Jaclyn Anku, ProAdvisor Training & Certification Leader: On today's episode of In the Know, we'll be going back to basics and exploring how to manage bank feeds in QuickBooks Online with ProAdvisor trainer Carla Caldwell.
The training she'll present is an excerpt from the banking course found in our newly reimagined QuickBooks Online certification. Carla will walk you through guidance on managing the bank feeds, processing receipts, reviewing rules and pairs, reviewing money-out transactions and money-in transactions. So, with that, let me welcome Carla.
Carla, thanks so much for joining us!
Carla Caldwell: Oh, you know it is my pleasure to be here with you. Jaclyn, thank you. And talking about banking is so much fun. All right, let's dive in—we're going to talk about, first and foremost, the guidance on managing the bank feeds. Let me go ahead and share my screen.
So as we are working on managing our bank feeds, it's all about the “For review” tab, which we're going to see in just a minute. When we are looking at those transactions, those are going to be the transactions that will be recorded in QuickBooks. Until this is done, the transactions on the “For review” tab do not appear in the client's books directly from the bank.
Because QuickBooks enables you and your clients to manage transactions daily, there's an ongoing clear picture of how they are spending their money throughout the month, and money that is coming in. We don't have to wait until the end of the month, or even next month for information. This really allows us to have real-time accounting information for us and our clients as we're working with them. So, let's take a look at what QuickBooks does with these transactions, as this will really help you manage the bank feed more efficiently.
What we're going to see here is that there are three different ways that QuickBooks does this.
First is matching; when those transactions are on the “For review” tab, QuickBooks says, Is there a match to an existing transaction record in QuickBooks? What it's going to do is analyze those transactions and suggest a match to transactions that already are entered in the client's QuickBooks account. That is, matching what happened in the bank to what's happened in QuickBooks.
Next, if there's not a match, it's going to look to see if there’s a rule. What QuickBooks will do is look at a list of rules that you have defined to determine if any of those apply to the transaction (e.g., every time you see this transaction, do this). QuickBooks will only apply the rules if there's not a potential match.
So, first is matching; then looking for a rule. And then last, but not least is, What category should be used for this customer or vendor? The transaction isn't already in the system. It's not in QuickBooks. There's not a rule that can be applied.
Now it might suggest a category based on how it was previously categorized in the QuickBooks file for the same vendor or customer. But you decide. You have control. That's why we're called “controllers.” You get to decide how that is going to be used—that suggestion. Are we going to take that suggestion? Or will we do whatever we think should be done with that to record that transaction accordingly?
Now obviously, as QuickBooks is suggesting these, the biggest thing that I say all the time is, “Trust, but verify.” This is really critical when we're managing the bank feeds, to make sure that we decide whether or not we want to take that suggestion QuickBooks makes. So, trust that QuickBooks is making appropriate suggestions—you'll notice that there's even AI technology starting to come into play as well—but again, you're the one who knows what's going on with this client and understands additional information that you may have and that QuickBooks does not have, so you will make that correct suggestion and code that transaction accordingly. We always recommend that you never just accept whatever's been suggested without confirming that it's correct. Trust but verify.
What we want to do now is dive in and take a look at how QuickBooks works to match money-in (usually we call those “deposits”) and money-out transactions in the bank feed that already exist in QuickBooks.
When you record a transaction in QuickBooks, like a bill or an expense, you need to match it with a corresponding payment when it clears the bank. If you are doing that, QuickBooks is going to recognize the payment in the bank feed that has the same characteristics—like the amount or payee—as the transaction you've already put in QuickBooks, and it will suggest that match for you. Again, you need to verify that the match is correct—it could be that there were two transactions that are a month apart. You want to make sure you apply it to the appropriate one.
Now, when QuickBooks does this, there are two types of matches. Let's say that your client spends $75 at a bakery buying pastries for a team event. That $75 is already recorded as an expense in QuickBooks, and the $75 payment soon appears in the bank feed. Those records are the exact same, and they should be matched. Then there's no duplicates. That's great.
When we accept that suggested match, no new transaction is created; there is not a duplicate. I emphasize that because I know that's something we get nervous about, right? So, we're matching those two things together, and no duplicate transaction is created in QuickBooks. It's just letting you know that the transaction has cleared the bank. That's really fantastic. And what's going to happen is that that transaction is no longer on “For review.” It's going to move to another tab in the banking area called “Categorized.”
There is another type of match that happens. Let's say in this situation, the client has a bill for $850 for promotional materials they purchased. That bill is recorded in QuickBooks and needs to be paid, but they didn't record the bill payment in QuickBooks yet. That means it's just sitting as an “Accounts Payable” transaction; it’s “to be paid.”
Now, the payment (that is not recorded in QuickBooks) does clear the bank, and so QuickBooks is going to suggest a match with the bill. Except in the match, QuickBooks is actually going to do some work for you. It's not only going to create the new bill payment, but it is obviously going to clear out that bill—marking it as “paid”—and match it to the bank transaction as well. So the original transaction—that bill—is not replaced; nor is a duplicate created. It is simply going to take that bill payment, apply that bill payment to that open bill, and link it to the transaction, showing that it has cleared the bank.
If the bill payment had been recorded in QuickBooks, then it would be an exact match, because QuickBooks would see that the bill payment was there; it's cleared the bank, and it's an exact match. But in this case, we call it a “linked match,” because they are not exactly the same. It's a bill payment coming in, linking it to a bill.
The same thing can happen on the sales side, so it's pretty much the same. Think of bills as invoices; the bills are on the Accounts Payable or the Expense side, coming in from a vendor, but an invoice is what we've sent to a customer, and we're waiting to get paid. So the same type of thing can happen there as well.
We receive a deposit from a single customer (maybe it's an ACH that gets deposited), and we can apply that directly to an open invoice for a customer. QuickBooks will record the received payment transaction and link it to that payment that was deposited in the bank (that would also be a “linked match”).
Sales receipts work a little bit differently. You'll recall that a sales receipt records the sale and the payment at the same time in QuickBooks with its own special transaction type called a “sales receipt.” If you create a sales receipt and choose for that bank account that the money is going to go to, to be “undeposited funds,” or sometimes it's called “payments to deposit” as the deposit account, then QuickBooks may suggest a match against that sales receipt by accepting the match. At that point, we don't have to record another payment. Remember, because that sales receipt recorded it at that time, it will create a bank deposit transaction that's matched to the transaction and linked.
Obviously, the deposit would then be linked to the sales receipt. It would then show that the sales receipt funds are deposited. So when QuickBooks suggests a match, it's going to be one of those two types exactly, or it's going to be a linked match.
Now that we've seen what's done in the background, let's move on to the next task and see how to process receipts.
A receipt is uploaded into QuickBooks and will show up in the “Receipts” tab. What we're talking about is like the little thermal receipt that gets printed out, that has to be uploaded into QuickBooks (from a picture or whatnot). It's not recorded anywhere else in the client's QuickBooks account until it's been reviewed. So, say your client is using the app on their phone and they snap a pic. It's going to show up in the receipts area, but it doesn't automatically get entered into the system until somebody looks at it. It either has to be categorized or added as a new transaction, or it could be that the transaction is already in the system and it's just now being matched to that existing transaction—that existing transaction now is a picture of the actual receipt itself.
It will first look for those existing transactions that are already in QuickBooks and match it to that uploaded receipt. By doing it that way, QuickBooks will help prevent you from having duplicate transactions. But if the transaction is in the “For review” tab (inside of the banking area that we were just talking about), QuickBooks won’t see those. Because remember, they're not in QuickBooks yet. They're still in the “For review” stage. So if you were to use those receipts, you'll add the receipt and it will enter the transaction in QuickBooks. The “For review” tab would then see that it's there and match it that way.
All right, so what happens if QuickBooks cannot find an existing transaction that matches the receipt? Well, you can create a new transaction from the receipt. How do we do that? We select “Review” to make any corrections or add missing information that might be on that receipt. You may want to put in who you had lunch with or who your client had lunch with. If you want to put any additional information in there and just kind of review what's gone on there, you can do that.
Sometimes it'll let you know there's an error; there's something missing. If that happens, you need to correct it. Then, once you select and click “Save” and “Next,” you can create an expense or transaction. If it does find that there is a record that seems to match what is going on in that receipt, then you can select “Match” to connect the receipt to the existing QuickBooks transaction right away. And that works out beautifully. It's not adding it; it's not duplicating it. It is just literally taking that image and making it an attachment to an existing transaction in QuickBooks. To review the transaction, simply select the dropdown next to the match, and then select “Review.” Make any corrections or add whatever you need to add, and then click “Save” and “Next” and you're good to go.
Now, what happens if there are two or more records that are found? Well, then QuickBooks is going to show you that, and you'll need to select “Review,” identify any missing info, and then compare it to the suggestions or the transactions that QuickBooks found that that receipt might belong to. You would select the appropriate one, connect the receipt, and you're good to go.
Let's talk about those clients that have shoe boxes full of receipts, and they want to drop them off to you—or maybe they're in a Google Drive somewhere. What we want to do is help our clients understand that they no longer need to give those to us (Please don't give those to us!). They can now upload those into QuickBooks and be able to do this. So existing transactions that we've already put in can now have images attached to them (those receipts), which is phenomenal. They can also be forwarded to an email address that can upload those directly into QuickBooks. We also, of course, can access Google Drive and pull those in as well if the client is using that.
It's a really good idea to go back and do this from the start of the current year, because then you have a full year with all those images in there, which is actually something we're doing with a client right now in my firm. So storing those receipts in QuickBooks keeps all those records together, neat and tidy, and really removes the need for those additional files—electronic or paper. Automating this process really saves a lot of time, reduces manual entry errors, and also means that those receipts aren't fading or getting lost. And the audit process, if there is one, is going to be much more simplified and robust for your client. It really is such a win for our clients to show them this process, and it keeps them from having those big fat wallets full of receipts (or filing cabinets or shoe boxes, as the case may be).
Let's go ahead and take a look at the “Bank transactions” tab and start to go through some of those transactions that I mentioned in that “For review” tab. One of the things that I want to mention (because again, I know that some of you get a little nervous about automatically having transactions come in from the bank feed and show up in QuickBooks when you didn't want them to)...we can set up rules in there so that they are not automatically added. They wait and let you see them first until maybe you're more comfortable with the system. Then you can turn that on if you would like. But always keep in mind that things are coming into the “For review” tab, and they are not automatically popping into QuickBooks for you.
As we’ve gone through and talked about those matches that QuickBooks does, we’ve talked about exact matches versus linked matches. I also mentioned that the second way it might try to bring transactions in is by looking at rules. Rules define how a transaction is going to be coming into QuickBooks; how it should be coded if it's coming in. If there's no match, then it runs it through that rules list to determine if any of them apply. Now, the rules in the rule list are numbered, so it is going to start at one and go through the list and say, “Okay, does number one match? Yes or no?” If it's a yes, it stops, applies the rule, and you're done! If number one did not match that transaction, it goes to number two. Does that apply? Yes or no? Move on if it doesn't. And so on.
So, it's in order, and you are able to rearrange those rules. That's not a problem. But the whole idea is that QuickBooks is looking at that, and if we don't have “auto add” on, then it just sits there and says there's a rule applied. And you can see that highlighted on the screen right now in pink—there is a rule applied, and it even tells you the name of the rule. You can expand the transaction and see what the rule might do. That is exactly what we're going to see next.
You can view all the transactions from a client's connected bank and credit card that have a rule applied by simply going to that filter and being able to select various options (we're talking about which ones have rules applied). We select that option, and it will narrow down the list to show us just the rules that are applied to transactions.
I sometimes say this is our “easy ones first,” right? We have a big, huge bank feed that has come in. Which ones do we do first? We look at matches, and I'll filter it to just look at matches. Then I'll filter it to just look at rules. And then I kind of get to everything else, where I know I'm going to have to do a little more digging, right? This is kind of the way we do that in our practice.
Once we select that transaction that had a rule applied, then we can look at that—trust, but verify—and make sure that it makes sense in this situation. Is there supposed to be a customer or a project on that expense? Is the vendor the right one? Sometimes those names of vendors can be very similar, so we want to just double-check that ourselves and look at that. We're looking at all the different things applying there, and making sure that that makes sense as we do that.
In fact, we can actually look at the history of categorization on a transaction. So, the last time we bought something from this particular vendor, how was it categorized? There's an option now to see categorization history right here that allows me to see how that was done previously, which is super helpful. By the way, it's also the reason I don't like using journal entries to reclassify transactions—that categorization history won't take into account any journal entries that were done to move it around. With reclassifying transactions, remember—there's still an audit trail. So that's just my own thing. I like to use that recategorization there.
Once you've confirmed the rule by selecting “Add,” the transaction goes from the “For review” tab over to the “Categorized” tab. The thing I really like here (and I actually used it today) is that if I accidentally do that rule and apply the transaction—it's categorized, all is good—and then I'm like, “Oh, wait a minute—that's that transaction that I should have done X with instead of Y,” or “I found that additional information—I need to fix this,” I can undo what I did. Which is awesome, because sometimes we need a do-over, and this is how we will do it. You'll see in the “Action” column there on the right, it says “Undo.” This would move that transaction back over to the “For review” tab and allow me a mulligan. So that's what we can do there.
All right, so the next thing that we want to do is something that is really, really helpful for us, especially with clients with lots of different bank and credit card accounts. If both of the accounts—say a credit card account and a checking account—for a client are both connected to QuickBooks, QuickBooks will see transactions that happen between those two accounts and pair them. So, for example, let's say that out of the checking account, we pay for the credit card account. Out of the checking account, it's an expense. Out of the credit card, it shows a payment has been received on the account. In that scenario, what's going to happen is that QuickBooks is going to see both sides of that, and it marks it as being paired. And you can have a pretty good, high confidence that is exactly what's happened, because QuickBooks is seeing both sides of those—typically, they're the same date and the same exact amount, and so they're going to show as paired. Then you’ll still get a chance to decide if you want to accept that pair. It tells you it's paired; a little different than a match, but same idea. It's like, “I think I know what this is, and I think I saw it on the other side.” So it's going to suggest that those are paired transactions. You can accept those and say, “Yes, go ahead and do that.”
Now, in the Action column, it says “Match.” It's kind of like a slight take on a match, but it's pairing them, and it's going to see both sides of those, so you can see that there, with the $381.56, that's leaving the checking account. Here it is landing in the savings account as a paired transaction. Again, able to match that. So, QuickBooks has to have both accounts that it's seeing—the “from” and the “to” account, right? And so, once it sees that, it can pair transactions that it sees going between the two of them. I really love this a lot. And anytime I see something, I'm like, “Oh, make sure everything is refreshed when we get started.” This is really going to help out with that a lot.
Once you’ve reviewed all of these transactions with rules applied and paired transactions, then typically what we want to do is dive in and take a look at those (I jokingly call them “problem children”) transactions that we are dealing with that are money-out or there's not a rule or there's not a match already there. A lot of times, these are pretty straightforward and able to be processed easier than a deposit from a customer, because remember, with a deposit from a customer, we need you to know what invoice they paid, which customer it was (and sometimes it's a big group of a deposit). So the money-out is often easier to manage and verify what's going on.
So here we are in our sample company, and what I want to do now is go ahead and talk through what this is going to look like as we match and look at money-out transactions.
You should be seeing Craig's Design and Landscaping Services. And over on the left side in the menu, we want to go to the “Transactions” tab and go to “Bank transactions.” Don't forget, you can bookmark these, and it'll allow you to have your own custom bookmark up here. So feel free to do that. But I wanted to show you how to get there in case you don't have that bookmark. So transactions, and then bank transactions.
This is where we're going to be looking at those bank feeds. Now when we look at this, I'm going to go over to the checking account here, and what you're going to see is a list of all of the transactions below that allows me to see what needs to be categorized (because we're on the
“For review” tab, these have not been categorized yet). Now, before we dive in, let's take a look real quick. Up here at the top, we see some things here that have come in. These are in the received side—that's money that's been received into the bank account—versus the transactions below that (that show transactions that have been taken out of the bank account or “spent money” transactions). Below that, that's where we start seeing some of these matches.
The first one has two matches, so we're going to need to figure out which one we want it to go to. The next one has one match found. So that might be pretty easy, but “trust, but verify,” right? That's what we're going to see as we go along here.
Now, as I mentioned, we are able to filter these transactions just below this area where we have the major groupings of information for our bank feeds. Underneath that, we have some filtering we can do. I'm going to select this, and I'm going to go down to an area here where I could look at recognized transactions. These are some of those matches that are already there. And so, you can see the various other options, but I'm going to select “recognized,” and this is going to show me transactions where QuickBooks thinks it recognizes the transaction.
Those are some of the things that I just wanted to mention to you. We also have the ability to group transactions. Over here in this gear icon, we're able to select this and group them together. That can be really helpful based on how much data you have in the bank feed—if it is a voluminous amount, all over one year, or just a lot of transactions depending on the client and things like that. So those are some different ways that you may want to sort, group, filter your transactions here so that you can get things done.
Okay, so what we're going to do is take a look at this transaction right here on Hicks Hardware. You can see the date of the transaction. You can see that one match has been found. I want to look a little bit more at this transaction, so I select it, and it shows it to me here. It tells me the date range that it's looking at, so if this transaction is an old check that came from last year or two years ago or whatever, I can see that it's probably not recognizing that because it's looking at this date range. That's really important for me to know, because if I think there could be an old transaction, I might have to find other matches.
In our case, the date that it was written is the date that it was cleared, and it seems all well and good, and I think that's exactly what it is. I could simply just select the match button, and no additional transaction has been added in QuickBooks. All it's done is put that transaction over to the “Categorized” tab.
I wanted to show you something really quick. This is that transaction that was already in QuickBooks that has been matched to the bank. And notice, it even says “1 online banking match” in the top left. I call it a breadcrumb. I can't remember if QuickBooks has a specific name for it, but I call it that, and if you select that, you can actually see exactly what came through on the bank feed.
I really like that a whole lot. And as you're getting used to this and getting more comfortable with it, go pop in there and take a look at what that looks like, and then you can feel more confident as you're going through this process as well.
All right, so we matched a transaction. It moved over to categorized. I'm back over on the “For review” tab. I'm going to scroll down a little bit and make it easier for you to see this. Let's take a look at this transaction that is down here, where it says that there are two matches found. Let's expand this a little bit.
This time, it is saying to us that the bank detail that came in from the bank says “Pam Seitz.” You can see that QuickBooks sees two matches found, but it's suggesting that it's either an expense transaction dated the same date, or it could be a bill payment (but that's for Books by Bessie), so I feel pretty confident that it is that exact expense on that exact day to that person, and I can, again, go ahead and match it. Not adding another transaction, just simply connecting what happened in the bank to what's already happened in QuickBooks. And so, I just simply select “match,” and we are good to go there.
All right. Now it's also possible to add a bunch of transactions in batches. When I'm looking at this and I see each of these transactions, and I'm feeling pretty good—a deposit, PG&E, another deposit, and so on—one of the things I could do is simply select multiple transactions like this. You'll notice at the top that it automatically is suggesting things that I might want to do in bulk. I could select “Accept,” or I can edit them in bulk, or I could exclude them. Typically, I'm going to accept them. And so, I would go ahead and do that again. By doing this, it is not adding additional transactions, but it is simply connecting or matching what cleared the bank to what's in QuickBooks Online, and it is now going to be linked. And those transactions are going to be removed from the “For review” tab, and they are now showing up in the “Categorized” tab.
One of the things I mentioned already—when we're reviewing transactions and we're looking at potential matches (especially on payments)—if you have a client that writes paper checks or sends checks, we always want to make sure that we are looking at the date range, and it makes sense for what's going on. If we need to expand that date, we can. And sometimes, if we have a transaction that—for example, let's say this A rental for $1,200—when it's trying to do a match, it's looking at a finite time frame, we might need to expand that time frame. If you happen to know that the check is older or it's not clearing, but you feel like it ought to be, then you can expand that out as well.
Another thing to keep in mind that I have seen and heard before is that sometimes we feel like QuickBooks is duplicating transactions, and it's not. You can see all the safeguards that it's doing and the suggestions it's making to keep that from happening. But every once in a while, it could be that—for example, let's talk about this $1,200 transaction right here—we do a match, we're trying to look for it, and we don't find it, so we go ahead and add it again. Now we have a duplicate. Well, what is the possibility that our client actually entered that transaction out of the savings account instead of the checking account, or something like that? QuickBooks is not going to look for matches on other accounts. So that is something to keep in mind. If that happens, where you feel like there's a duplicate, is it a possibility that it was recorded in QuickBooks, but out of the wrong account? So that is something to be thinking about as well.
The other thing that can happen is that the amounts don't line up. We have to be really careful that the amounts are what they should be.
So, let's take a look at that $1,200 transaction. We know that we've already done a search. We know that it does not exist in there, and we need to kind of enter it “from scratch.” It's not there already. So we can see what the full bank detail is right here. And so, we can decide who that vendor is going to be. If we want, we can say it's A1 rental—maybe that's a brand-new vendor. If so, I can add it on the fly. I don't have to exit here and go somewhere else. I can fill in all the information that I need. Maybe this is all I have at this point, so I could simply hit “Save.” But as much information as you would like to fill in, you can.
I then come over here and think, What account do I want? Please don't use “uncategorized.” That's like a fancy way of saying “miscellaneous.” We just don't know what it is, so let's not do that. In this case, we're going to put this into “rental,” and we're going to say that it is an equipment rental because it's part of the job expenses versus another equipment rental account. So we'll do that if we need to.
We can actually identify the product or service, if that is what it is for. If you're using QuickBooks Online Plus or Advanced, you'll notice that we could actually put it on a customer, and if your client is using Projects (also in Plus and Advanced), then they could also identify the customer that it's related to, and if they've turned it on, they can mark this as billable. Again, those are options—not necessarily what you're going to do. Just want to make sure you're aware. If you would like to put in a memo here, you can do that. You could identify what type of equipment rental that was; if it was a one year, one week, one day—whatever you need to put in. You also have the ability to look at adding an attachment.
So maybe you have a bill or a transaction receipt for this, and you could add that, create a rule, exclude, etc. And as I mentioned before, if there is any categorization history here that you could look at, that could give you an idea of how that has been coded previously. If the transaction needs to be split among multiple accounts, adding in things like classes or locations (if your client is using that), you could also choose to split the transaction. And as you can see, it can get quite detailed. We're not going to do that in this scenario, but I just wanted to make sure you saw that, and then I can go ahead and click “Add.”
So, this is going to add a brand new transaction to QuickBooks, and at the same time, also link together the bank transaction that it has cleared and added in; now that transaction is going to be in QuickBooks, and that bank transaction is now going to be on the “Categorized” tab.
All right, let's go ahead and see if there were any other types of transactions here that we wanted to take a look at. Let's go back over to my “For review” tab. At this point, managing through this bank feed, you're going to want to go through and handle the matches. If there happen to be any credit card payments, then you could record those as well and record those transactions so that you can clean out this bank feed. Make sure to record those credit card payments as credit cards, and so on. All of that makes management of this banking area here really nice and clean, knowing that what has happened at the bank is recorded or matched to whatever has happened in QuickBooks.
I'm going to head back over to our presentation. I want to talk for a moment about our money-in transactions. These are often a little bit different, because money-in payments are generally related to sales transactions with our customers. Now, typically what we want to do is record that our customer has paid us as soon as we get the money, right? Like, that's kind of a big deal, so that we're not asking them for additional money later. Now, in order to do that, though, we record that transaction and then group them together and take them to the bank as a deposit. And it could be that there's a group of credit card transactions, or it could be a group of checks that are received that we need to take—to actually physically take to the bank—but when we know that deposit has cleared, it shows us one big amount, not individual payments from each customer. So matching money-in transactions in the bank feed to transactions already in QuickBooks is underpinned by using an account called “Undeposited funds.” We want to take a look at this to make sure that we understand this process.
I think we have a great visual that will assist with this. Remember that it's important to know that part of this process is about what happens in real life outside of QuickBooks, and part of it is happening inside of QuickBooks. Let's take a quick recap here about how this is going to happen and affect the sales and customer workflow:
As you already know, sales transactions are recorded in QuickBooks, either as an invoice or a sales receipt. Then your client is going to collect that payment by cash, check, or credit card (assume they're not using QuickBooks payments here; pretend that's not in play, and we'll talk about that another time). They are not going to deposit each check or cash payment into the bank right at that moment. They typically hold on to it and go to the bank maybe once a week.
So, for a credit card payment, there could be a delay of several days. They process the credit card, and they record it in QuickBooks, but it doesn't record each individual payment. Instead, it records a group of those that are batched together by the credit card processor. Undeposited funds allows us to select payments from several different clients and match them to the full deposit amount when it clears the bank feed later on. You'll record the payment in QuickBooks through a sales receipt or by receiving payment for an invoice. Then, instead of selecting the actual bank account, we're going to select “Undeposited funds” as a temporary holding account to track any payments received from customers that have not physically gone to the bank account yet.
Recording these payments in undeposited funds is like making a note of the amount of money you have put into a safe. When we do this—we'll get a little accounting on us here—we're going to debit the Undeposited funds account (instead of the bank account) and credit or decrease the Accounts Receivable account.
Now, when you are doing a sales receipt—because that was a received payment for an invoice, debiting undeposited funds, crediting AR—then for a sales receipt, you're going to debit Undeposited funds, and it credits directly to sales. So outside of QuickBooks, we're going to take the money to the bank itself, using a deposit slip and writing out what the total amount is that's being deposited. Then we come back to QuickBooks and record what we did in real life by recording a deposit.
That deposit is going to show you all the transactions that were received as sales receipts or payments against an invoice, and they would all show up in that Undeposited funds account. You would select which of those transactions go together for that deposit that you, in real life, took to the bank, and that will group them all together. When the bank deposit is recorded in QuickBooks, the accounting transaction is now going to debit the actual bank account, and it will decrease or credit the Undeposited funds account.
That's the end of the sales and customers workflow. Our customers are updated. Our Undeposited funds are updated. Our bank account is updated, in that we've recorded that the deposit has happened.
Now we switch over to the banking side, into the banking workflow. When a client's bank account is connected to QuickBooks and the bank transactions are coming in through the bank feed, what's going to happen now is we're not going to re-record that deposit. It is simply going to be matched to the deposit that you've already recorded, and it will just match that together as an exact match, because it's going to see, “Oh, that was a deposit. Here is the deposit.” And it matches it right up and makes that work beautifully. That's exactly what's going to happen here.
I want to show you what's happening in the software, but I know that we've been chatting for a few minutes here, so what I'm going to do is go through this process fairly quickly, and then we will continue on and finish up for today. I know that we have other topics that we're going to discuss another time, but let's go ahead and—back over here in our sample company—let's take a look at this.
In our case, the money-in transactions are going to be showing up on the received side. If we take a look at this here, you're going to notice that on this transaction, there is a match that has been found that QuickBooks is suggesting this transaction goes to. Now in this case, there is a payment that has been recorded from a customer on the same exact day, and it's marking that as a payment. If I wanted to, I could go look at it, but it is a received payment transaction, and it was put directly into the bank account. Maybe it was a wire transfer that was put in, or a bank deposit that was just the one single transaction. If I'm confident that that's what this is, I can just go ahead and select “match,” and then that deposit is not recorded again—it is just simply connected. If I go to this transaction, you can see again, money has been received. In this case, a deposit has been done. Likely, a group of received payments or sales receipts has been put into Undeposited funds, and then somebody recorded a deposit, grouping them together for a total of $218.75. This is an exact match that QuickBooks sees coming in and says, “I think it goes with this deposit.” So that's exactly what it's doing; it’s connecting what cleared at the bank to what has happened inside of QuickBooks.
Now, money-in transactions in QuickBooks are often a little bit more tricky to look at, only because it could involve a customer. We want to make sure that we're doing this process very methodically, so that we can keep the accounts receivable or the money that needs to be coming in from our customers exactly correct. Reviewing these definitely falls under that “trust but verify” umbrella. It needs to be top of mind at all times, but especially here.
This time, you can see that a sales receipt was recorded in QuickBooks directly to the bank account (and again, we'll be doing those matches there as well). It can be a match to receive money, a sales receipt, or a deposit. Keep in mind that if it's not going to be a single transaction that gets deposited, then this is unlikely to show, and you might need to have a deposit that groups those together for you.
I think we have covered all the fun of managing our bank feeds at this moment, so I just wanted to say thank you so much. I hope this has been super helpful for you as you understand how to make sure that your bank transactions—whether they're deposits or expense and bill payments, any of those types of transactions that are coming in—you've been able to record those and avoid having any duplicates put in that match to what's already existing inside of QuickBooks.
Jaclyn Anku: Carla, thank you so much. That was amazing, and really meaningful to get to share an excerpt from the QuickBooks Online training that you contributed to, as did many other leading ProAdvisors, so we could truly deliver a valuable learning experience to our community. So awesome to get to show that.
Thank you so much, and thank you for watching this episode. We really hope that you enjoyed this back-to-basics excerpt from the banking course in QuickBooks Online Level One.
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