Avoiding QuickBooks Pitfalls: Common Mistakes and How to Fix Them

When Intuit launched QuickBooks in 1998, it gave small business owners user-friendly software to manage their business operations. QuickBooks was built with non-accountant users in mind so it’s relatively easy to figure out how to create invoices, pay bills and run reports. But simply having a QuickBooks Online (QBO) subscription isn’t foolproof. In fact, it’s also easy to make a complete mess that your tax accountant can’t decipher, leaving you with inaccurate information to run your business.

The Juna team has cleaned up many QuickBooks messes left behind by non-accountants. Here are the most common mistakes we see and some easy fixes:

1. Errors with Auto-Add Bank Feed Info

One of the best improvements to QuickBooks in the past 10 years is the bank feed that automatically pulls in transactions from bank accounts and credit cards. Previously,  accountants had to manually add transactions to QuickBooks (Quick aside: Some of us old timers also had to walk uphill to school – both ways). The AI feature of QBO memorizes your transactions so it remembers, for instance, that the last time you had a charge from Starbucks on your credit card it was coded to meals expense. This can be a huge time saver. However, we like to say that you’re smarter than QuickBooks. What if you had a charge to Amazon? It could be computer expense, office supplies, or even an accidental charge on your company credit card (oops, I didn’t mean to charge that $42 hairspray on the company credit card). Tip: Review all items in the bank feed before accepting by clicking on the item to view the bank detail attached to the transaction, and use the Rules feature for items that don’t change like your Starbucks purchase.

2. Neglecting to Reconcile Employee Payroll Withholdings

Holding on to your employees’ money that belongs in the 401(k) plan comes with harsh penalties. One company wrote a check for the employee 401(k) contributions which got lost in the mail and went undetected. When we took them on as a client, we noticed the oversight when reconciling the 401(k)-withholding liability account and made the correction. Tip: Reconcile all payroll and other liability accounts on a regular basis. And don’t use checks! It’s the 21st century,  after all. 

3. Ignoring Old Items During Bank Account Reconciliation

Not clearing out old items when reconciling bank accounts. Kudos if you reconcile your bank account on a regular basis. Reconciling bank statements allows you to catch errors, but often these errors are ignored. This can happen because duplicate or erroneous entries simply aren’t checked off, but the bank account still balances because QuickBooks recognizes them as outstanding. For example, you accidentally record a deposit twice. One gets cleared (checked off) but the duplicate is just listed as outstanding. If the duplicate isn’t deleted, both your cash and your revenue will be overstated. Tip: Review your bank reconciliation for any deposits or payments that are outstanding. They may need to be deleted or reissued. 

4. Mismatching Deposits

Suppose you sell a service for $950 and you have several clients with outstanding invoices for the same amount. When the deposits come through the bank feed, QuickBooks guesses which client paid it. If you accept it without confirming the correct client, the payment will be applied to the wrong client. The last thing you want to do is contact the wrong client about a past due invoice. Tip: Don’t trust QuickBooks to apply the payments correctly; review them first before applying to the customer by clicking on the detail which often includes the payee name. 

5. Overcomplicating the Chart of Accounts

Your chart of accounts is a list of all of the categories that will show up on your financial statements: assets, liabilities & equity on your balance sheet and revenue & expenses on your income statement. We did a cleanup project for a client once that had 20 different accounts just for office expenses. It’s really hard to glean the important information on an income statement with that many accounts. Tip: Determine how much detail you need to keep an eye on your revenue and expenses and use only those accounts. Inactivate unused or duplicate accounts. Advanced tip: You can merge two accounts in the chart of accounts by changing the name on one of them to the exact name of the other. QuickBooks will prompt you to merge the two. Note that the account type and sub accounts also need to be the same. 

6. Failing to Apply Payments to Bills

When you enter a bill in QuickBooks, it creates an expense and a liability – accounts payable. When you later pay the bill, it should reduce the liability. A common mistake is to record the payment as an expense instead of applying it to the bill, thus counting the expense twice and overstating your liabilities. Tip: Review your accounts payable aging report regularly. Also consider using bill.com to pay bills which integrates with QuickBooks and reduces the risk of errors. Bonus tip: Use the ENTER BILLS function for all expenses and the PAY BILLS function (not write check) when making payments.

7. Forgetting to Set a Closing Date

It’s easy to record transactions with the wrong dates in QuickBooks which can really mess up your reports. Tip: Once you have recorded all of your transactions and you’ve reconciled the accounts for the month, close the books to prevent posting to the wrong period. Your tax accountant will thank you. Tip: Select gear icon/Company settings/Advanced/Close the Books

While QuickBooks has made business management easier for many, it’s still important to seek professional guidance. Consider hiring a professional accountant or outsourcing this function to ensure your bottom line stays healthy. Let us know if we can help. info@junafinancial.com.