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How to Process Bank and Credit Card Transactions in QuickBooks Online

Accounting invokes anxiety for many small business owners. It doesn’t need to be that way. In this webinar, we’ll break down the process of recording your bank and credit card transactions. If you are like most small business owners, you’ll find that processing bank and credit card transactions consumes most of the time you spend on bookkeeping activities. We’ll provide step-by-step instructions, best practices, examples, and FAQs.

Why Accounting is Important

Many small businesses view accounting as an annual task associated with preparing business tax returns. Accounting, however, should be used by owners to manage their business. It’s the scorecard. Good accounting records can tell you at a glance your bank balances, how much you owe on your credit cards, what your customers owe you, and what you owe your suppliers and vendors.

Accounting can also provide answers to questions such as: What are your revenues for the current month? Did sales increase as compared to the previous month or to the same month last year? What are your fixed costs? How many days does it take your business to cover those fixed costs? How many days each month are you generating profits after paying for your fixed costs? What is your profit margin? Do you need to increase prices? Do you need to reduce costs?

Syncing Your Accounts

This presentation will focus on QuickBooks Online; however, the concepts presented are applicable with any accounting system.

Syncing bank and credit card accounts to QuickBooks will save time and will eliminate most coding errors. Syncing is a process in which your bank transmits any new transactions to QuickBooks. Syncing data with QuickBooks is like downloading bank and credit card statements one transaction at a time. QuickBooks can only read your bank data. It’s NOT an ATM. When you sync QuickBooks to your bank or credit card accounts, you cannot make actual deposits, withdraw cash, or make any other transactions that changes ANYTHING in your ACTUAL bank or credit card accounts.

We won’t take time to explain how to sync your bank or credit card accounts in this presentation, but you’ll find instructions in the FAQs section of the blog article that we’ll post later today on the SCORE Rhode Island website.

Create a Good Processing Habit

I strongly recommend that clients process transactions in the for-review panel either daily or weekly. The benefits of processing transactions regularly include:

  1. It takes less time to process newly created transactions. Getting behind on processing transactions increases accounting tasks exponentially.
  2. If a transaction is fraudulent, you can immediately report the transaction to your bank or credit card company.
  3. Processing transactions regularly will allow you double check your purchasing decisions. If this becomes a regular process, it will yield many benefits for your business.
  4. Processing your bank and credit card transactions daily or weekly will provide you a quick snapshot of your bank and credit card balances.

Banking Center

Let’s do a quick review of the banking center window. The banking center is where you’ll process any new bank and credit card transactions.

The item marked ONE shows cards that represent a bank or credit card account that has been synced to QuickBooks. Each card displays the bank and QuickBooks account balances. It also tells you the number of unprocessed transactions for that account.

The button marked TWO is where you link a new bank or credit card account. The down arrow icon beside the link account button is a dropdown menu where you can manually import bank or credit card data, manage your bank connections, and order check stock from Intuit.

The next button marked THREE is where you manually sync bank or credit card transactions. Normally, QuickBooks will update your transactions every night.

The next button marked FOUR is called explore and is where QuickBooks provides best practices and new features.

The tab marked FIVE is the for-review panel, which is the default view. Think of this panel as your inbox. These are the transactions you need to process. The number of transactions in your inbox is displayed above on the card for that specific account. These transactions are not in your QuickBooks accounts and registers.

When you process a transaction, the transaction is recorded to your QuickBooks accounts and then the bank transaction is moved to tab SIX, called categorized. Think of categorized as your completed transaction file.

If the bank accidently duplicates a transaction, you can move the duplicate entry to the excluded tab marked SEVEN.

The section marked EIGHT allows you to filter transactions by date or by document type. You can also search for a particular transaction.

The section marked NINE is where you can print or export the transactions in the panel. The small gear icon will allow you to display the payee’s name and the check number. It will also allow you to change several settings that will change how the bank center window is displayed.

And finally, the section marked TEN is the for-review panel which displays the unprocessed transactions. This will be the focus of this presentation.

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Purpose of processing transactions

The first purpose is to categorize transactions such as purchasing a building, selling products at a farmers’ market, paying your utilities, purchasing materials that you will used to make your product, and paying your employees. These categories help you make better business decisions, and the categories also help your tax accountant prepare your taxes.

Every accounting transaction is a two-sided transaction that will impact two or more accounts. For example, when you email an invoice to a customer on credit, it increases your sales and increases your accounts receivable or what customer owes you. When you make a credit card sale at a farmer’s market, it increases your sales and increases the balance in your bank account. When you purchase office supplies using your credit card, you increase your office supply expense and increase your credit card balance.

In addition to categories such as bank accounts, product sales, credit card payable, rent expense and cost of goods sold, you will assign transactions to customers, vendors, suppliers, and employees. You may also want to assign transactions to different locations if you operate several retail locations. You may want to track sales based on sales channels such as Shopify, Amazon, eBay, farmers’ markets, or a physical store location.

Finally, QuickBooks has specific documents for customers, vendors, and employees. If you use these documents properly, the various reports that QuickBooks provides will provide key insights into your business. If you, your bookkeeper, or accountant uses journal entries to record sales, the sales reporting will not provide accurate sales information, even if your profit & loss statement is correct.

For Review Panel

Let’s begin processing transactions.

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Log into QuickBooks Online. Select transactions or banking in the left side panel. Select the banking tab (this is the default tab.) Select a bank or credit card account. QuickBooks will then display the for-review panel by default. As we’ve mentioned, this is your inbox for unprocessed transactions.

Processing transactions requires you to add, match, or view each transaction in the for-review panel.

  • Add: Use this button carefully. If you have a bank rule that applies to a transaction, you are generally safe to add the transaction without viewing the entire transaction. However, if you create a bank rule for Staples to categorize expenses as business supplies, and you see a $500 Staples charge for furniture, you may want to classify that purchase as an asset called furniture. QuickBooks allows you to override a bank rule. We’ll discuss bank rules later.
    If you don’t have a bank rule, click anywhere on the transaction except the checkbox on the left side of the transaction or the action column. Then follow the steps in the next few slides starting with clicking on the find match checkbox.
  • Match: If QuickBooks finds a match, verify that the date and amount of the matched document is the same as the bank transaction. In the case of a check or expense document, verify the payee’s name in the payee column NOT the description column. Then click match.
  • View: If the action column displays view, click view and go to the next section.

You can also batch transactions. For example, if you have five entries with attached bank rules, you can click the checkbox on the left side of each transaction, and then click accept at the top of the for-review panel.

View Enter Transaction: Find Match

First click find match. If you don’t find a matching document, go to one of the next steps.

  • If the transaction is a deposit, create a deposit document and return to the banking center to match the deposit. We’ll explain how to create a deposit document later.
  • If the transaction is a check, create a check document and then return to the banking center to match the check. To create a check document, click the +New icon in the upper left panel. Click check in the second column. Complete check document. Click save and close at the bottom of the form.
  • If the transaction is a credit card account payment, record the transaction as a credit card payment and NOT as a transfer of funds. We’ll show you how to do that later.
  • If the transaction is a transfer of funds between two of your business bank accounts, record the transaction as a transfer of funds. We’ll show you how to do that later.

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If you have already created a document in QuickBooks such as a deposit, an expense, or a check, QuickBooks will try to match the document to an item in the for-review inbox. Verify the date of your document against the transaction date. These dates may be slightly different, but not by much. You should also verify the payee’s name is correct, if the document is an expense or check document. Remember to verify the payee’s name in the payee’s column NOT the description column.

Example: If you have recorded three separate deposits each for $100 over several days, and one of those deposits clears the bank and is now displayed in the for-review inbox, QuickBooks will provide a list of the 3 deposits and allow you to select the correct deposit document. If you’ve recorded a deposit for $100 and forgot to record a second deposit for the same amount, QuickBooks will suggest the wrong deposit simply because the amount matches.

Click match when you've determined the date, amount, and the payee’s name matches your transaction.

If QuickBooks displays the wrong document, you can click find other matches to find the correct document.

View Entire Transaction: Categorize

Before categorizing a transaction, click find match to ensure that you haven’t already created the transaction.

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QuickBooks allows you to categorize an expense in the for-review panel rather than clicking the +New icon and selecting an expense. As we mentioned above, to access the categorize feature, click anywhere on the transaction except the checkbox on the left-hand side or the action column. Then click categorize checkbox.

Here are the steps to create an expense document in the for-review panel: Select an existing vendor or create a new vendor. Select a category. If this is a billable expense, select a customer or project, click the billable checkbox. Enter a description for the transaction. Click add. I would also recommend adding your receipt to the transaction. Use QuickBooks as your accounting filing cabinet.

If you don’t see a payee column in your for-review panel, click the small gear icon just above the action column. Click payee. Why is this important? While you may see the vendor’s name in the description column, unless a payee name is selected, you’ll create an expense document without a payee name. Finding that document later becomes very difficult.

If you have a vendor payment that should be split into multiple categories, you should click the +New icon in the upper left panel. Click expense in the second column. Complete the expense document. When completing the document, remember to select the correct bank or credit card account used to make the payment. Click save and close. Go back to the banking center and match the expense document.

View Enter Transaction: Transfer

The record as transfer option should be used if the transaction is a transfer between two of your business bank accounts. Select the name of the other bank account. Click Add. Note the date and the amount of the transfer.

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Click the other bank account at the top of the for-review panel. Locate the transferred amount. Verify that the date and amount is correct. If the amount was transferred to this account, it should be in the received column. If the amount was transferred from this account, it should be in the spent column. Click match.

If you create a second record as transfer transaction in the second bank account, it will create a duplicate entry.

You should no longer use the record as transfer option when you pay your credit card balances.

View Enter Transaction: Credit Card Payment

When you make a credit card payment, select record as credit card payment. Select the credit card account. Select the name of the card company as the vendor. Click Add. This will record the payment to both the bank and the credit card account. This is a new feature that simplifies the process of recording credit card payments as well as eliminating duplicate transfer transactions that can result by using the record as transfer feature to record credit card payments.

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Deposits

There are several types of deposits that you will need to record in QuickBooks including customer deposits, mobile deposits, QuickBooks payment deposits, and deposits from third-party systems.

Before we discuss how to record deposits, let’s review how QuickBooks processes sales. QuickBooks uses two primary sales documents: invoices and sales receipts.

An invoice document should be used when your business delivers products or services to your customer with the expectation of receiving payment at some point after the customer receives the invoice. When a customer pays the invoice with a check, for an example, you record a receive payment document that ties the check payment to the invoice indicating that the invoice is paid. You then can add one or more receive payments to create a bank deposit document. This should mirror the bank deposit ticket that you give the bank teller. This process requires three documents: an invoice, a receive payment, and a deposit document.

A sales receipt document should be used when your business delivers products or services to a customer and receive payment at the same time. The best example is a credit card or cash sales transaction. This process requires only two documents: a sales receipt and a deposit document.

QuickBooks uses a system-generated account or category called undeposited funds to record all receive payment and sales receipts documents. Undeposited funds is a holding account for received payment and sales receipts documents that have not been deposited in one of your bank accounts. At first, this won’t make much sense, but it greatly simplifies the process of creating customer deposits. You should always select undeposited funds in the deposit to dropdown field in a receive payment and sales receipt document. While there are situations where you can break this rule, following this simple rule can eliminate hours of reconciliation issues when not followed.

Third-party payment and sales channel systems such as Square, Stripe, Shopify, Squarespace, Venmo, and many others are major sources of deposits. We are working on another webinar that will focus entirely on integrating third-party data to QuickBooks.

We’ll provide a couple of examples of creating customer deposits in the next two slides.

Example of a multiple check deposit

Sally has four checks totaling $7,800 from three of her wholesale accounts she plans to stop by her local bank branch on her way home to make the deposit. Here are the steps that she should take:

1. Complete a bank deposit ticket with the customer’s name, check #, and check amount for each check. Place the date of the deposit at the top of the form and enter the total amount of the checks at the bottom. Take a picture of the ticket. Take the deposit to the bank.

2. Create a receive payment document for each of the four checks. You can create a receive payment document by clicking the +New button. Click receive payment in the first column.

If the customer’s check is a payment for two or more invoices, you can record those invoices on the same receive payment document. However, if your customer sends you two checks, create a receive payment document for each check.

When you enter the customer’s name in the receive payment document, the customer’s unpaid invoices will be displayed. Click the checkbox for each invoice paid by the check. Enter the deposit date, the payment method and the check number. Select undeposited funds account in the deposit to dropdown field, NOT your bank account. Verify that the receive payment total equals the customer check amount.

3. Create a deposit document that includes the four checks. You can create a deposit document by clicking the +New icon. Click make deposit in the fourth column. Select the bank that you will use to make the deposit. Select the deposit date. Click the checkbox beside each of the four receive payment documents. Verify that the deposit document equals the bank deposit ticket.

The deposit document has three sections: i) select the payment included in this deposit, ii) QuickBooks payments, and iii) add funds to this deposit.

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The section called select the payment included in this deposit is where you should select the receive payment or sales receipt documents that will be included in the deposit document.

If you don’t see those received payment or sales receipt documents, then you probably forgot to change the deposit to field to the undeposited funds account. If that happens, you will need to edit those receive payment or sales receipt documents by selecting sales on the left-side panel. Select the customer tab.  Enter the customer’s name in search field. Click the customer’s name to display the customer’s transactions. You should be able to easily find the receive payment or sales receipt document you’ve just created. Edit each document that contains an error.

The QuickBooks payment section is for invoices that are paid via QuickBooks Payments. QuickBooks will automatically record the receive payment document.

The section called add funds to this deposit section is primarily for non-customer invoices and transactions such as vendor refunds, cash contributions to your business, and payment processing fees for third party processing transactions. Payment processing fees should be entered as a negative number.

If you can’t find your receive payment documents and enter the customer deposit in this section, you will DUPLICATE your revenue and overstate your accounts receivable balances. This is a common error to avoid.

Example of a mobile deposit.

The next example is creating a mobile deposit. A mobile deposit records a single customer payment to a deposit. It is a simple version of a deposit that we’ve just described.

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1. Scan the customer check in your bank mobile app. Write the date of the deposit on the face of the check and the invoice number(s) the check paid. Keep the check as part of your accounting records.

2. Create receive payment document for the check (see instructions above.)

3. Create a deposit document that includes the check (see instructions above) or match the receive payment document to the bank deposit transaction in the for-review panel or inbox and QuickBooks will automatically create the deposit document for you.

Automation

QuickBooks has Artificial Intelligence or AI built into the banking center. Some of the AI is great and some not so great.

QuickBooks will automatically suggest a category based on how you’ve coded a similar transaction in the past. That doesn’t always work. You may purchase office supplies from Amazon as well as a laptop, which should be categorized differently.

If you forgot to enter a deposit transaction, QuickBooks will suggest that you record the deposit to uncategorized income or to the last sales account used rather than to an existing customer invoice. This results in double counting sales as well as showing the customer invoice as unpaid when the customer has actually paid the invoice.

If you forget to enter a category for a check or expense transaction, QuickBooks will assign the expense to uncategorized expense.

QuickBooks has a new bank-to-bank transfer matching feature. This feature uses AI to identify transactions between bank accounts with the same date and amount and identify those transfers as paired to another transaction.

QuickBooks has a bank rule feature. A bank rule can automate the process of adding a category and payee name, deciding whether the rule should apply to cash going out or into your bank account, deciding which bank account the rule should be applied to, and selecting a transaction type. Rules should be used for vendors that you use multiple times and when the category is always the same. For example, a Verizon telephone expense is generally coded to telephone expense and makes for a great banking rule if you pay Verizon via an online payment.

A bank rule has an option to automatically confirm transactions this rule applies to. I would strongly recommend that you never apply this rule. I had a client who had mistakenly created a rule that incorrectly recorded sales. The client couldn’t understand why QuickBooks kept doubling sales. When this option is turned on, QuickBooks will automatically code and record the transaction when syncing with your bank without you ever seeing the transaction in the for-review panel.

Pre-fill forms with previously entered content is an automation feature that automatically fills other fields of a document, based on the last saved transaction for that customer, vendor, or employee. If you want to turn this feature off, click the gear icon in the upper right corner. Click account and settings. Click advanced. Click the pencil icon. Click pre-fill forms with previously entered content to turn off this feature.

The automatically apply credit feature is another option that you may want to turn off. I prefer making these adjustments manually. If you want to turn this feature off, click the gear icon in the upper right corner. Click account and settings. Click advanced. Click the pencil icon. Click automatically apply credits to turn off this feature.

Conclusion

Two months ago, Melissa Burton, one of our SCORE mentors asked me to help Courtney Omen, the owner of Revive Home & Garden, with QuickBooks. It was daunting task requiring Courtney to process almost 1,000 transactions for 2021. During our session last week, Courtney, having processed all unprocessed transactions in her for-review panels, finished reconciling her business bank accounts. More importantly, for the first time, Courtney could view her balance sheet and her profit & loss statement for 2021. 

I am extremely proud of Courtney and my other SCORE clients, who have learned to use QuickBooks Online, to manage their businesses. Keeping your accounting records current and accurate is one of the key activities that your business needs to succeed.

Best Practices

  1. Connect your bank and credit card accounts to QuickBooks. Click transactions or banking on the left side panel. Click link account. QuickBooks will provide step-by-step instructions. If you have already added the bank or credit card account in QuickBooks, select the account when prompted. If you have manually entered transactions into QuickBooks, select a date range that excludes those entered transactions.
  2. Process daily or weekly all items in the for-review panel for each bank and credit card account.
  3. Reconcile all bank and credit card accounts monthly. Before finalizing your reconciliation, review all items that are not checked. The only items that can be remaining are outstanding checks (checks your vendor hasn’t deposited) and month-end timing differences; for example, when you record a deposit on June 30 and your bank doesn’t process the deposit until July 1. Most other unchecked items are duplicates, transactions recorded to the wrong account, transactions entered with the wrong date, etc.
  4. Attach supplier invoices, receipts, or customer check copies to your transactions.
  5. Display the payee’s name in the for-review panel by clicking the small gear icon above the action column. Click Payee. Why is this important? If you don’t add the payee’s name to transactions that you create within the for-review panel, it will be difficult to find those transactions later. If you add the payee’s name, you can click on expenses (left panel) and select the vendor tab and search on that vendor’s name. QuickBooks will display every expense (generally credit card transactions), check, and payments related to that vendor.
  6. Always assign a payee name in the payee column to a check or expense document even if you see their name in the description column. Why is this important? When you assign a payee name to a transaction, you can easily find the transaction by selecting expenses on the left side panel. Select vendors. Input the vendor’s name in the search field. Click on the vendor’s name. If a check or expense document has no payee name, it can be extremely difficult to find the transaction. This can lead to duplicate payments.
  7. Use bank rules for expenses where you use a vendor regularly and expense is generally categorized to one account.
  8. Keep separate your personal and business bank and credit card account, if possible. If not, categorize personal expenses to an equity account such as owner’s personal expenses.
  9. Limit the number of business bank accounts that you use. Using one business bank account will simplifies your accounting. 
  10. Keep your cash deposits separate from your customer check deposits.
  11. Instead of creating a new vendor for each gas station you use, create a generic gas station vendor. You can create a bank rule that can include up to five different gas stations and have those transactions coded to your generic gas station vendor.
  12. Never categorize transactions to uncategorized assets, uncategorized income or uncategorized expense.
  13. Be careful about clicking add in the for-review panel. If it’s an expense transaction without an attached rule, verify that the transaction has the correct payee’s name and the correct category before clicking add. If the transaction is a check or a deposit without a match, add the correct document by clicking the +New icon and selecting the correct document.

Perform a monthly review of your basic financial statements that includes your balance sheet, profit and loss statement, and cash flow statement. If you are new to reading financial statements, perform this review with your accountant or schedule a session with a SCORE mentor.

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For more than 50 years, SCORE has helped more than 11 million aspiring entrepreneurs and small business owners through mentoring and business workshops. More than 11,000 volunteer business mentors in more than 300 chapters serve their communities.  
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About the Author(s)

 Bill  Cunningham

Bill Cunningham is a SCORE Rhode Island mentor and workshop instructor, focusing on business models, business planning, and QuickBooks Online. He is a CPA with more than 30 years of working in the television industry.

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