Common QuickBooks mistakes — and how to fix them
Recording each of your transactions as they occur can be challenging and time-consuming — but good bookkeeping ensures you know where you stand and over time builds a powerful warehouse of data that can be further analyzed to provide insights on your business. While widely used accounting software like QuickBooks simplifies and organizes the bookkeeping process to a degree, there is still room for error. And your data is only as useful as it is accurate and up-to-date.
Some best practices are clear — company files should be backed up daily, closed periods should be locked, missing or duplicate transactions should be corrected and the purchase order system should be well utilized. Others are more nuanced, and can influence how effective additional solutions available in the QuickBooks App Store can be for your business.
In this post, we’ll explore ways to address the following common missteps businesses make in QuickBooks, and suggest how to improve processes around them:
- Setting up preferences incorrectly
- Failing to reconcile all accounts
- Neglecting to enter a bill before writing a check
- Incorrectly applying payments to bills
- Delaying profit and loss statement (P&L) reviews
- Lacking a chart of accounts
Managing QuickBooks preferences
When you first set up a QuickBooks account, you likely entered a number of preferences. Revisiting those settings as your business evolves and grows helps you run your business more smoothly. Email templates and reporting options should be updated to suit your current needs. As your business relationships become more nuanced, you might review your finance charges for late customer payments. How your business nets sales tax might change year over year. And the default accounts for paying bills or receiving checks might benefit from a review as well.
Download the Guide to Accounting and Bookkeeping for Small and Mid-Sized Businesses & QuickBooks Best Practices
QuickBooks can generate either cash reports, which show the flows of cash in and out of your company, or accrual reports, which detail its overall performance. Which is more useful at the current stage of your business’ growth? Ensure the setting creates the reports that are most helpful to you now.
QuickBooks also allows you to set up bank feeds to import all bank transactions automatically — but they are not always accurate. At times, transactions imported are accidentally duplicates; others might go missing completely. Without safeguards, incorrect bank feeds can wreak compounding havoc that distorts your financial records. Always check your Business Account Balances with the information imported to QuickBooks. If and when you find a mismatch, identify and correct the discrepancy.
Over time, employees and their roles and responsibilities change. Review QuckBooks’ user roles, permissions and passwords so that your team can work effectively and security is maintained. Many business leaders hesitate to provide anyone other than their accountant with QuickBooks access. An integrated third-party software solution allows you to create additional levels of access to and transparency around data, without creating the risk that changes to your core financial information will be made inadvertently. For example, you might want a member of your accounts receivable team to know where outstanding invoices are so that they can contact customers who owe you money, or you might want to share upcoming transactions with an analyst who can ascertain and make recommendations based on cash flow forecasts. In both cases, an additional solution can harness the power of your QuickBooks data without compromising its security.
Reconciling accounts in QuickBooks
Every transaction that happens in your business needs to be both manually entered into QuickBooks as well as checked against your bank accounts. The integrity and accuracy of your financial data is built on reconciliation with checking, savings, loans and credit cards, escrow accounts as well as state and federal taxes.
To ensure your account register is correct, always check and match every transaction, confirming that every transaction hit the proper account and that it cleared the bank. Keep an eye out for missed or duplicate transactions as well — just because you reconciled doesn’t mean it’s right.
Applying payments to bills in QuickBooks
Have you ever paid a vendor, only to view an accounts payable aging report that indicated you still owe them money? If so, it’s a sign that you’re incorrectly applying payments to bills.
QuickBooks creates a solid record of your accounting transactions, but a third-party solution that integrates with both QuickBooks and your financial institutions can automatically apply payment details to QuickBooks.
Entering bills before writing checks in QuickBooks
When a bill comes in, do you immediately go to QuickBooks’ “write check” feature to pay it? If so you’re not alone — but it’s not best practice. Doing so does not automatically create an accounts payable entry for the vendor. When you receive an AP invoice, the preferred way to proceed is to enter the bill, and then go to “pay bills” to compensate the vendor.
Running your AP process correctly requires posting as soon as you receive a bill. If you don’t, you likely will not have an accurate understanding of your liabilities — which makes it incredibly difficult, or even impossible, to forecast cash flow.
Reviewing P&L statements
Your profit and loss (P&L) statement provides insight to the overall health of your business, summarizing revenue minus expenses over a particular period of time. It can help identify errors in your QuickBooks file, both by allowing you to compare previous periods as well as by ensuring expenses and income align with the norm for your business. If your expenses seem unusually high, it likely warrants further investigation.
Review your P&L on a monthly basis, and be sure to use account numbers; otherwise, your P&L will be listed in alphabetical order without headings, making it difficult to track down any discrepancies,
Establishing a solid chart of accounts
The chart of accounts is the foundation of your business bookkeeping. It lists all the categories you use to record your income, assets, liabilities, receivables and operating expenses. These categories are the raw material for your financial statements — so it’s critical to set up your chart of accounts properly.
While QuickBooks offers a default chart of accounts, it might not be the best fit for your business — and it can be customized. Research how you want to capture and categorize transactions to suit your needs and create thoughtful accounts and sub-accounts to organize finances.
Capture transactions in the right place — in a simple way (that doesn’t get too into the weeds on every category of office supplies, for example) — so you can forecast and better understand their future impact.
By combining QuickBooks with an integrated software solution, you can rectify some of these common mistakes even more easily — and sometimes automatically. To learn more, download our ebook on best bookkeeping practices for small and mid-sized businesses.