Most accounting software available today offers ease of use and helps sort out all your financial data in a concise manner. QuickBooks Online is one such software. It allows you to automatically generate income statements, cash flow statements, and balance sheets in no time at all.
However, despite its many benefits, QuickBooks can be a bit intimidating. You may be confused about whether you’re doing it right or not. One mistake in a single ledger entry can lead to the entire data becoming faulty, and many accounting mistakes could occur in the process.
So, today we’re here to tell you about some common QuickBooks mistakes and how to avoid them.
Disorganized List of Items
All the products you sell are incorporated in QuickBooks as “items.” If you don’t log them in frequently, there is a high probability that you can lose track of the items that exist. So, some items might be available in your inventory but not recorded. You may also end up recording an item twice, disrupting your financial statements.
Luckily, you can resolve this issue by checking your stock at least once a day. All items should be clearly labeled in the category they belong to. The cost should be updated in line with the quantity. You can also hire someone to do this for you. Any items which are no longer in use should be removed from the list.
Chart of Accounts is All Over the Place
Your chart of accounts comprises of all the categories in which you group assets, liabilities, expenses, and income. This is the most essential part of maintaining financial statements.
However, creating many accounts for every little transaction can overcomplicate your data. You might even have to hire a CPA to categorize your data from scratch. So, these categories should be kept at a minimum, and similar items should be grouped. This will help your data remain clearly organized.
Incorrectly Using Undeposited Funds Account
You might see that your cash balance has not increased in your reports despite receiving payment from customers. This may happen because you are not using the undeposited funds account in the right way. This is extremely common when you are using integrations into your accounting software. You should follow the steps below:
- Open the deposit module
- Make a set of all the checks received
- Include them as a single deposit in QuickBooks
Confusion between Cash Basis or Accrual Accounting
When you start doing the accounting for your business, you have to choose between cash basis and accrual accounting. The difference between both of them is in the timing. The same happens when you file a tax return.
Whenever money is received or paid, a cash accounting system recognizes it at the same time. While accrual accounting identifies revenue when it is earned and expenses when portrayed.
QuickBooks are preset to accrual accounting. However, if you are a new business, then cash basis accounting might be better for you. This way, you can easily understand transactions and keep a check on cash received and payments made at any time.
Applying for Deposits and Payments the Wrong Way
When checking your reports, you may stumble upon a negative balance from a customer. This might be because you’ve considered the deposit as an invoice. The same situation applies to payments. For example, you’ve paid a vendor, but it still shows as an amount owed on QuickBooks. This could be because the payment you have made has been incorrectly recorded as a bill, so you must fix that error.
Missing Adjustments in the Books
All journal entries need to be adjusted so that they are in line with the current accounting period. These adjustments are made at the end of a month or a year. Sometimes you might forget to adjust entries or do so incorrectly. This is where your accountant can come to your rescue.
Let’s take an easy example to understand adjustments. If you sell a piece of clothing for $10, it would be recorded in accounts receivable. When the money is received, you will enter it as a cash deposit. After a while, if the customer asks for a 2% discount, you will create a new entry. This will amend the previous accounts receivable by the discounted amount. The new amount recorded in the books would be $9.8, not $10. So, adjustments need to be made to update records.
Unable to Use the Purchase Order System
Using a POS is an easy way to keep account of your orders and deliveries. It generates an order whenever a purchase is made. An invoice is created by the invoicing software after a purchase is made. Whenever you buy something from a vendor, an order should be made. You should check that all items are received as stated in the order. The purchase order should ideally have entries for up to a year.
Fail to Retain Records
All transactions in QuickBooks are linked with each other. If one transaction is deleted by mistake, it can distort all the data. So, you must maintain all records properly.
In the future, you may close your business and erase all the data you have gathered. If you ever want to start your business again, you won’t be able to view your old data unless you download and save your files for future reference. So, remember to do that as they can come in handy at any time.
If any of the information provided above made you feel confused, don’t stress because you are not alone. There are many other businesses that have faced similar problems in the past. However, with time, they have fared well with just a little help.
If you are struggling or just don't have the time to keep up with it, it may be time to have Hall Accounting take over and invest with accurate accounting records and financial reports. The Hall Accounting team will manage your records from start to finish and make sure all adjustments are timely recorded. This option is also feasible for small businesses because it is cheap and hassle-free, at a fixed monthly rate. If you are interested, please feel free to email us at email@example.com and we will get you a free quote!
FUTURE IMPORTANT DEADLINES
Deadline for third-quarter estimated tax payments for the 2021 tax year
Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020 for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065)
Final extended deadline to file individual tax returns for the year 2020 (Form 1040), and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020 for corporations that use the calendar year as their tax year