario, you will record the transaction as a net expense.

Figure 1: Enter the expense for the $100 subscription fee as normal. Before hitting Save, you will add a second line under Account Details, but since it is income, it will be a negative amount. The net between the expense and income will be the amount of the transaction ($40 in this case).

Figure 1 – CLICK TO EXPAND

Income is More Than the Expense

We still have the monthly $100 subscription fee, but the next month commissions earned is $120. In this scenario, you will record the transaction as a net deposit.

Figure 2: Enter the deposit for the $120 commission as normal. Before hitting Save, you will add a second line under Add New Deposits, but since it is an expense, it will be a negative amount. The net between the income and expense will be the amount of the transaction ($20 in this case).

Figure 2 – CLICK TO ENLARGE

**Note: you cannot duplicate a name as both a vendor and a customer. If you expect income to regularly exceed the expense, I would recommend setting it up as a customer. If you expect to the expense to regularly exceed the income, I would recommend setting it up as a vendor.

If you’d like additional help with handling combined transactions, please comment below or CONTACT ME today!

 

QuickBooks: Accounting for a Mix of Business and Personal Items

Last month I talked about Mixing Business and Personal Funds in a previous blog, so today I’ll go over in more detail how I account for this in QuickBooks. It’s totally doable when there’s some intermingling, you just want to be sure you’re keeping receipts and identifying business versus personal items.

These examples will be done under the assumption that you have separate business accounts, but use the wrong account for purchases. If you are like me, and have a shared account for business and personal, the easiest method for segregation is to set up classes in QuickBooks for each.

Example:  Business purchase made on personal account

Let’s say you inadvertently use your personal credit card to pay a vendor. In the expense module, choose your vendor as normal. I’ve set up a bank account called “Personal Funds,” which should always have a zero balance, and I’m going to proceed as I normally would with recording an expense.

Since this is not actually coming out of our business account, we’re going to have an account called “Owner Contribution.” This account is saying that you as an owner are contributing your personal money into the business. If you haven’t already set this account up, add it, with category type as Equity, and the detail type as Partner Contribution.

Notate in the description “paid with personal card.” Then we’re going to record a negative for the dollar amount. Notice how our total for the expense is zero. In one line we recognize the expense for the company, and the next line we recognize that the money came out of a personal account, which is why there will be a net zero affect to any of the banking accounts for your business.

Example:  Personal purchase made on business account

Let’s say you inadvertently use your business card to pay a personal bill. Choose the vendor, and this time since it’s coming out of our business bank account, choose that account. Our account coding is simply going to be an “Owner Distribution”.

You’ll want to set that account up if you haven’t already. An owner distribution means the same as if you had paid yourself a salary and then took those funds and paid your own bills. It’s the opposite of a contribution. Category type again is going to be Equity, detail type is Partner Distribution.

You don’t necessarily need to have a description in the expense, just add the amount. This will show as coming out of the business account but will NOT hit the business profit and loss since this is a balance sheet equity account.

Example:  Mix of business and personal purchase made on business account

Sometimes you may make a purchase that includes both business and personal items. Essentially, your expense entry will have both and expense line and equity line. Choose the business account, enter the expense amount for the portion that is business related. Then do Owner Distribution for the portion that is attributed to personal items.

If you’d like extra help on this topic please feel free to CONTACT ME and I can go over it in more detail with you.

Reasons to Do Bank Recons – And Timely!

I recently was working with a client who was not regularly reconciling their bank accounts. It was very apparent, even though they are a small not-for-profit with minimal transactions, just how important it is to complete monthly bank recons. If you don’t do these yourself, or you simply don’t do them in a timely manner, read on! You just may realize what a priority it should be for your business.

Photo Credit

Posting Errors

The blindingly obvious reason that my client needed to be doing their monthly bank recons was to identify a recurring posting error: duplicate deposits. A common error was occurring where customer payments were being posted through the “Receive Payment” module and through the “Record Deposits” module. I discuss this situation in a previous blog: QuickBooks & Common Deposit Mistakes. The takeaway from this is that a bank recon would have shown left-over deposits in QuickBooks that don’t match up with the bank. A little research would show the duplication and corrections could be made.

The same can be true for duplicated expenses, which I discuss in more detail in a previous blog: QuickBooks & Common Expense Mistakes.

Reason for timeliness: You may over-assume how much cash you have on hand if you’re only looking at your accounting records and not comparing with the bank. This could lead to cash-flow problems but can be mitigated if corrections for posting errors are done as soon as possible.

Missed Transactions

Bank recons will identify transactions that did not get posted. This could arise from simple oversights or could be an indication that communication from a third party was not received. No matter the reason, it’s critical to become aware of items still needing to be posted.

Reason for timeliness: Again, you may over-assume how much cash you have on hand by not comparing bank transactions to ones posted. A large transaction clearing the bank for more than you actually have will not only create a cash flow problem but will likely result in overdraft fees or rejection by the bank.  Catching these transactions early reduces the risk of spending more than you have.

Fraud

This ties in with missed transactions. If you are not reconciling your bank account, how would you ever know if an employee was embezzling funds? This type of fraud often involves masking the situation, but if an employee knows that the bank recon is not done, the embezzlement becomes that much easier. It may be difficult, if not impossible, to connect unposted transactions with fraud months or years after it occurs.

Another common occurrence of fraud is unauthorized charges. Most banks will have a specific time frame in which you can get reimbursed for these charges and if you miss that window, you’re simply out of luck!

Reason for timeliness: Even if you only commit to reviewing your bank statement, time is of the essence! The more recent the date, the easier it will be to distinguish legitimate charges from potentially fraudulent ones. Memory will play a big part in why timeliness is so important. As always, go a step further than simple review and do a bank recon.

If you’ve never reconciled your bank accounts and are overwhelmed at the idea of doing so, please reach out to me to discuss getting your recons caught-up. Bank recons are my absolute favorite (yes, I’m not kidding!) and I can get through them quickly and accurately. Once they are caught-up, I can train you on the process and I guarantee it won’t feel so daunting going forward. All you need is a clean start and the confidence from having learning a tried-and-true process.

QuickBooks: Bank Feeds – Matching and Unmatching

Utilizing the bank feeds in QuickBooks makes for a more seamless bank reconciliation process and allows you to keep up on your banking transactions more timely. Once you have your bank feed set up (which is a fairly straight-forward process that uses your online banking login information), you can begin matching transactions posted with those that download from your bank feed.

These steps and figures will all be using QuickBooks online. If you need help with using the desktop version of QuickBooks, please feel free to CONTACT ME.

Figure 1: First, from the left-hand menu, click on “Transactions” and then on “Banking.” You will see any linked accounts at the top. Clicking on each account will display a list below of unmatched transactions. It’s always good update the bank feed often by clicking on “Update” in the top right.

Figure 1 – CLICK TO EXPAND

Figure 2: Once your bank feed is updated you can start matching transactions. When QuickBooks finds assumed matched transactions – ones with the same amount, payee, and date range – it will indicate “Match” in the Category/Match column. If you confirm they are a true match, click “Match” under the Action column to the far right. Doing so will remove that transaction from the list.

Figure 2 – CLICK TO EXPAND

Figure 3: If you match a transaction by mistake, which can be an easy thing to do if you have multiple transactions to the same payee for the same amount, you can simply unmatch it. Notice how directly under the accounts there is: For Review, In QuickBooks, and Excluded. Click on “In QuickBooks.” This will display all the transactions you have matched. Simply find the transaction in question and click “Undo” under the Action column to the far right. This will unmatch the transactions and place it back under the “For Review” section, where you can match with the correct transaction.

Figure 3 – CLICK TO EXPAND

Figure 4: As I mentioned, using bank feeds will streamline the reconciliation process. To see this in action, click on “Go to Register” on the far-right side. This brings you to the register of all posted transactions to this account. Notice the two green squares in the column second from the right. This is indicating that the transaction has been matched to a bank feed item. Once reconciled, that “C” above the squares will change to an “R.” Essentially, when you start a bank reconciliation, it will already take into account the matched items so you do not need to mark those manually.

Figure 4 – CLICK TO EXPAND

Those are the basics for using bank feeds. There are some other functions that relate to bank feeds but the items above should be enough to get started. I invite you to give it a shot, it’s a great time saver! It’s also a great stress-reducer if waiting to do bank recs with a monthly statement is a hairy task due to a high volume of transactions.

QuickBooks: The Audit Log

 

I know we’ve all been there: you’re working in QuickBooks and you know you posted a transaction yesterday, but today you just can’t find it! Are you losing your mind? Maybe. Or maybe not. There is a way to figure out if something was accidentally changed or deleted. And that way is through the use of the Audit Log.

I actually had a situation like this happen to me just yesterday. A big journal entry I post every month was missing. I knew I had posted it the week prior, so I pulled up the Audit log. It turns out that instead of copying a prior journal entry, which I do often to save time, I accidentally saved over it. After making this discovery, I hastily posted the new journal entry to get everything squared away. The Audit Log allowed for a quick deciphering of why my mistake occurred, not merely that it did occur.

There are a number of reasons to run an Audit Log report, such as:

  • Verifying who posted/edited/deleted a transaction
  • Verifying changes made to a transaction
  • Identifying when a transaction was posted (this is helpful when trying to locate changes made after a specific date)
  • Verifying who has logged into QuickBooks and when
  • Seeing changes made to the chart of accounts and other lists

To view the Audit log, follow these easy steps:

  • Click the gear icon and then on “Audit Log”
  • THAT’S IT!
  • Or, go the traditional route and choose “Reports” from the left-hand menu
  • Go to All Repots
  • Choose Business Over
  • Click on Audit Log
Audit Log from Sample Company of QuickBooks online – CLICK TO EXPAND.

You can customize the Audit Log to filter by such things as employee, date, and transaction type. This is useful if you’re looking for a particular item to review. Once you’ve found a transaction, click on “view” to the right-hand side and it will display the changes in detail.

Detail for changes of one transaction listed in the Audit Log – CLICK TO EXPAND.

The steps above are specifically for QuickBooks online, so if you’re working with QuickBooks desktop and need help with running an Audit Log, please CONTACT ME.

QuickBooks: Recording Deposits with Fees

I recently worked with a client who receives customer payments via wire transfer. The troubleshooting I helped her with was identifying how to account for wire transfer fees deducted from the deposit. We were working with the online platform of QuickBooks (**reminder: The Desktop platform may look slightly different than the screen shots in this blog).

Let’s say our client Sue has invoiced customer A for $1,500. She has received the payment against the invoice (see my prior blog that touches on receiving payments). She updates her bank feed and notes that there is a bank deposit which references a wire transfer for customer A. The issue Sue has is that the bank deposit is only for $1,488.

Sue remembers that she incurs a $12 fee per wire transfer. Here, I will walk Sue through the steps of recording the deposit so that it reflects the fee. Refer to the Figure 1 below as you follow along with the steps.

Figure 1 – CLICK TO EXPAND

Step 1

Make sure you have received payment against the invoice first and foremost.

Step 2

Record a new deposit. Click on the “+” icon at the top right and then choose “Bank Deposit” under the Other column. Choose the applicable bank account and date.

Step 3

Since you have already received payment against the invoice, you will see the $1500 for Customer A populate under the “Select Existing Payments” section. Place a checkmark on that line to include it in the deposit. You will see the deposit amount as $1,500 in the top right corner.

Step 4

We will enter the wire transfer fee under the “Add New Deposits section.” You don’t have to enter anything under “Received From” or “Description” but I did in this example. I chose the Wire Transfer Fee account. If you need to set up an account for this, make sure you categorize it as an expense before saving.

When you enter the amount of the fee, be sure to make it a negative number. Typically, you’re entering deposits which would be positive amounts, so a reduction to a deposit – such as a fee – would not be positive. After completing this line, you will notice the deposit amount now show $1,488 in the top right corner.

 

From this point, you can continue with matching the bank deposit to your bank feed, if this is a function you utilize for reconciling. If you have other troubleshooting relating to deposits, please email me for one-on-one help, or comment below if you’d like it featured in a future blog.

QuickBooks: Setting up Customers and Vendors

The first step to keeping accurate accounting records in QuickBooks is to start with properly using Customers and Vendors. There are many benefits to doing so including, but not limited to:

  • Utilizing an accrual basis of accounting (if you don’t know what this is, don’t worry, we can always touch on it later!)
  • Tracking payments due from customer
  • Tracking upcoming bills due to vendors
  • Tracking 1099-eligible vendors for year-end reporting

Today I will go over how to set up a Customer and a Vendor and how to change QuickBooks settings so they better suit your company’s needs. Keep in mind, my examples will be done through QuickBooks Online, so QuickBooks Desktop may be slightly different. Feel free to email me for personal help with the Desktop platform.

Setting up a new Customer

Customers are those whom you do business with that pay you for your product or service. You may have the need to invoice customers for payment and track ones that are past-due.

To set up a new customer click on “Customers” on the left-side menu, then click on the green “New Customer” button at the top right of the screen. A new window will pop up and this is where you enter the customer’s information, as shown in figure 1. This information will be used to populate fields on an invoice.

Figure 1 – QuickBooks Customer setup screenshot – CLICK TO EXPAND

A likely secondary tab you will want to fill in is the “Payment and Billing” tab. This is where you can set the preferred invoice delivery method or terms that payments are due, shown in figure 2.

Figure 2 – QuickBooks customer setup tabs screenshot – CLICK TO EXPAND

Setting up a new Vendor

Vendors are those whom you do business with that you pay for their product or service. You may have the need to record bills for payments to vendors and track when they are coming due.

To set up a new vendor click on “Vendors” on the left-side menu, then click on the green “New Vendor” button at the top right of the screen. A new window will pop up and this is where you enter the vendor’s information, as shown in figure 3. This information will be used to populate fields on a bill. Note that you can mark the vendor to be tracked for 1099-MISC reporting, which makes the process a breeze after year-end!

Figure 3 – QuickBooks vendor setup screenshot – CLICK TO EXPAND

QuickBooks Settings for Customer and Vendors

Click on the gear icon in the top-right corner from any screen and click on “Company Settings” in the far-left column. To change settings for customers, go to the Sales section. Here you can change how your invoice looks and set default messages when emailing customers. If you refer to your customers as something else, go to the Company section and change the customer label (option include things like Clients and Patients).

To change settings for vendors, go to the Expenses section. Here you can choose to use purchase orders and set the default message when emailing vendors, among other things.

 

If you have a particular sticky point or module in QuickBooks that you’d like featured in one of my future blogs, comment with your question below!