QuickBooks Online 2022. How do bank feeds fit into your accounting system? Get ready because it’s go time with QuickBooks Online 2022. Here we are in our bank feed practice file,
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we set up with a 30 day free trial holding down control scrolling up a bit to get to that one to 5% currently in the homepage, otherwise known as the get things done page. Page, the business view as compared to the accounting view, if you want to change to the accounting view,
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it’s something you can do by going to the cog up top switch to accounting view down below, we will be toggling back between the two views, either here or by jumping over to the sample company file currently in the accounting view, back to the bank feed practice file.
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So how do bank feeds fit into your accounting system? That is an important question you want to think about before setting up bank feeds or at least before adding those transactions into your accounting system. If you don’t think about that in advance,
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it’s quite possible that you’re going to set up the bank feeds, you’re going to pull in a bunch of information into your system, which will be stuck in what I call bank feed limbo, meaning it got pulled in from the bank, but it doesn’t have the necessary information to completely pull it into your accounting system to be used to create the end product of the of the accounting system.
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That being the financial statements, the balance sheet and the income statement, it’s quite easy to get overwhelmed if that is the case, or if that’s the route that you take. And I can understand if that’s the route you take. Because if you look at the advertising around bank feeds, and just the name of QuickBooks,
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it sounds like it’s going to be very quick and almost entirely automated. You’ll just set up the books, you’ll connect to the bank, the bank will then transfer the data into your system, which will just create your financial statements balance sheet and income statement for you. That’s not necessarily the case.
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Although there are instances where you can make it a lot more automated, and instances where you’re going to have a lot more kind of still work that’s going to be needing to be done within the accounting system, which will be dependent on things like are you on an accrual basis?
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Are you on a cash basis? What type of industry are you in? What kind of level of internal controls do you want over your accounting system? These are questions you want to consider questions you might want to talk to your accountant about your CPA firm,
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if you have one about and so we’ll take a look at some general ideas about it here. So to look at this further, let’s jump on over to a flowchart.
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Now, this is the desktop flowchart, but it’s a good flowchart that just shows us the general cycles of the accounting system broken out by the purchases cycle or expenses cycle or vendor cycle,
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the customer cycle or accounts receivable cycle or sales cycle, revenue cycle, or the end the payroll cycle, or the employees cycle. So the basic idea with the cash flows, let’s go from the easiest kind of scenario to the most difficult type of scenario.
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And that will typically be dependent on the type of industry you’re in the size of the company that you’re in. And, and whether you’re on an accrual basis or not, or a cash basis, which again will often depend on the type of industry that you’re in.
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So obviously, smaller companies are more likely to have a more simplified kind of accounting system and more likely to just be able to depend on the bank feeds.
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So the most simple system would be a cash flow type of system, and one in which it’s not just the cash flow. But you’re going a step further in simplification, in that you’re going to be reliant simply on the bank transactions in order to record the information into your system.
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So let’s look at that first on the revenue side of thing, things which I think can be one of the more confusing side of things. And then we’ll take a look at like basically the payable side of things.
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Note that it’s quite possible for you, in essence to be on a cash basis system on one or the other on the on the basically purchases or expense side, but not on the revenue side on the revenue side, but not on the expensive side, depending on your particular needs for your particular industry.
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And, of course, the regulations involved as well, including tax codes, and any kind of reporting regulations that you’re trying to make the financial statements to comply with, in addition to having the financial statements for your internal reporting needs.
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Now, as we think about these, just note that you can think about the bank feeds as in essence, simply being what’s on your bank statement. So your bank statement usually has like a summary, beginning balances, additions and subtractions.
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This is just a mock bank statement. And then it’s got the data which at its least at the at the least amount of data that you would have on the deposits and withdrawals.
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Let’s look at the deposits. You usually have a date, and then you have an amount. That’s what you’re going to be inputting into the system. At the minimum.
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You might have some more data that you can use the system can try to use to try to figure out how to record things. If it was an electronic transfer, for example, then you might have something like the memo the bank All kinds of information,
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which could include stuff that helps you to determine what the vendor is. However, the memo itself is not the vendor,
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it possibly includes information that you can create the vendor from and know who it was from. But the system can’t just take that information at this point, and just create, or in this case, the customer that she got the money from, if you’re looking at the withdraws, the minimum information would be the date and the amount.
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And then if it was an electronic transfer, you would have then the same kind of memo line, which could help you to determine who you paid.
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But it’s not going to be something that QuickBooks can automatically kind of put into place, and it will not have the information for which account will be impacted, especially on the expense side,
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on the income side, we can kind of think, man, maybe it’s gonna be an income account. If it was on a very simplified method, maybe I only have one income account.
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On the expense side, we’ve got a whole bunch of different expenses. Even if it could determine the name from the memo, which you can’t do without your help at least to start off with, then it’s still need to assign that name to an account like utilities expense, telephone expense, and so on. And you’re going to need your assistance on that as well.
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Now, if you have the checks that are involved, then you’re going to have the the date, which will not be as relevant, because it’s going to take longer for the check to clear you’ll have the check number, and then the amount. Again, that’s not a lot of information just in terms of raw bank feed,
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to basically record everything that needs to be recorded, which would include the account that you’re trying to record something to. So knowing that, let’s go back into our flowchart and say, Okay, well, what kind of system would be easiest, that I can just automate as much as possible,
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and just basically make our financial statements off of the bank feeds, that would be not only a cash basis, but one more we’re reliant on the bank transactions. So in other words, even if you’re on a cash basis, QuickBooks is designed for you to record on the revenue cycle sales, or revenue or income.
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Using one of these two forms the invoice if you’re using an accrual basis, the create sales receipt if you’re on a cash basis, so even if on a cash basis, you can imagine a situation where you’re at a register, for example, then you would still be using the sales receipt,
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if you were using the full service of the QuickBooks service that allows QuickBooks to use things like items that allows you to determine and track the sales that you make by items, the services you provide, or the inventory items that you provide. If you if you skip that step, and you just say,
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I’m just going to go right to the deposit line here, you’re using a form that you can then record directly to a revenue line. But it’s not natural for QuickBooks to do that, and you will not be using items.
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The items are the typical thing that drive and sort and give them more added detail behind the sub Ledger’s for the revenue type of line item, for example, they’re also used to track things like inventory.
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So so that’s a little bit of an added detail that you would lose if you’re just completely relying just on the banking information and not entering basically, the create sales receipt. So if we jump just to the deposit, what kind of industry might that fit in? Well,
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if you’re doing something like online type of stuff, if you get paid from advertising, like you do, you do sales for other people or something like that, and you do advertising, you get paid paid by platforms, if you do courses or something, if you get paid royalties, if you get paid from YouTube channels, if you get paid from you know, like the channels for courses online or something like that,
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then it’s likely that you just want to get paid once it comes in to your account, you just going to assign it as revenue at that point in time, you’re going to get paid with an electronic transfer so that you can probably see who it came from. And you can easily assign it out to a revenue account.
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On the on the revenue side of things, that would be the type of industry that would be as easy as possible to automate the system as much as possible, going from not only a cash basis to a basis on which you’re dependent on the bank, and just basically put in your information in the system as it clears the bank.
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Now, if you if you have to have a cash registers type of situation, then you’re going to have a bit more difficult if a situation if you’re working at a cash register,
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like a restaurant, a food truck kind of area or anything like that, then you’re probably going to get paid during the point in time of course, like a register situation during the day,
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possibly recording with a create sales receipt as you go. And then you’re gonna have to take those multiple payments that you have received and deposit them into the bank physically going to the bank depositing multiple transactions in one lump sum amount in the bank.
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So in that case, you probably don’t want to wait till it clears the bank. Before you before you actually record it in your system.
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What you would like to do is have an internal control That would be a control against making errors that you entered into the system first with the create sales receipts, put it into the to the clearing account, which is called undeposited funds or in the newest system,
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they call it like deposit or amounts or cash to be deposited or something like that. And then you go into the deposit side over here, put it into the actual bank, in that group fund, both in your system. And as it will be seen on the bank statement, so that you can reconcile the two things.
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So that what that does is it allows you to record the individual sales transactions and gives you more detail because it allows you to basically record the transactions by customer if you want that added detail.
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And it gives you that kind of double check that you can run the tape on what you actually recorded in your register, compared to what you deposited into the system.
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And it gives you that double check that you can then have your deposit that you recorded into the system that you can match out to what the bank has on their side in the bank reconciliation process.
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So in that system, notice, if you’re making the sales receipts, then you’re going to have to still enter the data into the system on the deposit side of things.
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And then when they clear when the deposits go through the bank. And we’ll show examples of this as we go through our practice problem. But as they go through the bank,
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you’re going to match the deposit, which helps you with the reconciliation process. But it doesn’t help you really to record anything new, because you would have already recorded that deposit on your end in your normal accounting cycle.
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So that would be a more full service accounting cycle, which happens to be on a cash basis, because your industry is a cash basis type of industry. But you’re using a full service cash basis, entering the sales receipts not being dependent on the bank.
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So it’s a little bit more difficult in that it takes a couple more steps. And it’s not as automated, you can’t really automate the system as easily because you want to be able to record the sales receipts.
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Now then, if you’re in a situation where you’re on an accrual basis system, meaning you’re in the type of industry where you have to give out an invoice, it’s going to be more complex, you can’t just rely on the bank to record your books.
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If for example, you’re a bookkeeping, or you’re a law firm, even if you just do service items and don’t sell inventory, for example,
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you still are in a situation where you have to create an invoice for work that was done in the past possibly making billable hours entering those into the system, sending out your invoice to the customer receiving every payment later. That means when you create the invoice,
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that’s when the sale or revenue is increased. And that is when you’re going to record an accounts receivable and then track the accounts receivable, hoping to get paid by the customer in the future, then recording the receive payment at that point in time.
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And then you have that same kind of situation that you could have multiple payments that you receive. So instead of putting it into the bank at this point, you might then you might then group multiple payments together and deposit them all at one point in time.
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So there’s multiple areas where we can kind of we could theoretically fit the bank fee deposits in here, we could make an invoice, wait till it clears the bank. And then and then connect kind of the deposit to the invoice.
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Or we could create a sales receipt after we have the invoice and then basically get the deposit to kind of match up to the received payment. Or we can go through this full process in the accounting side of things, and then match up the deposit that comes through the bank feeds to what we already recorded in our system helping us out with the bank reconciliation process.
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So those are those and then if you had inventory, that’s another accrual kind of component. So if you’re tracking inventory, then that’s another area where you’re usually going to be pulling away from a standard cash basis system if you’re having to track the inventory.
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So we’ll talk more about inventory as well. If we go into the purchases the vendor side of thing, that means this is the expense cycle.
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And note it’s it’s possible to be on like a cash basis on the revenue and not on the vendor cycle or more likely for small businesses vice versa, you might be more on a cash basis on the vendor cycle or expensive cycle accrual basis depending on the type of industry that you are in on the revenue cycle. In other words, small businesses,
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if they have the cash flow might find it easiest to just basically electronically pay the expenses as they become due. So if you do that, if that would be the easiest system to use on the expensive side of things to be reliant just on the bank feeds.
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So in other words, when something becomes due a bill becomes Do you just pay it with an electronic transfer that comes right out of your account even if you use a credit card because it is possible to use credit cards and have bank feeds on the credit cards as well.
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If you’re paying for it electronically right when it comes due then that would be the easiest thing to say, I’m not going to record it on my site at all,
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I’m instead just going to wait till it clears the bank, and then record the related expense when it clears the bank either in the form of a credit card payment or in the form of a cash payment. So that would be the easiest kind of thing to do.
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Once again, you’re stepping away from from a cash basis method to go into a method where you’re not recording it at all. on your end, you’re depending on the bank to record it. Now, if you were on a full cash basis system, you would do something like record it on your end, and then check that it clears the bank.
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And that’s still really important if you write physical checks, because if I write a physical check, then the problem is the physical check takes a while to clear. And if someone calls me and says they haven’t been paid,
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I want to be able to check to see if I actually wrote the check into the system and it hasn’t cleared, or if it’s a system where I never wrote the check.
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And that’s a question that I can’t resolve. If I don’t write the check and put it into my system, as I write the check, that problem is not as big if you have electronic transfers, because you can confirm the electronic transfer quite quickly at this point in time.
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But it’s still an internal control to if you were to enter if you have a full service system you entered into your system as you make the payment, and then double check, possibly with the bank feed helping you out with a reconciliation that it had cleared the bank.
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Now if you’re in a larger company, or if you have more stringent by cash flow requirements, especially and this happens more when you have a whole lot of transactions, because cash management becomes a lot more important.
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In other words, if I pay the bill at the end of the due date, the end of the 30 day period, as opposed to the beginning, it’s not a big deal for small companies, which one I do,
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because it’s just a short time frame. But if you’re like a large company that has a whole lot of transactions like a credit card transaction, it starts to add up to be able to pay your bills as late as possible cash management becomes more important.
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So bigger companies tend to then want to go on an accrual basis entering the bills into the system, which increases accounts payable, the other side goes into the expense,
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for example, and then sort the bills to pay them at the end of the time period as late as they can without angering their vendor or without foregoing any kind of discounts,
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they can get to pay it earlier. So that’s when you’re going to use the accrual basis, which that adds complexity for the bank feeds. Because then most likely, you’re going to enter the bills, and then possibly pay the bills, decreasing the checking account yourself and then double checking that to the bank.
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Or you could enter the bills, and then pay the bills electronically wait till they clear the bank and then match the bank feed up to the bill.
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So we’re going to go over many different examples on on this in our practice problem will basically create a practice problem initially or primarily as if we’re on the easiest system, that we can just automate our system and make our books based on the bank feeds.
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But we’ll deviate from that on each of these steps showing an accrual basis where we have an invoice or create sales receipt situation and show in situations where we have bills and how the bank feeds would kind of fit in or how they could fit in in multiple different types of ways as we think about those processes.
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Also note that if you’re tracking inventory, that’s going to be another kind of issue because if you track inventory, you have a couple questions do I want to track inventory within the accounting system?
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Or do I want to track inventory outside of it. So if you tap it to track inventory in QuickBooks, you’re going to be using a what’s called a perpetual inventory system.
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And to use that you have to enter a sales receipt or a invoice when you make the sales because those are the items that are going to help you to track the decrease on the side of the inventory.
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If on the other hand, you want to use a perpetual a periodic inventory system, you might track your inventory on a sub ledger outside on like an Excel worksheet, and then just enter it into the system and make periodic adjustments periodically at the end of the day, the week or the month.
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So we’ll talk a little bit about you know those methods with regards to inventory a bit more in future presentations as well.
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So you want to keep these things in mind when you set up the bank feed. If you set just setting up the bank feeds easy, you just go into the bank feeds, you’re connected to your bank, you’ve got some difficulties with regards to basically you know what your bank wants for security measures and whatnot but pretty simple to get those bank feeds in.
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That’s not the difficult part. Making sure you’re setting them up properly in your accounting system is the is the thing that you want to consider.
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The other thing you want to basically make sure of is how far back on the bank feeds do I need to get the transactions? Is it a new company where I just started this year or something like that and I want to go back say to January you generally want an entire year of bank feeds in One system if possible,
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rather than basically having, you know, half of your information in the prior accounting system for one year and half in the current year. And then then so the question is, if it’s at the end of the year, for example, at December, and I need to reconstruct my entire year of bookkeeping for which is fairly common,
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can I go far enough back to get that much data with the bank feeds. And for that you also need to consider, if I just connect directly to the bank, they might not be able to go a whole year back or multiple years back. So but you can sometimes go further back if you actually physically download the data from the bank.
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So how much data do you need in the system? What’s the cutoff date of the data that you’re pulling into your bank feeds? Have you already been doing accounting before and now you’re implementing bank feeds?
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How can I stop from duplicating data that has already been entered? That cutoff date is also something that you want to keep in mind. So we’ll talk more about these as we go in the practice problem.