Using Workflows to Keep Your Books Clean

Posted On January 11, 2023

Making sure that your books are clean and your reports are accurate comes down to understanding the workflows in the software that you are using. The basics are usually handled the same between different packages. However, you still need to fully understand how your software handles transactions so that you can be confident that the reports you pull are accruate.

In our explanations below, we will assume that you are using the accrual basis of accounting. We will also assume that you are using QuickBooks Online.

Undeposited Funds

When money is received at your location that will required depositing into your bank account at a later date, you should use Undeposited Funds. This account is only intended as a temporary holding area. When the money has been taken to the bank and deposited, you will record this using Bank Deposit. Then select each of the payments that were received that will be included in this deposit and select the correct bank account.

You should review the Undeposited Funds account at least monthly to sweep any remaining amounts in Undeposited Funds. Funds should not stay in this account for long periods of time. They should be transferred to a more appropriate account. If you will be keeping some of that money on hand then do a Transfer to a Cash on Hand account and keep your Undeposited Funds account clean.

Payees and Customers

In order for your Accounts Receivable and Accounts Payable reports to be accurate you need to enter a Payee for all of your bills and expenses and a Customer for all of your sales. This is especially important when using the Bank Feed in QuickBooks Online as many times this field does not populate. However, you can minimize this by setting up Bank Rules to automatically assign Payees and Customers to bank transactions.

Invoicing

When generating an invoice for a customer, the amount will drop into Accounts Receivable. The sale is recorded as revenue but since your customer has not paid you yet, Accounts Receivable is how you will track it. Be sure to select payment terms and QuickBooks Online can keep track of due dates. This helps QuickBooks track how long overdue an account has become so that you can take action to collect on it. You can run an aging report to see how old your invoices are.

When the payment comes in, use the Receive Payment feature. This will allow you to receive payment against a specific invoice or multiple invoices. You also have the option of choosing which account that payment will be deposited into. Refer back to the Undeposited Funds section above if you are receiving payments at your location.

It is best to receive payments into the account where they are processed. For example, if a payment was processed through Stripe, you should have a Stripe bank account set up in your chart of accounts. This way you can reconcile the account each month and expense any merchant processing fees that Stripe charged. I have seen clients record only the amount that Stripe transferred and completely ignore the fees that were charged. This will understate revenue and understate expenses.

Bank Deposits for Receiving Payments

Also, do not use Bank Deposit only when receiving a payment. Using only Bank Deposit will add the money to your bank account but it will not link the payment to an invoice. So you will see an increase in funds in your bank account but the balance of the customer who paid you will not decrease. If this happens then you will be trying to collect on an invoice that has already been paid. Receive the payment against the invoice and deposit it to Undeposited Funds. Then use Bank Deposit and select the payments that will be included when you take the funds to the bank.

Paying Bills

Bills, in QuickBooks Online, are what you receive from your vendors. These could be loan payments, utility bills, supplier invoices, etc. Bills represent your Accounts Payable. If you will be paying a bill at a later date, it needs to be entered into QuickBooks Online so it can be tracked.

When you receive a Bill from a vendor, add it to QBO using Enter Bill. Be sure to enter the terms of payment so QuickBooks Online can keep track of when something is due to be paid. You can run an aging report to see how old your bills are and manage them properly.

When you are ready to issue the payment, use Pay Bills and select the bill you want to pay. This will reduce the balance on the bill, or close it completely if you are paying in full. Simply using Write Check will generate a check but will not reduce the balance you owe to your vendor in QuickBooks Online.

Paying a Credit Card Bill

When you are making a payment to your credit card be sure to use Pay Down Credit Card to properly record the transaction. If you simply use Expense or Check then you are duplicating your expenses. This is because the credit card charges are in the software but when you use Expense or Check QuickBooks Online thinks your check is an additional expense. It is not, you are merely paying an Accounts Payable.

Billable Expenses

Billable expenses are expenses that you incur but will be billed to your client or customer. In order to handle this properly you need to go into Settings and make sure that you are allowing for billable expenses.

When you receive a bill from a vendor that you will be, in turn, invoicing to your customer, be sure to check the Billable checkbox on each line that you will be invoicing your client. Then, when you create an invoice and enter the customer’s name, the available Billable Expenses will appear in a window that pops out from the right side of your screen. If that expense needs to be added to your invoice, click Add and the expense will be added.

By using workflows that are built into your accounting software you can minimize errors and be more confident that transactions are recorded correctly. If you run into problems, remember that you can always reach out to us at Cape May Counting House.