 QuickBooks Desktop 2023. How do bank feeds fit into my accounting system? Let's do it. We're into it. QuickBooks Desktop 2023. 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. In a prior presentation, we created a new company file, giving it the generic name of bank feed practice files. We're now going to open it up and think about how the bank feeds might fit into our accounting system. Remember that as we do so, we can think about the QuickBooks Desktop as being similar to say Microsoft Word, where Microsoft Word is the program, the document files being opened within the program, the QuickBooks software being the program, the data files being opened within the program. However, instead of double clicking on the data file to open up as we might do with the Microsoft Word document to open up the file, we're going to first open up the program and then typically open the data file within it. Now if the data file was the last file you had open, it might open directly to it or it'll be at the top of the feed here, which is convenient. But remember, you also still want to know where it is located so that if you have to reinstall the program or something like that, you know where to find your actual data file. As I hover over the file, you can see it mapped out there so you could take a look at it. Now I'm going to, now I actually moved my data file, so I have to open it from the new location here. So I'm going to say that I want to say let's go file dropdown and I'm going to say open or restore, which I could also do in that item down below. I'm going to open the company file. Restoring is for a zipped file. So I'm simply going to open it, going to go to my desktop and then I created a folder called bank feeds data file. There's the one. It's a QBW, not a QBB file. If it was a QBB file, that's the backup file. Then you'd have to unzip it and restore the file. Note that QuickBooks might require you to give it a user name and admin. So I'm just going to call it, I should say a password. I'm just going to give a generic password of password and then one, two, three, password, one, two, three, capital T as word one, two, three. Just a generic password here for the practice file. Your QuickBooks password has been changed. I'm going to say okay and now QuickBooks should be opened up and ready to roll. Every time I open the company file, I will typically go to the view dropdown and I usually go to the hide. Now, notice the hide icon bar. I've got this icon bar up top. Sometimes it gets a little bit glitchy with that icon bar. So I go up top and I'll say move it to the top, for example, and then I'll hide it and that usually kind of solves any problem. And then I'm going to go to view open windows on the left hand side view open windows. Next, I'm going to maximize the homepage to the gray area. So we've got the open item of the homepage in the middle. Also note that the icons might be a little bit larger than on your screen. I've adjusted the size by going to the settings, which you can find here on the actual on your windows computer. And you're looking for the display settings choosing your screen that you want. And I've increased it up to 150 to increase the size of the display settings. It's a little inconvenient to be outside of the QuickBooks system, but it works quite well to have the icons be a little bit larger. And that's a good thing to know. So now we're going to be doing our bank feeds. Now, let's think about how the bank feeds will fit into the accounting system. This being very important because oftentimes in this in part is due to like the advertising of new accounting systems. People think that you could just start the accounting system, connect to the bank and the bank feeds will do everything. That's not necessarily the case. It will be dependent upon the kind of company you have as to whether the bank feeds are going to be able to just create most of your financial statements. Or if they're just going to be a tool within the creation of your financial statements. So we're going to imagine a situation where it's easiest to make basically build our bank financial statements from just the data from the bank feeds. And then we'll imagine stepping away from that to more difficult kind of scenarios. And just a quick recap of that would be the easiest scenario would be something like gig work. You're getting paid, for example, from a platform like YouTube or something. And you could just wait till it clears the bank and record like a deposit as income and increase to the checking account when it happens. But if you have a cash register situation, that's typically going to add complexity to the situation. I'll talk more about that in a future in a little bit here. And then if you have an accrual system where you have to invoice, that's going to be more complicated typically. You have to track inventory, especially within the QuickBooks system. That's typically going to complicate things as well. So before we dive into the different industries, let's first think about what's going to be pulling into your system when we have the bank feeds. To do that, we can look at just a bank statement. So if we look at a bank statement, this is just a mock bank statement. We usually have the summary up top. And then we have the data, which would be the increases and decreases to the checking account. When you think about what's going to go into your QuickBooks from the bank, it's going to be this data. So just the raw data from basically your bank statement is going to be going into QuickBooks. Now QuickBooks doesn't have enough detail yet, especially when you first set it up to actually pull that data from the raw data into the creation of the financial statements. So if you were to just start up QuickBooks, you turned on the bank feeds, then you're going to pull in a bunch of data that's going to be in what I call Bank Feed Limbo. It's going to be within QuickBooks, but it hasn't been approved in essence. The added information given, such as the accounts, vendors, customers, in order to pull it all the way into the creation of the financial statements. And that's what we're going to have to do, especially in the first couple of months. After we get good at doing that in the first couple of months, we can start to memorize transactions, which we'll talk about, which makes future months a lot easier. But if you don't know what you're doing, what you're going to end up with is a whole bunch of data that's in this limbo area, and you're not going to know how to pull it in properly and set up your system to be automated going forward. So to set it up to be automated, let's think about what is included in this raw data. So let's think about the difference between deposits increases and the checks. We'll look at them separately because they're going to be different information typically given for them. When we have deposits, there's two ways we can get the deposit in general. One, it might be an electronic transfer like something you got like a feed from a gig work. So if you got something from YouTube, it might just come in from that way or you might deposit cash or you might deposit a check, for example. Now, if you just deposit cash, that's where you have the least amount of data. If you go to the bank, if you have the type of business where you make money, you go to the bank, you just deposit cash. If you wait for the cash to clear the bank and try to record the revenue with the bank feed, then you're going to have very little information. You might be able to do it, but all you're going to have is the date which should be relevant because it's still be pretty close to the time that you actually physically made the deposit. And you're going to have the amount where if you're talking about cash, it might be that cash that you deposited is from multiple sales. So you might have a grouping problem depending on how much detail you want in the system. So that's where you have the least amount of kind of audit trail in places with the cash. With the check, it's a little bit more because the check will go into your bank and you'll have the cancel check in the bank, but it will still really only pull through in the bank feeds to just the deposit that you got from a check that someone gave you, right? All you got is that information because the actual physical check usually doesn't pull over to the memo of the bank and you have to actually look at the physical check if you want to get more detail on the canceled check. So once again, if you have a system where you're getting physical checks, then you have limited data to make your bank feeds from. It will be easiest to do your bank feeds if you have electronic transfers because then usually you have the information in the memo or the bank feed description that will give you some detail about who you got the money from and the date will be relevant and then the amount and then you have the amount to help you out with the deposit. So those are the things that we have the raw data to kind of work with on the deposit side of things. On the decrease side of things, we have the same kind of setup in that if we have electronic transfers, it's usually the easiest type of transaction to use for to automate more with the bank feeds. Usually we can have either checks, for example, with the decreases with a check. If you're writing checks, then the date becomes less relevant because the date that's going to be on the bank side of things will be the date the check cleared, which could be significantly different than the date you wrote the check. And in that case, you're going to want to usually, if you're writing checks, you're going to want to usually record the check in your books and not wait till the check clears the bank because being able to track the outstanding checks is part of the whole process of the accounting system. But when you do use the checks, you've got the check number, which is an added detail that can help you to track what actually happened, help you out with the bank reconciliation, and of course, you have the amount with the raw data. You also have the canceled checks again, but the canceled checks are something that's not going to be in the raw data. Typically the polls in, you can go look it up and get the more detail on the canceled check, right? Now, if it's an electronic decrease, then the raw data is going to have a date which is much more relevant because when you made the payment with an electronic payment, it's a lot closer to the, it's going to clear the bank at a lot closer point of time than you made the transaction. So the date becomes more relevant. You won't have a check number. You still have the amount of course. And then you're also going to have the memo data. The memo data is going to be important because it'll usually give you something that will indicate who you paid like the vendor. That's the easiest kind of thing to make the bank feeds from. So if you're trying to make your whole accounting system be dependent or built from the bank feeds, then typically you want to do as much kind of electronic payments and receipts as possible as opposed to cash kind of transactions or check transactions even if you could set it up with electronic kind of activity. Okay, now that we have that down, let's go into and think about where our bank feeds would fit. Now it's useful to note that you want to think about how your bank feeds will fit in terms of cycle like the vendor cycle, the customer cycle and the employee cycle. The vendor cycle is ultimately money going out typically for goods and services being purchased. The customer cycle is ultimately money coming in for goods and services. And if you have payroll, then you got money going out for payroll, which would kind of be like the vendor cycle except now you got to deal with all the other stuff with holdings and what not, which really messes up at least for the payroll component, the cash, trying to make your books with just the bank feeds. You're going to have to step away from bank feeds typically there. So if you look at the vendor side, let's take each of these cycles could work more or less using the bank feeds, meaning you might be in a situation where your vendors, your payments work quite well to just do your payments using the bank feeds. However, your customer cycle doesn't, your revenue cycle doesn't because you have to invoice people and that messes up this side of things. So let's look at these kind of one by one on the vendor cycle. The easiest vendor cycle would be a situation where you're just you're just paying people and you have like the cash to do so. And you're just making electronic payments. If you're doing that, then you can wait till the checks clear the bank if you do an electronic transfers and start to assign the accounts as the bank feeds go through. And that would be an easy system to kind of rely on the bank feeds. However, if you're entering items into the system as bills and then tracking the bills, that means you're tracking accounts payable. If you're tracking accounts payable, that's going to make things more complex. Oftentimes, small companies don't track accounts payable as much and might be able to pay real time. And as the company gets larger more and more, you're going to have to track enter the bills and track the bills and then pay the bills. That's an accrual component. Whenever we have an accrual component that makes things more complex. You also might have inventory. I'm going to turn on inventory so you can see it right now in the edit dropdown preferences. If you go into inventory items and company preferences, I'm going to check this box off, which is going to add another line up top related to inventory. I'm going to say OK. And so it's going to close the window. I'll open it back up company homepage. Now we've got our line item up here indicating inventory. Now if you have inventory that usually complicates the bank feeds because it adds an accrual component. Meaning when you buy the inventory, you usually put it on the books as an asset as opposed to just expensing it. And then you have to track the inventory. So if you the inventory throws a wrench into the process, it complicates the process of trying to just build your financial statements from the bank feeds. So we'll deal with inventory issues both on the vendor side and the customer side. And we'll talk about that. Now let's go to the customer side, which could be a little bit more complex because we might have different more variables here. Again, the easiest thing that could happen would be that that you're in gig work or something. You're getting paid by a platform. You're getting paid by YouTube. You're a YouTuber. You're getting paid by the platform and you just wait till the money clears the bank. It's an electronic transfer. The memo on the money that you get says it's from YouTube or Google or whatever. And then you can just record the bank feed as income with the deposit form as it clears. And you can record the other side as income. That's the easiest kind of method to use. It's not perfect because this deposit form is not designed, which is the form that would be used typically for an increase in the bank feeds, is not designed to record revenue. The full service accounting process uses an invoice or a sales receipt. Even if on a cashed-based system, a sales receipt is used to record revenue. And that helps you to track items, breaking out your sales by item, and it helps you to track customers, breaking out your sales by customer. If you just use the deposit form, which is the form used with the bank feed to record revenue, you lose some of the detail of tracking your revenue by item and by customer. You don't have as much capacity for the sub reports. But that might be well worth it to just make a nice easy accounting system to be building your books from the bank feeds. Your balance sheet and income statement should still be good and you could be good to go. Now, note that that system is a step away from a cashed-based system, same with the vendor side if you just relied on something clearing the bank before you record it. That's not even a cashed-based system versus a cruel-based. That's a step further from a cashed-based system because even on a cashed-based system, for example, you would usually record the sales receipt and the deposit and then use the bank feeds or just do a bank reconciliation tying out what you did to what the bank has. That gives you a double check that you did everything correctly. So if you're just relying on the bank, then you don't have that same double check, which again might be worth it to make a nice easy accounting system. But if you're in a cashed-based system where you have a register, so like you're collecting money throughout the day and then you're going to have to deposit it into the bank at the end of the day, notice you don't usually in that system want to take all the money out of the register, go to the bank physically and deposit it, and then wait for that deposit to clear the bank before you record it as revenue because you're losing a lot of internal controls there. What you typically want to do in that case is use the sales receipt to record your revenue as you're collecting money and then check that the money that you collected, counting it, ties into the sales receipt for the day and then generally you're going to deposit it into your system as one lump sum that will be matched for the entire day and then you're going to deposit it into the bank so that you can't really use the bank feeds in that case to record the deposit. You're simply using the bank feeds to verify that the deposit matches what you've recorded in the system. That's more of a full service accounting system. Now there's actually two places that you could use the bank feed to help you record a deposit there which will experiment within the future. You could enter the sales receipts and then try to have a bank feed that matches the sales receipts that records the deposit or you could record the deposit and then have the bank feeds just match out the deposit. We'll talk more about that in the future. And then another system you might have would be one that you have to invoice clients. That means you're on an accrual basis. Many even small businesses are going to need an accrual basis like a bookkeeping for landscapers for example. Oftentimes have to do the work first and then invoice the clients. Send out the bill to the client for the work that was done. This invoice doesn't have anything to do with cash so we can't really build our accounting system based on the bank feeds if we have to invoice people because the revenue is typically recorded when we do the work, when we issue the invoice. So normally in that case we do the work, we issue the invoice then we get the payment and then we make the deposit all within QuickBooks in our QuickBooks system and when we receive the payment from the customer and physically deposit into the bank we're then going to let it clear the bank and match it out to the deposit that we made in our system. So again in that system we typically wouldn't be making our books directly from the bank feeds because we wouldn't want to just if we did that we couldn't track the accounts receivable or anything we would just have to wait till we got paid and then deposit it. So typically that's not what we want to do because we want to track the accounts receivable. Now you could fit the bank feeds in multiple places here you could try to create an invoice and then wait till it clears the bank and match it to the invoice. You could have an invoice and then a sales receipt and then match the bank feed to the sales receipt or you could do the whole thing and then match the bank feed to what you deposited. We'll talk more about that in the future just note that if you invoice people it's going to make things more complex to fit the bank feeds in you have to think about how are the bank feeds going to fit in to that system. Now also on the sales side the inventory is going to mess things up if you have to track inventory. So if you have inventory there's at least a couple ways you can think about it. You could have inventory and say I'm still going to try to be because inventory takes you away from a cashed based system because you're going to have to track inventory as an asset. So usually you buy the inventory goes on the books as an asset and then you take it off the assets when you sell the inventory and expense it as cost of goods sold using the invoice or the create sales receipt but you could try to set up a system with inventory and say hey look I'm just going to expense my inventory when I buy it right and then and that might work if you have very little inventory or if you have a just in time system you're buying inventory directly for one particular client and instead of in accounts receivable you just expense it when you buy it that's one way you could try to deal with inventory and still be on a cash based system but if you have a significant amount of inventory that typically won't work the next method you could use is a periodic inventory system not tracking inventory in QuickBooks but rather tracking it on a separate register which could simplify things a little bit within QuickBooks you might talk about that a little bit more or in the future presentation or you might turn on inventory in the system and track the inventory within the system which adds a lot more complexity to the accounting system because now we have to set up items to track the inventory both on the purchase side and on the sale side which means that you have to use on the sale side invoices and sales receipts to properly track the inventory therefore we can't just use a deposit which is what we would want to use if we were trying to make our books just from the bank feeds so we'll talk more about how we can deal with that in future presentations and then the other one of course is payroll payroll would be nothing more than like a vendor transaction meaning money goes out for services being provided except that now we have taxes that we have to deal with and other withholdings and what not so if you have payroll within QuickBooks it's going to make it so you can't just rely on the bank feeds to record payroll transactions if you have contractors then you might be able to pay them and use bank feeds to record the transactions but if you have withholdings with payroll not so much now again there's a couple ways you could deal with that you could if you turn on payroll and do payroll within your QuickBooks system then you're going to have to step away from relying on the bank feeds and you're going to have to deal with processing payroll and so on and then use the bank feeds to check the payroll transactions but you can also have payroll done by a third party preparer and if you have the third party preparer do the payroll then they can handle all the kind of payroll processing and that kind of stuff and then you might just wait till the payroll transactions clear the bank record them on a cashed based system and then make periodic adjustments in order to make your financial statements correct in accordance with the payroll reports periodically at the end of the month or year so you have a couple different options with regard to payroll we'll get into that in the future as well so the general concept we just want to take away from this is we're going to start off our base case here with the simplest things with the kind of accounting transactions that you could use the kind of business where you can use the bank feeds to basically build your books and then we'll gradually step away from the easiest thing to the more complicated things to try to add levels of complexities that might be applicable and your goal of course when you set up the bank feeds is to first think about how are they going to work how can I set the bank feeds up at the beginning how can I get the process in such a way at the front end so that I can make it automated more easily going forward in accordance with whatever my particular business is so we'll dive into that in future presentation