QuickBooks Pro Plus desktop 2022. How do bank feeds fit into my accounting system? Get ready because we bookkeeping pros are moving up the hilltop with QuickBooks Pro Plus desktop 2022 We are on the desktop, we got our software on the left hand side, we set up our new company file on the right hand side that being the bank feed practice file we set up last time,
we’re going to be opening up this data file within the software that typically being done by opening the software and then locating the data file within it. If you open up the software, it will usually open up to the last data file that we had open, which for us is the bank fee practice file. If it’s not the case for you, you can go to the File drop down and you can go to open or restore company file, you just want to open it, locate that company file.
And then that’s the way that you can open the company file, it will typically open to a homepage over here, and it may not have the open windows as the default. So I will usually then Once opened, go to the View drop down and the open windows list to have the open windows on the left hand side and the company dropped down home page, which is now the only open item maximizing that homepage to the gray area.
Now we want to discuss how to our bank feeds going to be fitting into our accounting system. And this can be a confusing question. Oftentimes when you hear like bank feeds advertised, and especially with the name of even with QuickBooks as the name, it sounds like you could just basically click QuickBooks and start it up, connect to the bank.
And then the bank feeds are just going to pull in the information and create your your financial statements balance sheet income statement and other complimentary reports automatically. But it’s not quite that simple. So we can’t have a connection to the bank. But then when the information is going to be pulled from the bank, you got the feeds coming in from the bank, you got to say,
Well, how is QuickBooks going to know exactly what to do with that information in order to create the financial statement, this is an important step. Because if you don’t do this, and you just pull in a bunch of bank fee transactions, what will happen is they’ll get clogged up in what I call bank feed limbo, which is basically they’re in the QuickBooks system, but they have not been approved to then be used in order to create the financial statements.
And so what you want to do is say, okay, how am I actually going to use these bank feeds? And how am I going to pull them into the system to help me create my financial statements, as well as my accounting process? So I’m going to go from the easiest way to do this, for the types of companies that would be easiest to apply bank feeds to that is to the more complicated processes to apply bank feeds to.
So in other words, in one way to look at this, you might say, Okay, well, what are the bank feeds? If I get the bank feeds, here’s a mock bank statement. What are we pulling in from the bank? All we’re getting from the bank, all the system knows. And if you’re, if you put your computer programmer hat on, just pretend you’re a computer programmer here, what does the what does the system know to create your financial statements,
it knows it’s got increases deposits that came in, and it knows the dates of those increases and deposits. That’s about it on the deposit side of things that we actually get from the bank, unless they are electronic transfers, if they are electronic transfers, we might then have in the memo, who gave us the money, we get a little bit more detail there. But if you just deposit money into the checking account,
we have then the deposit amount and the date. Now again, if it was a check, we might have, we might have the check to support that information. But on the most basic level, that’s what we go for the deposits the date, and the amount, how about on the withdrawals or the decreases or the checks or other decreases? If you wrote a check, then we actually have the check number, which is nice.
And we’ve got the the amount, and then we’ve got the date, but the data is no longer as important because the date is going to be dependent on not when we wrote the check. But when the check cleared, which could be a significant portion away or period away from the tape that we wrote the check. If we had electronic transfers, then the date is going to be more relevant.
And then we still have the amount. And then we might have some other information with the electronic transfers, which could include stuff that we can create the vendor from. So the electronic transfers can be a little bit easier. When we’re when we’re dealing with this kind of data that’s coming in from the system coming in from the bank into our system, we might have a little bit more data.
But on the on the most basic level, all we have is the amount the date which isn’t as relevant and possibly the check number. So with that information, how is the accounting system going to know what to do with that data? Well, from a most basic level,
if you have a basic accounting system, you could say well, I want you to post all the deposits basically increases in general, as increases as revenue. And I want you to post all the expenses all the decreases as expenses In some way, as we get the expenses, and then of course, if you go into the expenses, you got to get a little bit more detailed and say, what category of expenses are these go into, which again,
is a little bit more difficult, depending on the kind of transactions that are taking place. If you just have checks, it might not be able to pull the vendor name, which is what you need to be able to figure out, you know what the expense category is, like, if it was the telephone bill going to Verizon, then I can see it’s a telephone expense. But if it’s if I don’t have an electronic transfer that has that information in the memo,
that it becomes a little bit more difficult for me to know what expense account to hit with it. So you can see some of that kind of problems that come into play when you’re trying to take this data, you don’t have quite enough information to pull it directly in and create the financial statements from it. So what happens is QuickBooks puts it into what I would call bank fetal limbo, a holding spot, maybe tries to guess and possibly looks at prior period transactions.
So it gets easier over time as you memorize transactions, so that then you can then approve those transactions and pull them into the system, putting them into your accounting system. The other thing we need to consider is, what kind of accounting system do we have. And the easiest system to apply bank feeds and just use bank feeds to create the financial statements is more of a cash basis, not only a cash basis, though, but one in which you’re reliant on the bank, and then the cash basis system and then a full service accrual system,
it’s going to be the most difficult or where you need to think about most how you’re going to fit the bank feeds in play. So let’s think about that for a second. If the easiest system, I’m closing the carrot over here, just looking at the homepage, because this is our flowchart of the activities that are going to happen. Let’s imagine that all we do is we get money, we do service type of stuff, and we get paid from a platform like a gig economy.
So we do surface type of work, we’re not selling inventory, we don’t have to deal with that. We don’t have to track the inventory, we’re just doing work, we’re not billing people, or anything like that we work for a platform, the platform pays us. And when they pay us, we just want to record it as revenue.
Well, in that case, then all the increases that we have, we can in essence, just record them as revenue if they’re a deposit. Now normally, under an accounting system, we would then record the revenue first that we have earned and then see it clear the bank. But in this kind of system, you might say I’m just going to be dependent on the money clearing the bank, and then I’m going to record it as a deposit.
So we’re actually moving to step away from a cash basis system to one in which we’re completely reliant on the bank, the bank no longer being a double check to see that we got things correct, but being the thing on which we’re creating our financial statements, so in that case, when when I get the deposits, then I’m just going to record each deposit as an increase to the checking account, the other side then simply go into revenue. And that would be a very easy transactions.
And I wouldn’t have to deal with any other stuff such as billing people, or such as the cash receipts, and so on. And I can depend on the bank. So that would be kind of the easiest system. And you would have electronic transfers there.
If you have electronic transfers, possibly you can also think about who gave you the money, because it will possibly be in the memo section, as you have the electronic transfers of the deposits as opposed to just a cash deposit, in which case you have no other information other than the date and the amount that was deposited, that can also allow you then to add the customers which will be the platform’s typically.
So that you can get a little bit more detail in in not only the financial statements of the income statement and balance sheet, but also the backup information sorting out like your revenue by customer who gave you the money. So that cash basis system would be the easiest thing on the on the expenses side of things.
If you paid all your bills as they become due, and you just pay them with electronic transfers, then, once again, that would be the most easiest thing to do. And if you’re going to say hey, I’m not even going to enter the transaction into my system, when I pay the bill, like I typically would with a check, I’m just going to do an electronic transfer out of my bank, paying the bills possibly automatically, and then rely on them clearing the bank, before I record them on my side.
Once they clear the bank, then I’m just going to go in there and basically tag or tag the proper expense account related to who I paid, which should be somewhat easier given the fact that there are electronic transfers so when I pay Verizon, the telephone company, I can see that in the memo when I pay Edison, the utility company.
I can see that in the memo and that will help me to determine the proper account telephone expense utilities expense, also break that information out by vendor so that those cash basis systems not only a cash basis system, but being dependent on the bank is the easiest kind of system.
The next, the next easiest system is one in which you’re going to do more for an accrual based system, but it’s still a cash based system. So on the revenue side of things, for example, you might, you might imagine, like a food truck or something like that, where you’re doing services, and or possibly something where you don’t have inventory, but you’re basically doing services, and you’re getting paid at a cash register,
for example, at that point, then you’re getting the money, and you probably want to record the money as you receive the money, and then go to the bank at the end of the day and deposited into the bank. And that instance, then you’re really not relying on the bank, in order to record the revenue, you’re recording the revenue, basically, at that point of the cash register, you’re depositing that revenue into the bank.
And then when you’re using the bank feeds, the bank feed deposit will then clear the bank, you’re not using it to record the revenue, but rather as a double check, which is really important, because that’s the normal way that the bank feeds would feed into the system of the bank reconciliation.
So in that case, you’re not really using the bank feeds in order to create the books, you’re using them to help you with the bank reconciliation process checking and double checking that what you deposited had cleared the bank, which is another internal control, it’s a really nice system to have, because then you got that internal control related to it.
And then the most complex type of system is one in which you build someone. So if you have a billing process, then and you can imagine like a bookkeeper or law firm or something like any any system where you’re going to do the work first, and then build the client will now I can’t just wait until the deposit clears in order to record the revenue. Because I’m going to record the revenue at the point that I build the client with an invoice and invoice is the form used to build the client.
So at that point in time, this is when I record the revenue. And then when I get the deposit, then when it clears the bank, I could wait. You could you could imagine the normal system there, I enter the invoice that increases accounts receivable, the other side go into revenue, then I receive a payment like a check or other type of payment, we usually put that into undeposited funds or clear in accounts.
And then we’re going to go to decrease the accounts receivable. And then we deposit it. So however we could deposit it directly at this point. So you got to think about that with your deposit sides, then if you’re invoicing clients, then you got to think okay, where are the bank feeds going to fit into my process?
Am I going to am I going to have to receive the invoice and then receive the payment and then match the deposit to the received payment, or am I going to try to invoice and possibly then wait till the deposit clears the bank and try to then match the deposit to the invoice. So you got a couple of different options there. But notice, obviously, that’s going to be a bit more complex.
Obviously invoicing that has inventory involved can be a little bit more complex as well, if you’re tracking the inventory on a perpetual inventory system. So inventory complicates things too, because inventory by its nature means you’re going to deviate from a cash basis method to an accrual method method, which makes it more difficult to just rely on the bank to record your transactions.
On the expense side of things. If you’re paying all your bills electronically, that’s the easiest way to try to just rely on the bank, and not even just be on a cash basis but reliant on the bank. If on the other hand, you’re entering bills, and you’re saying I want to enter bills as I receive them, sort those bills, and then determine when I want to pay them. Now you’ve introduced an accrual system to the to the process.
And or if you want to write checks, possibly as another kind of internal control a double check, instead of having just the electronic transfers, then you got to think well, how are the bank feeds going to fit into that system? Because if I increase the bill over here, then I’m gonna have to pay the bill on this side.
And then the question is, how do the bank feeds fit in possibly you’re not using the bank feeds to record the expense accounts at that time, but you’re using them as more of an internal control as part of in essence, the bank reconciliation process, double checking that what we have put on in the system on our side has cleared the bank on their side.
So that those are the those are the kind of methods that you want to think about what kind of what kind of company do I have? Do I have inventory? Am I doing an accrual method or not? When you think about an accrual method or not, you’re quite you can question that by cycle. So I can say on the on the vendor cycle, it’s quite possible that I’m more on a cash basis if I’m a smaller company, meaning
I do many electronic transfers, and I might be more on a cash basis and be more dependent on the bank needs to record my transactions there. And on the on the revenue cycle. may be in a type of industry where I have to invoice the clients. And therefore on this cycle, I’m in a bit more of a complex system where I got to make sure I’m using the bank feeds basically to match out rather than record the transactions for the revenue.
And then of course, the employee II cycle is a complete, you know, more difficult type of thing as well, when you look at the employee e cycle, then it’s going to be kind of on an accrual basis kind of mess, because you’re going to have to if you’re recording the items through QuickBooks, you’re going to have to record the transaction when you process the payroll generally.
And that means that you’re going to use the bank feeds more as a check rather than to record the paychecks you could think Imagine a system with the payroll where you have a third party, ADP or paychecks, something like that, doing your payroll, processing the payroll checks, and then you can basically watch those payroll checks, go through the bank and possibly record payroll and that way and then do adjusting entries at the end of the period,
which we might talk more about a system like that could work and might be easier, and to some people for some businesses, typically smaller businesses. So those are some of the options so you want to kind of consider what the bank feeds are going to do.
Because if you think that you can just enter the bank feeds and just put in a year’s worth of data and your financial statements will just magically be created, which I can understand because it’s kind of been advertised that way it seems like that’s not usually the case it’s gonna be a little bit more difficult possibly quite more difficult than that and but once you set it up, then the it gets a lot easier as you start entering data as we go as we will see working through the practice problem.