Most business owners learn QuickBooks through trial and error, according to Brista Mayfield, Executive Director of Accounting and Data Services at Out of the Box Technology. Unfortunately, this approach quickly loads a QuickBooks account with errors that can wreak havoc on your financials.
Sound familiar? If your QuickBooks data needs a deep clean, Mayfield shares the top 10 QuickBooks issues and how to fix them in both QuickBooks Desktop and QuickBooks Online in a recent ServiceTitan webinar.
Home service business owners need to rely on their numbers to effectively grow their businesses. Read on to learn how to fix the most common QuickBooks mistakes.
1. Chart of Accounts Errors
Mayfield notes several common chart of accounts mistakes, including:
Duplicate or similar accounts
Long chart of accounts (perhaps due to duplicates)
Messy, unorganized financial statements (too many subtotals per statement or accounts appearing on wrong statements)
“If our chart of accounts has a couple of inconsistencies, then we lack the ability to accurately determine net or gross profit,” Mayfield says.
Ways to fix these errors include:
Fix account types
QuickBooks Desktop: Select edit, then edit account to change the account type or name.
QuickBooks Online: Go into the chart of accounts, scroll to the account you want to edit, click “View Register” drop-down on the right, select Edit.
Merge duplicate accounts
Rename one account the same as the other you want to combine it with. For example, if you have two accounts named Charitable Contributions and Donations, you can rename Donations to Charitable Contributions. A prompt will appear that asks if you want to merge the accounts. Note: In order to merge, both accounts must be the same account type.
Add or remove subaccounts
QuickBooks Desktop: Go into the chart of accounts, click the diamond next to the account you want to edit, then check or uncheck the subaccount box.
QuickBooks Online: Click edit, select “Save Account Under” drop-down, then select the parent account for your subaccount.
Fix ordering by using account numbers
QuickBooks Desktop: Select Edit, Account, Preferences, then click the checkbox next to “Use account numbers.”
QuickBooks Online: Click gear icon in top right, go to Account Settings, select Advanced, slide Enable Account Numbers on, then click the checkbox next to “Show account numbers.”
The numbers aren't automatically assigned once you turn this feature on. You still have to use a numbering system to apply numbers to accounts.
“Generally, assets start with a 1, so 100, 1,000, or 10,000,” Mayfield says. “You would use some sort of numbering system to identify asset accounts, liability accounts, and equity accounts. Then, on your profit and loss or your income statement, apply a numbering system for your income accounts, cost of goods, expenses, and then those extraordinary income or expense items.”
Inactivate accounts that are no longer needed
QuickBooks Desktop: Within chart of accounts, right-click on account, then select “Make Account Inactive.” The account will then show an X icon next to it within the chart of accounts. Click the X to reactivate the account. It will only show if you select the “Include inactive accounts” checkbox.
QuickBooks Online: Go into the chart of accounts, scroll to the account you want to edit, click “View Register” drop-down on the right, select “Make inactive.” To view inactive accounts with an option to reactivate, click the gear icon, then check the box “Include inactive.”
2. Inaccurate Accounts Receivable
Symptoms of inaccuracies within your accounts receivable include:
Incorrect balances showing on customer accounts
Incorrect customer statements
Inaccurate balances on aging reports
Missing transactions from front-end dispatching software
Unapplied credits and/or payments
Revenue on income statement that seems too low or high
Journal entries tied to generic customer names
Ways to remedy inaccurate accounts receivable include:
Apply payments or credit memos to outstanding balances
QuickBooks Desktop: Examine Open Invoices report for a breakdown of outstanding payments. Open the customer record and hit “Apply Credits.” After doing so, the customer record will fall off of your Open Invoices report.
QuickBooks Online: Within Open Invoices Report, select New, then click “Receive Payment” under the appropriate customer.
Manually enter sales and/or payment transactions that didn’t post over from the front end system
Merge duplicate customer records (similar to merging accounts)
Edit deposits posted directly to sales accounts and link them instead to Accounts Receivable
QuickBooks Desktop and QuickBooks Online: Click the payment from the Open Invoices report, and change the “From” drop-down to Accounts Receivable. Then, apply the payment in the Receive Payments Window.
Write off uncollectible amounts
Reverse accountant journal entries to generic customer names
3. Inaccurate Accounts Payable
Symptoms of inaccurate accounts payable include:
Incorrect balances showing on vendor accounts
Inaccurate balances on aging reports
Unapplied vendor credits and/or bill payments
Expenses look too high or too low
Journal entries tied to generic names
Ways to clean up accounts payable include:
Apply vendor payments or credits to outstanding bills
QuickBooks Desktop: Select vendor within Unpaid Bills report, open Pay Bills window, and click “Set Credits.”
QuickBooks Online: Select vendor within Unpaid Bills report, click New in left-hand pane, select “Pay bill,” then “Set credits.”
Merge duplicate vendor records (similar to merging accounts or customers)
Delete vendor bills you’ve already paid
Edit checks posted directly to expenses, and change them to link to Accounts Payable (same process we used in Accounts Receivable section)
Write off vendor balances you don’t intend to pay
Reverse accountant journal entries to generic vendor names
4. Undeposited Funds
People either love or hate the undeposited funds account.
“I think it's a necessary evil just because you're able to track money you've collected and not yet deposited into your bank account,” Mayfield says. “It's a good double check to make sure everything makes it into your bank account.”
Symptoms of undeposited funds errors include:
Customer payments not showing in Make Deposit window (or bank deposit for QuickBooks Online)
Payments showing in Make Deposit window that have already been deposited
Inability to group customer credit card payments to match bank deposits
Incorrect balance showing on Balance Sheet Report
Revenue is overstated
To fix these errors:
Edit Payments preference to make Undeposited Funds account the default account (This helps batch multiple payments collected in a day)
Go to Edit, Preferences, Payment, then under the “Receive Payments” option, click the checkbox for “Use Undeposited Funds as a default deposit to account.”
Clear out old payments in Undeposited Funds by creating a zero deposit (assumes sales were duplicated)
If customer payment still shows in Undeposited Funds, make a deposit and enter the same amount as a negative to Sales. This assumes the revenue was overstated.
Reverse accountant journal entries to Undeposited Funds account
Stop using bank feeds to manage bank deposits
Talk to merchant account provider and request that fees only be taken out once a month rather than daily
“Some processors take out the fees, so if you collect a $1,000 credit card payment, and they take $30, you only see $970 being deposited,” Mayfield says. “So, that difference can also throw off those undeposited funds just because we're not recognizing those fees properly. If we request that fees only be taken out once a month, you'd see that in one lump sum and be able to match one-for-one the payment and the deposits coming into your bank account.”
5. Inaccurate Payroll Liabilities and Expenses
Symptoms of inaccurate payroll liabilities and expenses include:
Incorrect payroll liability and expenses showing on the financials
Payroll tax expenses look too high and wages look too low
Payroll liabilities are all bunched together in one liability and/or expense account
Payroll liabilities that need to be paid don’t show in Pay Liabilities window
Liabilities in Pay Liabilities window show incorrect due dates or amounts
Amounts showing outstanding in Pay Liabilities window have already been paid
To clean up these issues:
Fix the way you post entries from an Outside Payroll service
QuickBooks Desktop: Use a journal entry to record payroll from an outside service, properly distributing gross wages and employer taxes to the proper accounts.
QuickBooks Online:
Remap payroll items into separate liability and expense accounts
By default, QuickBooks batches together all payroll expenses as one total and all liabilities as another. This makes it very difficult to reconcile balances. To remedy this, set up subaccounts under Payroll Liabilities in your chart of accounts, and remap your payroll items.
Fix the tax liability payee, due dates, and/or payment methods
Create tax payments using the Pay Liabilities window
Enter Payroll Liability Adjustments to clear out liabilities that have already been paid by check
When payroll liabilities are paid outside of the payroll module in QuickBooks, you need to use the Adjust Payroll Liabilities window to clear them out. Whenever you make an adjustment, add a memo to remind yourself why.
6. Inaccurate Bank Balances
Signs of inaccurate bank balances are:
Bank balance looks too high or too low
Bank balance in QuickBooks is WAY different than what you see online
Lots of uncleared transactions in bank reconciliation window
Revenue or Expenses look too high or too low
To fix these errors:
Stop using the bank downloads feature if you’re already using QuickBooks to pay bills and make deposits
Reconcile the bank each month against the statement
Review and address uncleared transactions each month
7. Incorrect Fixed Asset Balances
Symptoms of incorrect fixed asset balances include:
Large asset purchases are missing from the balance sheet (equipment, vehicles, etc.)
Expenses look too high
Loan liability balances are negative
The fixed asset section of the balance sheet is missing Accumulated Depreciation
Fixes include:
Enter Asset purchases correctly via a journal entry, and set up loan accounts for amounts financed
Move payments posted to expense accounts to properly reflect as fixed asset purchases
Post depreciation entries provided by accountant
8. Incorrect Loan Balances
On the flipside of incorrect asset balances is incorrect loan balances.
Signs include:
Loan balances are missing on the Balance Sheet Report
Negative loan balances are showing on the Balance Sheet Report
Expenses look too high or too low
Fixes include:
Set up loan accounts for amounts financed and record beginning balances via a journal entry
Move payments posted to expense accounts to properly reflect as payments against loans instead
Reconcile loans monthly to include adjustments for interest expense
Use the Reconciliation window to verify beginning and ending balances of your outstanding loans and record monthly interest. Loan accounts can be reconciled against statements just like bank accounts.
9. Balance in Opening Balance Equity Account
Symptoms of this error include:
Opening Balance Equity listed with a large balance
Balance sheet does not match year-end tax return
Financials in QuickBooks never match what’s reported to the IRS
To remedy these errors:
With an equity account, work with your accountant or professional to make sure that your beginning balances are loaded properly
Get annual adjusting entries from your accountant and post them
10. No Closing Date
If you experience these errors, it’s likely due to no closing date:
Year-end entries from the accountant were posted, but financials still don’t match
Numbers look different from what you sent to the accountant
To fix this:
Use the Closing Date and Password feature to lock down your numbers each year
QuickBooks Desktop: Go to Company, then set closing date.
QuickBooks Online: Go to Your Company, Accounts and Settings, Advanced, then set the closing date.
Don't give other users permission to override the closing date
Put in the Closing Date and Password IMMEDIATELY when you send your books to the accountant
Use the Closing Date Exception report to isolate unwanted changes
This report tracks down changes made after the closing date was set.
Still need help cleaning up your QuickBooks account? Watch the full webinar replay for tutorials within the QuickBooks Desktop and Online environments in addition to general QuickBooks tips and tricks. If your head is still spinning, request a QuickBooks health check from ServiceTitan Certified Partner Out of the Box Technology.
