Bookkeeping is a reality for all small businesses. Even though it may not be the most exciting part about running your business, it can still impact your plans to grow your business. And while QuickBooks does a great job at simplifying this task, there are still plenty of opportunities for mistakes. Here are the most common QuickBooks bookkeeping mistakes business owners can make:
1. Confusing account names
An account chart is an organizational tool that allows you to create a listing of every account in your business. You’ll typically list balance sheet accounts (assets, liabilities and owner’s equity) and the income statement accounts (revenue and expenses).
One of the most widespread issue you can run into with your QuickBooks accounts is confusing account names. A way to prevent this is to think about your QuickBooks accounts like folders that you file your receipts in at your office.
Your accounts become your expense categories when you print off a profit and loss statement, and the categories of your balance sheet. When the names of your accounts aren’t detailed enough, the resulting financial statements can be very confusing for others to understand or follow.
Also, when it comes time for you to enter information into your QuickBooks account, you might enter an expense into the wrong account if the names aren’t clear and understandable. Having your accountant or bookkeeper set up your account chart before you begin using your QuickBooks platform can help bypass this issue.
2. Not reviewing your financial statements
For a lot of people, balance sheets can be quite confusing. A common mistake that can happen is entering numbers as negative values when they’re supposed to be entered as positive values. For example, your debt is looked at as something you need to pay back. That’s why when entering our credit card balance into QuickBooks; it would make sense to enter it as a negative amount.
But, that’s not actually the case! All new debts entered into your QuickBooks account should be positive amounts. A good rule to keep in mind is that most of the data you’ll enter into QuickBooks will be positive values. When in doubt, check the QuickBooks support resources or ask a professional.
3. Inconsistent information
As a business owner, you have a lot of leeway in how you can classify certain types of costs for your business. For example, you can choose to put certain expenses under fixed operating expenses or include them within cost of sales. Whatever you choose to do, the most important thing is to make it a rule and stay consistent.
Issues can pop up when you try to change your method of classifying expenses from one period to the next. It can even affect your ability to find funding. By changing how you classify expenses, your financial statements will show unusual fluctuations in expenses. This can affect the information that potential investors and lenders use to decide whether to provide funding for your business.
4. Misusing the undeposited fund account
You may find a confusing figure in your balance sheet called “undeposited funds.” Undeposited funds is an automatically generated figure on your balance sheet to account for money that has been received, but hasn’t been deposited into your business’s bank account. Seeing this in your financial statements doesn’t necessarily mean there’s an error, but if it starts to get too big, it may be a sign that money being deposited into your business bank account isn’t being recorded properly.
A good way to avoid this error is to open the deposit module in QuickBooks, and record all payments in the software when your customers send their payments.
5. Tracking sales taxes inconsistently
There are different ways you can treat sales taxes. You can charge your customers a fixed price that includes sales taxes, and record the sales tax collected as a subcategory of revenue and sales taxes paid as a business expense. Another way is to charge your customers a base price and then add sales to their bill, excluding sales taxes from both their revenue and their expenses.
Either of these methods work, as in both cases sales tax is collected and then set aside for the tax authorities. A problem comes up when you include sales tax with your revenue and don’t include it in your expenses, or vice versa. When this happens, your business’s profitability is either being reported falsely low or falsely high.
You must choose to either include sales taxes in both your revenues and expenses or choose to leave it out of your revenue and expenses entirely.
6. Forgetting to balance accounts receivable and accounts payable
When your business is owed money by its customers or you owe money to a vendor, those balances are recorded in QuickBooks under accounts receivable and accounts payable respectively. This helps to keep track of money that has been earned, but not yet paid, and money that is owed and (ideally) will be paid shortly.
A problem can come up is when money is collected from a customer who is paying off their balance, but that balance isn’t reduced in QuickBooks. This problem can result in your financial statements falsely indicating that the business isn’t getting paid on time or isn’t paying its bills on time.
As a rule, when you collect a payment that was previously billed, or pay off a vendor who gave you some time to make that payment, always check to make sure the corresponding receivables and payables are adjusted.
7. Bank account connectivity
By linking your bank accounts to your QuickBooks accounts, you can automatically download any transaction information from your business’s bank account into QuickBooks. QuickBooks uses rules, set by you, to classify transactions into appropriate accounts in the platform.
It’s important to carefully set up these rules when first establishing your QuickBooks account, and to periodically review them. Since the process is automated, any inaccurate classifications will continue to happen, and can quickly amount to a lot of work for you or your bookkeeper to correct.
8. Incorrectly handling loan payments
When your business receives a loan, you need to accurately record the payments you make to keep the loan balance up to date. Every payment on a term loan is split into paying the interest on the loan and part of the principal.
By recording your entire payment as either just principal or just interest it can create the illusion that your business is either paying back its loan faster or slower than anticipated. Whenever recording a loan payment in QuickBooks, remember to “split” the amount between principal and interest. This keeps the loan balance in QuickBooks accurate and can help when it comes time apply for more funding.
9. Product and cost mismatch
When used effectively, QuickBooks can provide helpful insights into your product and product-category performance. By matching your product and product category names in QuickBooks to your inventory, it can help you determine which items to keep, which to sell more of, and which to stop selling.
When you don’t line up your inventory and items definitions, the quality of information that you can get out of the software is reduced to the overall profitability of all of your products.
10. Hiring the wrong bookkeeper
If you decide to hand off the task of managing your QuickBooks bookkeeping account, make sure that you hire the right person for the job. Professional bookkeepers are skilled at managing a business’s chart of accounts and entering the right information in the right place.
On the other hand, many people could have experience using QuickBooks in different capacities. For instance, the person you hire might have experience as an office manager and only dealt with entering expenses into QuickBooks.
While this experience is helpful, it only represents a portion of the total knowledge base needed to run a business QuickBooks account. Hiring the wrong person can cost your business more than you can imagine. For example, inaccurate financial information and reporting can prevent you from obtaining the financing your business needs to grow.
11. Handling app transactions
In the past few years there’s been a rise in doing business through mobile payment apps such as CashApp, Venmo, and PayPal. A common bookkeeping mistake is categorizing fund transfers into these payment apps as “expenses” and transfers from these apps into bank accounts as “income”. When in actuality, these should be handled like any other fund transfer into or out of your business’s bank accounts. Each app should be tracked with their own balances, deposits, and expenses – just like a regular bank account.
Avoid these QuickBooks bookkeeping mistakes and keep your business moving forward
Having a good financial management system is key to the success of your business. QuickBooks can help you keep track of your sales, expenses, inventory, assets, and liabilities. By using your accounting software correctly and avoiding these common mistakes, you will have accurate financial information on hand at any given time to inform you of your daily operations and help you in decision making.