 QuickBooks Online 2023. How bank feeds fit into your accounting system. Get ready to start moving on up with QuickBooks Online 2023. Here we are in our bank feeds practice file. We started up in a prior presentation using the 30-day free trial. We also have opened the free QuickBooks Online sample company. If you want the two open at the same time, we suggest using the incognito window or another browser. You can open the incognito window if using Google Chrome by selecting the three dots in the browser. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Selecting a new incognito window typing into the search engine QuickBooks Online Test Drive looking for the option that has into it in the URL into it being the owner of QuickBooks. We're going to be using the sample company to compare and contrast the accounting view the one that the bank feeds practice file is in and the business view the one that the sample company is in. You can toggle between the two views by going to the cog up top and switch the view down below. So we're now going to be thinking about how the bank feeds can fit into our accounting system and when you first hear bank feeds especially when you see it advertised in QuickBooks or other types of accounting software it's often advertised as though you're just going to turn on the bank feeds and then automatically and magically your financial statements will just be created right after you turn on the bank feeds. That's not exactly how it works in practice although you can see why they might want to advertise it in that kind of way in that kind of fashion in reality. We still have to have some idea of what's going to happen how QuickBooks works so that we can know where the bank feeds are going to be fitting into our system. So the general concept of QuickBooks or how QuickBooks is going to create the end result of the financial statements remembering that the business goal of course is revenue generation. Our goal from the bookkeeping or accounting side of things is to enter the financial transactions as they take place typically using some of these forms which are broken out by customer, vendor, employee and so forth. These then create the financial transactions that are used to create the financial statements the end result from a reporting standpoint the result that will then be used at least for tax preparation in the United States generally and possibly for external use if we have to get like a loan or something like that and internal use for our own decision-making processes. Our other goal from the accounting side of things is to facilitate communication with the people we do business with customers, vendors and employees as smoothly as possible so that the focus of the business can be on whatever the business does for revenue generation. So that's the general idea. Now when we enter the bank feeds we might say is there some kind of way that I can use the bank feeds to shortcut some of the full accounting cycles that we'd be putting in place in a full accounting system. So that's what we want to basically get an idea of now to do that I'm going to jump over to the flow chart. This is a desktop flow chart but it's just a flow of the forms the accounting process will be the same it's just a conceptual flow chart. So when we think about how the accounting process works we can break it out by vendor or cycle we've got the vendor cycle or the payable cycle the expenses cycle you might call it we've got the customer cycle or accounts receivable revenue cycle income cycle you might call it and then we've got the employee cycle which is might be called the payroll cycle. So clearly at the first cycle the vendor cycle at the end of the cycle whatever that cycle is we would typically assume that the money is going to be coming out of the checking account for goods and services that we are purchasing therefore of course money being the lifeblood of the company is going to be involved in some way in just about every cycle. If we're looking at the customer cycle we would expect at the end of the cycle whatever that cycle is that the checking account would typically be going up for goods and services that we are providing to customers. So once again money being the lifeblood of the company is involved in the cycle of course and with the payroll cycle we would expect at the end of the cycle money to be going out in a similar way as with the vendors although more complex due to laws regulations and taxes for you know goods services we're providing or paying for for the employees that we are paying. So it's useful to break down these cycles and then think about am I on a cashed based system or am I on an accrual basis by cycle so we don't want to think about the whole company necessarily when we're trying to figure out how the bank feeds fit into our accounting system because it's possible for in for example small companies often might be on in essence a cashed based system for their vendor or expense cycle but they're forced to be on some kind of accrual based system due to the industry they're in for the revenue cycle. So it's useful to say okay am I on a more simplified cashed based system per cycle or am I on more of an accrual system and then figure out okay well how did the bank feeds fit into the system because I know each cycle deals with cash and cash is going to be a banking type of transaction how can I fit that into my system. Now note when you think about the bank feeds if I go to like a bank statement here the bank statement kind of reflects what the bank feeds are going to be providing to the system. So this is all the information that the system has we can say okay this is what the system has with this information how can it be used to kind of possibly shortcut or enter transactions into my accounting system. So up top in a bank statement we usually have a summary and then we've got the deposits and the withdrawals or decreases to the checking accounts. Now with the deposits these are the types of things that are coming in on the bank feeds the stuff that's on your bank statement we know the date although it's not the date that you actually made the deposit it's the date that the deposit cleared but it's still pretty close in time because it shouldn't take much time for a deposit to clear usually one to three days. We know the amount which hopefully the amount that's being deposited matches our system if we're trying to match it out but we know the dollar amount of course and then if there's an electronic transfer then you might have some more information so if you just deposited cash for example this might be all the information that the bank has but if you deposited an electronic transfer that came directly from a platform like YouTube or something then you might have a memo which gives you added information that added information usually has enough information to know who it came from like the customer but it won't automatically populate the customer therefore we're going to have to add that information into the system in order for QuickBooks to pull that information to the system to make the financial statements with on the checks or decreases side of things then we have the date but if we actually wrote a physical check the date is not as as relevant because it could take a long time for a check to clear that's when we have this big outstanding component which which is where we would want to enter the check first and that kind of situation and use the bank fees as a double check and then you've got the amount now if you did electronic transfers the date once again is much more relevant because it's closer to the date that the actual transaction took place and we won't have a check number but we might have those transactions again in the memos so the memo might have the information to help us know who the vendor is although QuickBooks can't just make the vendor from the information in the memo so you can pull the information from the memo to create the vendor and then start to memorize the transactions so that's the general idea so note that QuickBooks from the information from the bank does not have enough information to just pull that information in and create your financial statements you're gonna have you're gonna have to add at the least the customers and and the vendors right and then the accounts are gonna have to be added the income accounts with the deposits typically income accounts and the expense accounts with the decreases to the checking account therefore a lot of people run into problems when they start up QuickBooks because they get this idea that they're just gonna start up QuickBooks they're gonna turn on the bank feeds and the whole thing's gonna gonna do itself and populate everything automatically what really happens is you're gonna pull in a whole lot of data into the system it's going to go into what I would call bank feed limbo meaning it's been pulled into the system but it's not yet being used to get to the promised land of actually making the financial statements you have to add the added information to do that accounts customers and vendors are the minimal information you're gonna need in order to pull it over once you do that for a few months you can start to automate the process but you have to know what you're doing for those first couple months in order to get the process to where it's going to be automated so now that we know that let's go to each of these cycles and think about how the bank feeds might fit in now in the payment cycle when we're buying goods and services for the business you might call it the expenses cycle we could do that the easiest way to do that would be we just basically write a check type form or even easier we just do electronic transfers so we just set up electronic transfers to pay the telephone bill the utility bill and so on and so forth because there are electronic transfers we might just wait till they clear the bank which shouldn't take much time and then use the bank feeds to record the transactions instead of us recording the transactions first and checking with the bank that's where you get kind of the shortcut of using the bank feeds that could work quite well with those electronic transfers so that's where the bank feeds can fit into that process many small businesses can do that and it and it works quite well although it's not like a full service accounting system because you're depending on the bank to create the financial statements it's actually a step further away or easier than a cashed based system because a cashed based system for example you might still write checks in a cashed based system physical checks and send them out and that system you might still be on a cashed based system versus an accrual system but you're not dependent on the banks to record the transactions because you're going to want to record the transactions when you write the check because you want to be able to discuss with the vendors if they have questions about the check when you wrote the check and whether or not that check has cleared therefore in that situation you're going to want to enter the check and then use the bank feeds as a verification a double check a type of internal control it's part of the bank reconciliation process not being used to create the financial statements and then if you're doing an accrual type of thing then you're going to enter the bills the bills increase accounts payable so now you've got the bill from like the telephone company for example instead of just paying it electronically with a check type form or expense form or with a physical check you're going to enter it into the system as a bill a bill for quickbooks is much more restrictive than a bill term just in common language a bill term in common language could mean we're billing the client or it could mean that we got a bill and and it might the bill might say invoice on it because the for the person who sent the bill it's an invoice to us it's a bill if we're thinking about this this kind of terminology on this side of the table and we might just pay the bill with a check or electronic transfer and not enter it into our system as a bill form if we're using the bill form it means that we're increasing the accounts payable that's what the bill form does and then we're going to pay it later with a pay bill form which is in essence a check now this transaction of entering the bill into the system as a as an accounts payable is an accrual transaction no cash involved so now you've stepped away from a cash based system entirely so clearly the bank feeds are not going to be able to record that transaction because it's not there's no cash involved in the transaction now many small businesses might not do that they might stick to a cash based system but as businesses get larger then oftentimes they move to needing to deal with accounts payable because of the size of the transactions they have and the number of transactions so in other words if you pay your utility bill for like a hundred dollars today or 15 days from now it doesn't matter you just send out the electronic transfer 15 days isn't a big deal but if the utility bill was thousands of dollars and you made like hundreds of transactions a day like that then of course 15 days starts to become relevant uh and so you need to track the accounts payable and time manage your money a lot closer and try to pay as late as you can without annoying the vendor and that's when you have to deal with this accounts payable in that case where the bank feeds fit in well you could enter the bill and then pay the bill electronically wait till it clears the bank and try to connect it to the bill with the bank feeds but most people would most likely enter the bill then pay the bill with the pay bill form in essence a check type form or expense type form and then they would use the bank feeds to match to double check to verify to basically do the bank reconciliation process that would be a full service accounting system let's look at the revenue side of things now in the revenue side of things it's quite possible that a small business is doing a cashed based system for for the expense side but are forced to do it and a cruel thing for the revenue side because of the industry that they are in so let's talk about the easiest to the most difficult on the revenue side of things to to do your books with just the bank feeds the easiest system you get paid by like youtube or like any other kind of platform where they just give where they just pay you money you're not dealing with inventory or anything like that you just have services that you provide or something and they pay you money in that case the bank feeds will work quite well because you can just wait till you get the money record it with the bank feeds and use basically the deposit form which is the form used when you increase the checking account through the bank feeds to record the income at that point in time you're going to lose a little bit of detail in your reports that way because the deposit form is not used in a full service accounting system to record income the sales and invoice forms are used to do that so you lose a little bit of detail in the sub reports tracking the sales by customer tracking the sales by item that you're selling but the ease of doing that if you're in that kind of system is often worth worth it and and you can you can set that up so that's once again a step away from a cash based system to one that's dependent on the bank you're not doing a full accrual you're not doing a full accounting not even a full cash based system you're just constructing your books from the bank and then a step away from that to a cash to base system would be one where you have like a cash register for example so if I have a cash register now I'm getting the money I can't really wait I could you could imagine you could say well if I have a cash register I can get the money even if it was cash and then I could go to the bank and deposit the money wait till it clears the bank and then use the bank feeds to record my revenue you could do that but most people that are at a cash register don't want to do that because they want the internal controls of being able to record the sale with a sales receipt generally at the cash register and then be able to count the cash for example and try to compare the counting of the cash to the amount that they actually have recorded in sales as an internal control and then they're going to deposit it into the bank grouping together all the cash deposits together and they want they want the amount that's going into the bank to tie up to what's in the system so usually in that kind of system you're going to use the bank feeds to double check the deposit that you have already entered into the system now you can also imagine the bank feeds like matching up to the to the sales receipt you could have the sales receipt that goes directly into the checking account or or but we'll talk some about those options but the most common option would be you enter the sales receipt you make the deposit and then you use the bank feeds to match as part of the bank reconciliation process all right then then you might have to go from a cruel standpoint in which case you would actually create an invoice that would be something like a landscaping firm a bookkeeping firm a law firm where we have to do the work first and then we invoice the client and then we have to track the accounts receivable to make sure that we're getting the payment like with the bill form the accounts receivable isn't a cruel thing we've we've departed from a cash based system therefore of course the bank feeds can't enter a transaction for an invoice because there's no cash involved for it so in that case of course we'll have to do the work enter the invoice and then again you could imagine like you wait till the customer pays you and if they pay you when they pay you then you try to match the deposit to the invoice to record the transaction but most of the time what's going to happen is you're going to invoice then you're going to receive the payment from your client you're going to record a receive payment lowering accounts receivable the other side possibly going into the checking account or possibly into undeposited funds and then you make the deposit and then you use the bank feeds to double check that you that the deposit is correct which is part of a reconciliation process so we'll talk more about some different options you can do you can do there but that's the general that's the general idea with those now if you have inventory that also confuses things because inventory usually forces you to step away from a cashed based system so if you have inventory you could imagine you try to stay in a cashed based system with inventory and you might just say when i buy inventory i'll wait till it clears the bank and i'll just record it to the expense account of cost of goods sold and then and that's how i'll deal with the inventory and then when i make the sales i'll just record the sales side of things with with a deposit account or something like that but most of the time if you have a significant amount of inventory on hand you can't do that because the tax code might stop you from doing that and you want to track the inventory as an asset because it's significant and then record it as an expense when you consume the inventory when you sell it in order to generate revenue and that's in a cruel type of thing which kind of messes up the bank feeds there's a couple ways you can do that you can do a periodic type of system tracking the inventory in an excel sheet outside of the system and then making periodic adjustments or you can do the perpetual inventory system where you track inventory in units on a sub ledger inside the system if you and if you do that then you're forced to use the invoices and the sales receipts when you record sales because those are going to allow you to kind of track the sale of the inventory you can't just record it with a deposit so we'll talk more about the inventory how that can complicate things going forward and then with the employee e-cycle or payroll cycle uh if you there's two ways you can do the payroll one you can turn on payroll within QuickBooks and track it internally or two you can hire a third party payroll provider to just do the payroll you only entering the information necessary to get the financial statements correct now if you hire a third party payroll provider outside of QuickBooks to run payroll you might still be able to be basically in a cashed based system because you can kind of wait till everything clears the bank and just record it as payroll expense in one account as it clears the bank and then you can provide basically all the payroll reports from the third party provider uh to your and your financial statements to your accountant maybe at the end of the year who can make any adjustments necessary as of that point in time meaning making sure that you're making adjustments to make sure your your accounts tie out to the w2s the w3s the 941s and the 940 on a periodic basis so if you're trying to automate everything then that might be the easier way to go although you have to depend on a third party payroll provider to do that and trust them to to do their job and pay them to do their job and to trust someone that knows how to do adjusting entries at the end of the period a tax preparer or cpa firm to help out with that otherwise if you're doing payroll within the system payroll has these are cruel components to it again when you pay the payroll you're gonna have to have withholdings which are going to increase the liability account so you can't just wait till the thing clears the bank the bank feeds will fit in by basically double checking the checks that have been written because you're gonna have to actually write the checks using the payroll system and then write the checks for the liabilities using the little payroll system rather than waiting till it clears the bank so you can use the bank feeds as a verification as a type of bank reconciliation all right so that's the general idea so for this practice problem we're going to basically use the bank feeds to construct and try to think about our default as the easiest system we're on the cash-based system we're trying to construct our entire books from the bank feeds but then we'll we'll talk about where we deviate from that easy system so we'll talk about the easiest way and then we'll go okay what if we had the sales receipt situation what if we had an invoice and we'll add levels of complexity with a couple examples and that's how we'll construct our bank feed data input and future presentations