Jaclyn Anku, ProAdvisor Training & Certification Leader: On today's episode of In The Know, we'll be going back to basics and getting an overview of the money-out process in QuickBooks Online with ProAdvisor trainer and my friend Dan Luthi. The training he'll present is an excerpt from the expenses and vendors course found in our newly reimagined QuickBooks Online Level One certification. In this training, Dan is going to walk you through an overview of the money-out workflow, using purchase orders, manually reporting expenses, entering and paying bills, and uploading receipts and bills.
So with that, let me welcome Dan.
Dan, thanks for being here.
Dan Luthi: Hey. Thank you so much, Jaclyn. I'm really excited to be here. This is one of my favorite things to talk about. I don't know why I always get brought into the AP side of things, but I really enjoy it, and I really enjoy talking about what we're doing.
As you mentioned, we're going to dive right in and talk about some of these key functions. Of course, the overview of the workflow, as you mentioned, and purchase orders (POs). Everybody wants to know how they work, what the best relationship is with it, and then, of course, how that ties into recording expenses and paying bills. Last but not least, making sure that we get those attachments and documentations in place.
Let's go ahead and start talking about our workflow. As you guys can see, in this workflow, our real initial question is going to be talking about when you actually pay the bill and how that relates to the rest of the workflow. Whether there's a yes or there's a no, there's always going to be a consideration around whether you should use a purchase order or not. You can use it in both situations. It's not a requirement, but definitely a great option.
If you are in a situation where you did pay it directly at that point in time, a purchase order can be entered, and then we would use what is called an “expense” to record those transactions specifically into our financial system.
If the answer is no, we're going to receive it as a bill, which allows us to be able to post it to our Accounts Payable (AP) account, and then we'll be able to move on from there into paying the bills and reporting everything after the fact.
Last but not least, documentation is a very valuable portion, and a very valuable part of this workflow in making sure that we have all the data and all the historical details to be able to make sure we can reference it in the future. The nice thing about that is, whether it's a PO, an expense, or a bill, documentation can be uploaded into every single one of those transactions within QuickBooks.
Let's go ahead and dive into what happens in situations where a client pays immediately. This is focused more around a cash-based accounting process, meaning that cash is being affected immediately, or a credit card transaction is occurring, and we're reporting that directly onto the financial statements. In the opposite situation, if the answer is no, we're actually affecting Accounts Payable. No money is moving out of the organization at this point in time, and this is what's supported around what we call an “accrual basis.”
Now let's talk a little bit more about purchase orders. There's so much that can go along with purchase orders. Let's start with what a purchase order is. A purchase order is a non-accounting transaction or a non-posting transaction within QuickBooks, where you're providing a specific request for products or services to your vendors in the future; you're promising to pay them for those goods and services.
In this situation, of course, this is a way for you and your internal team to keep an eye on what potentially is coming or what future expense there is going to be. It provides you with the opportunity to start projecting and planning from a cash flow standpoint, and to also lock in your price points that you're buying from—all those goods and services along the way. Purchase orders are available in both the Plus and the Advanced subscriptions. So, if you do need these or would like to consider using them, make sure that you double check which subscription or what version you have of QuickBooks Online to ensure that's available for you.
This also, just as a note, gives you the ability to be able to include quantities of things at the agreed upon price, as mentioned before. And then also, if there's any notes or any other context you want to include, you have the ability to post those.
So of course, step number one is that you need to determine what it is that you need to order. Are they specific, inventoriable items? Is there a good or service that needs to be provided at a future period of time?
Purchase orders are great examples of those pieces, and really great documentation can help. In that process, is the vendor going to fulfill these items based on a delivery or based on a future transaction period? That helps you to, also, and as we mentioned before, lock in rates, and also allows you to make sure that when you do receive that invoice from the vendor, you can tie that directly back to those predetermined account or price points or units, making sure that it's documented accurately and that you're getting the appropriate price point. With that, if the vendor requests a payment immediately, you can use that PO function; we're just going to directly connect it to an expense, versus adding it to a bill.
Then there’s the other situation, where we're going to make payments to the vendor in the future. We can post it as a bill, which will directly tie to that PO. Now, we definitely are going to walk through some examples of that shortly, but before we dive into it, I did want to quickly discuss why we use purchase orders. We mentioned a couple of these before, but I wanted to deep dive into a few of them before we advanced into actually walking through the demo.
Number one, this really does make it easier to track these potential purchases that you have coming down the line. The inventory side is a really great example of when you would use this; from knowing what's to be tracked to knowing when you should expect those items to be delivered. Most vendors in those situations also require a purchase order so that they can have a committed buyout at that point in time. Of course, to that point, it also provides and sets an appropriate expectation for clear communication with your vendor, as well as your team internally. It makes life easier for your vendors, too. Your vendors love having that documentation. They love having that information, because it really does help them to make sure that they're matching their record side with yours. It’s also going to help you manage your cash flow so much easier in that process.
Now we're going to actually dive right into QuickBooks, and we're going to walk through what it's like to enter a PO.
We're going to use Craig's Landscaping as an example for this. Everybody knows and loves Craig's Landscaping. It gives you a really great outline of what's going on. So, let's go ahead and dive in.
Here, in the top left-hand corner, we always see and love that plus sign. By clicking on that, it's going to give you a drop-down of all the customer-related transaction details and all the vendors. We're focusing specifically on the vendors in this, and you're going to see purchase orders right there in the middle.
So, by going ahead and selecting that, it's now going to bring up the purchase order documentation workflow. We're going to go ahead and select a vendor that ties to this; A1 Rental is a great example. We're going to put them right at the top, and we're going to be buying some “cost of goods sold”-related items. So, maintenance and repair is the big piece. We're going to be buying from them, and we're going to buy it for $800. As you can see, when I saved this transaction, it’s posted as an open purchase order, which gives us the context of knowing that this is still available. This, remember, is not a posting transaction. So, it's not hitting your profit loss. It's not hitting your balance sheet. This is going to end up in a report view that you can be able to show what you have outstanding or what's to be expected. In our example here, we don't have units being used. We're just using direct purchase amounts. But it gives you that ability to be able to quickly reference that detail.
The part I absolutely love with this is you can see the “Copy to Bill” option up here in the corner. When we go ahead and select that, it's now going to move it over to a bill and keep the connection directly with our purchase order.
At this point in time, we're going to go ahead and save this as a bill of something that needs to be paid, and then when we go back to our purchase order, you're going to notice that our purchase order status now has changed to being closed. This gives us a great ability to be able to now know the workflow of what's going on. We can see that our expenses are being reported, and of course, we can see that the transaction is now hitting as an open bill and is ready to be paid at a future date.
I'm going to switch back to our slide deck real quick, because we're going to dive into looking at some of the additional pieces that go along with this; potentially, how we would treat this on a cash-based piece. We're going to talk about that for just a minute.
As you all remember in viewing this report before, we're really going to focus specifically—now that our purchase order is created directly—on that expense side of things. In this situation, these expenses are being reported automatically. This is money that you pay out, whether on your credit card or out of your bank account. You're going to see that information, or that money, being expelled from your business immediately at that point in time. These, remember, are cash-based reportings, so you're going to see this as part of your banking transactions. You're going to see the direct connection with it.
Let's pop back into our QuickBooks file, and let's take a look at our banking tab and see if there are any transactions that match that $800, or if there are any transactions that we can tie directly back to that original purchase order.
Here, of course, we're going to go to “transaction view” and click on those bank transactions. As we can see, we have a couple of transactions listed here. We have an A Rental for $800 if we wanted to match that to a specific transaction or a bill. Ideally, this is going to pop up and we're going to see that, or we can go through and do an auto match with it—along the lines of this too.
If we just want to directly match that, or post that expense from the bank feed, we can come in here and add that vendor detail right here (so, A1 Rental) and then, of course, code it to that “cost of goods sold” account. So, let's go ahead and tie that to our repairs and maintenance, much like we entered the PO in the bill before. By doing this, we're now directly reporting this right into our financial statements.
Unlike in the situation of a bill, where it's being paid in the future, in this situation we're directly posting it so that everything references as of the date that the transaction occurred. This is where, in these situations, of course, we're ensuring that the payee/vendor is being recorded correctly. It's matching our bank feed. Also, we're selecting the job or the specific account it's coded to. When we click this, what you'll notice with this process in the bank feed is that the other examples (or the other expenses that were paid out to that same vendor) are now going to be recommended to go to the same account. That's going to make it so much easier to go through that process of matching and tying those things.
If you don't specifically see a transaction here, or you know that it's going to be clearing in the next couple of days, we can go ahead and click on “+ New” and click “Expense” here at the top. Let's go ahead and type in A1 Rental again. We're going to do our cost of goods sold for our repairs and maintenance. As you can see here, we have our bill that's associated with this. If we wanted to pull that in, we can directly match it. It's going to make a bill payment for us that's going to pull off our AP. But in this situation, let's go ahead and ignore that for a moment and put in a transaction that's going to directly post.
So, we're going to ignore our expense here. Go ahead and tie our cost of goods sold in here for $1,200. When we hit “Save” and “Close,” as you can see, we posted that to the checking account. That is now coming into this account. Let's go ahead and undo this one. We can see that that has now been tied directly to that expense because we posted it directly through our transaction here on the expense side; it's going to try to auto-match, of course, matching the bank feed. If we were to enter this as a check, which is similar to the expense, it would treat it the exact same way.
All right, so we just walked through the cash-based function. Now we're going to dive into the accrual-based view. As you can see down here, we reported this as a direct expense. In the situation where we're going to go into accrual, we have a bill that's outstanding that needs to be paid. So, in this situation, we're going to go ahead and click the “+ New” sign and click on “Pay Bills.” We're going to make sure that we have our checking account associated with it and any potential check number; or if this happens to be an ACH that we're approving, all of that needs to be noted up here. Then we're going to go ahead and pay that A1 Rental bill for $800.
When we hit “Save” and “Close,” in some situations we're going to see that auto match tied directly right here into this $800 transaction. In this situation, it's not, so we want to go ahead and manually match that so that everything matches up correctly. We know that that is going to be listed down here at the bottom of our list because it's the most recent transaction. We're going to go ahead and select “Match” on that one, and now we see that the transaction is matched and approved and is pushed all the way through.
By going through it this way, and by treating it from that side of things, this has given us the ability to be able to stay on top of that bill pay. It's going to give us the ability, also, to make sure that the transactions are processed on an accrual basis as well. And really, it’ll just make it easier for us to ensure that those transactions are tied directly to our bank feed.
We're going to talk a little bit about QuickBooks Bill Pay. QuickBooks has created—or Intuit has created—this really wonderful product that's now embedded within QuickBooks Online, that allows you to actually pay your bills directly to each of those individual vendors. And so, much as we mentioned before, where we issued a paper check and we put a check number in it, in this situation, if we set up our QuickBooks Online Bill Pay solution, we're going to have the ability to now go ahead and schedule those bill payments to be made directly through QuickBooks. This has the ability to potentially save you some time, as well as offer both checks and ACH options to those vendors. Now remember that in these situations, if it's an ACH, the vendors are going to have to set up their information on their side, unless you have that context. But this is a really flexible option, and it really gives you the ability to keep everything in one single solution.
Let's dive right back into the final part of our money-out process: documentation. Documentation really is one of the most important pieces to make sure that we have good financial records, whether we're reporting on a cash basis or an accrual basis. This gives us the ability to ensure that there's actual purpose that associates with those transactions. And then, if there's any case where you get audited or you need to show them to another part of the organization, or you're looking back at pricing, this detail will be available at your fingertips.
Here’s where that's at in QuickBooks Online. This is actually showing referencing right within the transactional view. So when we click on “Transactions,” we have our banking function there. And two tabs over, you're going to see the receipts option. This is going to give you the ability to directly drag and drop those receipts right in here. Also, it gives you the option to be able to directly connect to Google Drive or forward those receipts from an email address directly into that inbox. If you have the QuickBooks app on your phone, you have the ability to take a really clean picture of the receipt (here is an example of what that would look like) and it's going to then utilize the OCR from that to help populate the information on that document for you.
This is going to give you the ability to extract that information very cleanly and easily. It works in this situation on the receipt side to give you better visualization, plus continue with the documentation detail for you to be able to review and look at things historically. If it doesn't bring things over for you on an automatic basis from the OCR side of things, you can go ahead and actually make those changes and adjustments before this is saved to your QuickBooks file. All of this information is going to be covered specifically on the bank feed association in your QuickBooks Online Certification—that Level One that focuses on banking—but we wanted to highlight it here so you guys had this at your fingertips and tie it right into the bill-based side of things.
Jaclyn Anku: Dan, thank you so much. That was an amazing walk through of some of the highlights from QuickBooks Online Level One Certification, and expertly taught by yourself. Amazing.
Dan Luthi: No problem. Thank you so much for letting me come. I really do love talking about AP; there are so many cool things you can do with it. And of course, it's all about making sure that you have control over money going out of your company so you don't run out of cash.
Jaclyn Anku: That's exactly right. There’s a lot more to learn in the certification program itself, which you can access right in ProAdvisor Academy. So Dan, thank you. And thank you for watching this episode. If you liked what you saw, be sure to like, comment, and subscribe so that you don't miss a beat. We'll catch you next time.
