 QuickBooks Online 2024, inter-transaction related to purchasing equipment using bank feeds. Get ready and some coffee because we're sketching out the bookkeeping process outline with QuickBooks Online 2024. First a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways like our crunching numbers is my cardio product line now i'm not saying that subscribing to this channel crunching numbers with us will make you thin fit and healthy or anything however it does seem like it worked for her just saying so you know subscribe hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com here we are in our QuickBooks Online bank feed practice file we set up in a prior presentation after setting up the QuickBooks Online practice file we went to the transactions on the left hand side into the chart of accounts removing many of the accounts or making them inactive in other words including many expense accounts so that as we pull information in from what I call bank feed limbo into the promised land of creating the financial statements needing then to include that crucial piece of information that is missing the account we can also build our chart of accounts as we go customizing our chart of accounts we also added a bank account connected the bank feeds to it or in our case uploaded transactions to mirror a system that will be just like connecting to the bank feeds in that if we go to the bank transactions into what I call bank feed limbo we have our transactions that have been uploaded but have not yet been included are not yet part of the financial statements the creation of the balance sheet and the income statement so before we go any further let's also open up the balance sheet income statement the primary two financial statement reports which is something we'll start to do every time going forward from this point so let's go to the reports on the left hand side and then within the reports everybody's going to have the favorites because they're the default favorites of the balance sheet and the income statement so you don't want to remove those from your favorites those are everyone's favorites if they're not your favorite you have a problem this is not like ice cream flavors where you can choose your own one that right click and open link in a new tab and we'll right click the profit and loss and open a link in a new tab right it's not like ice cream flavors everybody has to have these two as their favorites because those are the parent reports those are the overarching reports okay so let's go to the tab to the right we'll close up the hamburger and i'm going to do a range change up top for the two months that we've been working on 010124 tab 022924 29 days in february 2024 apparently it's the leap year is that what they call it here i believe let's run it all right so there's what we have thus far let's go to the profit and loss tab into the right close on the hamburger and we'll change that range again 010124 tab 022924 let's see this on a month by month side by side if we may and run it and so there we have it okay let's go back to the first tab and go back into our transactions and we want to be seeing the bank transactions i'm going to close the hamburger we would like to look at a transaction now where we're purchasing equipment now when we purchase equipment it's a little bit of a confusing transaction that could mess up the bank feeds so last time we went over the most basic type of transactions paying the cyclical bills such as utility bills and we can make a nice rule for that we can automate that we can do that easily then some transactions are going to be a little bit more complicated such as the purchase of equipment why is that more complicated because we don't purchase equipment all the time so note that most normal transactions that we have if i hit the plus button up top are are have a form that's connected directly to it so if we look at the cycles customer cycle vendor cycle and the employee cycle or payroll cycle then the forms within those cycles are the things used to create the transactions which then build the financial statements when we buy equipment you might think that we could use the the expense form the check form and we could if cash is affected but sometimes you might not even have cash affected right because you might have financed the purchase of equipment you might have taken out a loan uh for the purchase of the equipment in that case you're going to have to default basically to a journal entry and of course that full transaction will not be on the bank feeds because there were no cash impacted so in that case you have a few different options you can talk to your accountant and see if they were going to help you to to format the journal entry for it or you can you know you could put a journal entry in if you're comfortable with entering the journal entries in at that point of time and then you're going to have to deal with the loan payments that will come with that as well the other thing that i want to point out whenever we talk about the equipment is that we have to deviate from a normal cash based system so in other words if i go to my profit and loss normally the things that we purchase uh we're going to expense them as we purchase them so as they come through the bank feeds we could just expense like the telephone the utilities and so on and so forth however if we purchase equipment we're going to have to do an accrual thing and you might think i don't want to do an accrual thing but you kind of have to because in the united states you have to have taxes done and the taxes will force you to do an accrual thing and most people it kind of makes sense anyways like if you were the biggest example would be if you purchased like a building and you paid a million dollars and you had the cash to do it you paid a million dollars cash you still wouldn't think that you would just call a building expense and expense it in january no you'd probably say no i invested that cash and i should put the building on the books as an asset why because i'm using the building in the future for a long period of time i didn't consume the building so that that thought process is an accrual thing right that's an accrual transaction so you're saying because there's this big time difference between when i consume the building and when i buy the building i should put it on the books as an asset and possibly depreciate it same to a lesser extent the same as the case with like equipment a forklift or something it's going to surely go down in value but i should allocate the value to the periods that it's going to help but help me to generate revenue that's going to be the typical point of it now the next question is well how am i going to put it on the books in in terms of which accounts is it going to go into note that if i go to the first tab over here and we go back to the chart of accounts quickbooks gives us some of these fixed asset type of accounts by default however i don't think they do it i don't think those are the accounts these two might be good building and land but i removed a lot of the other ones because i'm not sure that's exactly how you want to format it what you want to do is format it in the same format as the sub ledger will be processed and the sub ledger which will give the individual units of equipment will typically not be done within quickbooks in part because you have to do it for taxes anyways so you're going to have the sub ledger in the tax software so and most tax software has the capacity to use to do tax depreciation as well as book depreciation if necessary so what you would typically want to do is ask your accountant hey what are the major categories of fixed assets let me mirror that on my side in the accounts that i will format and then i will group my fixed assets into those categories which should match what will be on the sub ledger which will make the tax preparation a lot easier and it'll make it a lot easier when you dispose of equipment so for example tax software might give you a sub ledger that looks like this furniture and fixture machinery and so on these are the major categories that you want to be mirroring so that you can group your purchases in those categories so that when you do an adjusting entry for depreciation for example then then you'll you can you can categorize based on the same categories that are in the uh on the sub ledger which is in the tax software right so so the other thing that you want that you might have to set up is within the chart of accounts how are you going to format uh your accounts so let's imagine that this is my sub ledger and i'm going to call the names of my accounts furniture and fixture like this and machinery and equipment so let's add those two accounts i'm going to say i'm going to add these two accounts i'm going to copy this and say my equipment that i'm going to purchase is going to go into new i'm going to say it's going to be an account a fixed asset and notice we don't buy fixed assets all the time so whenever you have a large purchase then you might ask your accountant because that doesn't happen all the time right if you get a large purchase and you might ask them and say what should i put this under so fixed asset and we'll say furniture and fixture furniture and fixture that looks good so i'm going to say okay let's save that so now we have our fixed asset furniture and fixture and then the other one's called machinery and equipment so i'll say let's make a fixed asset new for fixed asset and then machinery and equipment so they have all this random stuff fixed asset software intangible i'm just going to pick one and then change the name because this category isn't that important to me and then i'm going to say all right so there's that now the next thing that's going to happen is you're going to put these on the books when you purchase them you're going to put them into these fixed asset accounts and then at the end of the year you're going to have to do an adjusting entry to record the accumulated depreciation and depreciation expense meaning you're going to allocate the cost of the equipment to the uh period in which it was incurred so then how are you going to do that well uh you could have an accumulated depreciation account that would be for all of your of your fixed assets but a lot of people would make an accumulated depreciation account for each category so for example over here we've got all of the equipment and then we've got the depreciation accumulated depreciation for that category so and then i can take the difference between the two would be the book value for the category so i'm going to just show you how we might use sub accounts to do that now you might think i could make the furniture and fixture the parent account and then put two sub accounts underneath it if i did that what would happen on the financial statements is i would have a triangle kind of like this that would call be called furniture and fixture and then the two accounts below it would be the cost of furniture and fixture and the accumulated depreciation however i think it's actually a little bit better and easier if we just use this as the parent account and then i'm going to make a accumulated depreciation account tied to it directly so i would post things to this account which is actually the parent account and then the accumulated depreciation is the only account tied to it that's why it works well this way would be underneath it so it would look like this this is what i would recommend what i do currently fixed assets and then we have accumulated depreciation and i usually abbreviate it to acc d pre i just think that sounds cool and then i like to say for repeat the name furniture and fixture now you might say this is repetitive because you don't really need to say furniture and fixture because it's going to be a sub account of the furniture and fixture but i find it makes it easier to distinguish the accounts if i put a name of the furniture and fixture on it and i some people don't like the abbreviation of accumulated depreciation because i think it's unprofessional but it's a lot easier it's a lot shorter and easier to see uh so that's why i like it so there's pros and cons can't please everyone can barely please anyone as far as i can tell but any case let's go into the building here so it's going to be a sub account of the furniture and fixture so there it is and so we're going to say okay and so now it's a sub account so it would appear as a triangle and then i would do the same thing for the machinery and equipment so let's see if i can copy this and i'll say new and then i'm going to say it's going to be a fixed asset accumulated depreciation i'm going to call it acc d pre doesn't that sound cooler than accumulated depreciation it's the acc d pre right i mean come on what are we talking about here the acc d pre and this is going to be the machinery and equipment is going to be the parent account so that's how you set up your sub accounts okay so now that we have that kind of kind of set up we can think about well how do the bank feeds fit into this well if i look at the bank feeds some places we purchase from it's likely that we purchase both supplies and equipment from that place like an office depot for example so you might set up a rule that's a little bit more complex with an arbitrary dollar amount that you think is significant right so might it might be a thousand dollars it might be five thousand dollars depending on the size of the company and you might say hey look if it goes over that dollar amount then quick books i want you to apply a different rule so to see that i'm actually going to show i'm going to upload a few more transactions we're going to upload transactions as we go so we can customize the bank feeds to see how this might look so i'm going to add a date of like let's say one fourteen uh two four uh that's formatted formatted for me as a date that's great and then i'm going to say it was a decrease of one thousand six uh hundred let's say and and let's say that this was going to be for office depot did i spell it the same way as this one correctly i don't care if it's correct i want it just to be the same office depot and then it would have some numbers next to it typically right so office this would be the description so this is the information that we're imagining pulls in from the bank and so let's do another one on 123 uh two uh four and let's say this was negative two thousand seven hundred office depot and let's have a different number on this one and so and then we might have like an amazon would be a similar kind of thing where you might have payments to amazon if it goes over you know any supply store you might have sometimes that you purchase equipment now i'm actually going to add a header row this time because i think that might make it a little bit easier so i'm going to select row one and insert and i'll make this a date and this is the amount and description date amount description did i spell that right no of course not uh change it then change it then so that's the header so that looks good and so everything looks good and so let's change that to the let's change it to like the eighteenth all right so i'm going to save this uh and then i'm going to save it as a csv file because that's the file we can upload so i'm going to say save as and then i'm going to change the file type to a csv file and you should have this yourself if i give you the files because and i labeled it three seven five if you want to look at it that way so we'll save it and then it will be located here so now we've got our two files there's the three seven five and three seven five this is the csv file looks slightly different than the excel file we can only upload the csv i'm going to copy the url and then go back into quickbooks and now i'm in the bank transactions i'm going to select the drop down and say i want to upload from file and then i'll select the file i want to upload it's in the right location three seven five notice it doesn't show the excel files but only the csv files because i can't upload the excel format and then we want to say that it's going to be going into the checking account so we're just importing these as though we were connected to the bank and this time it says is the first row in your file a header this time yes it is a header so and then is it one column or two it's only one column so what's the date format the date format is uh month month day day year year correct so then we have the the uh date fields now the headers are lining up properly right so the header is the date and then the description it was able to see that the description is the description because we added a header and the amount is the amount we don't have any check numbers so let's continue and there it is so it picks them both up that looks beautiful let's go ahead and select both of them and add them so quickbooks will import two transactions usually in the fields great quickbooks movie b to the end bn two letters for you bn bn okay so then if we go down i can sort this now and if i sort it by the detail i might sort it by money out and then the detail and so now i've got office depot all of these office depot ones notice some of them are under the a thousand dollars so i'm going to assume this is an arbitrary line that we're drawing here but it's going to be something that'll make it easier for the bank rex right so i'm going to say it's in material even if i buy something that i'm going to use for 10 years but it's under a thousand dollars i'm just going to expense it because it will not have a material impact on decision making of the financial statements if it's over a thousand dollars possibly then i want to include it as an asset in part because the tax code will force me to and in part because that will be the more proper bookkeeping type thing to do so let's look at this one for example let's let's say we go into this one and say uh the vendor is going to be office depot so i'm going to copy from the memo that's pulling from the description of vendor office depot so i'm just going to say uh let's add that one i'm just going to add just it right here that's all i need saving that it's going to go now it's not going to inventory and so i'm going to say let's let's say that it's going to go to the account we set up noting that this is an account that isn't an expense account so when you have these large purchases no matter what you do you're probably going to want to ask your accountant just to make sure that you're applying it if you're if you're doing the bookkeeping so that you you know you usually most expense account most accounts that are decreasing the checking account will just go to an expense account but when they're large purchases you might want to double check to make sure that you're getting you know the transaction into the proper account right so we're going to say this one's going to go into let's say machinery and equipment and i don't have any tags for it and it's going to be a memo we have the memo then i could create an attachment now this is one where you might want to have an attachment as well because if this was just a blank purchase of two thousand seven hundred dollars and all i see is that it went into machinery and equipment my tax accountant will not have enough information to properly put it on the sub ledger in other words if they put this on the sub ledger and record depreciation of something that's just like down here generically called equipment when the equipment was actually like five computers or something like that the problem will not happen when they put it on the books it will happen later when we try to remove the thing from the books because then if i sell one of the computers i don't know which computer it is on the sub ledger and i can't properly determine how much has been depreciated and that's where the problem happens so whoever's doing your accounting you want them to be able to break out what you are putting on the books line by line and identify exactly what is happening so in theory you can look at the sub ledger and be able to use that to identify the actual physical piece of equipment so that when you sell it you it'll be easy and you want each physical piece of equipment to be on the sub ledger separately even if purchased in a lump sum purchase even though that's more difficult to do in the year of implication implementation because it'll be way easier once you get things once your sub ledger gets complicated in future years that means you would like to give your accountant the purchase information so that they could actually break it out properly put any reference numbers like license plates or or computer numbers on it so you can identify the computer so the attachment would be good again if you have a loan or something like that you might be putting a down payment on a purchase of equipment and then also have a loan there's a couple different ways that you could deal with that you could talk to the accountant to see how how you should put it on the books in in the first in that case or you can try to say hey look i'm just going to do the cashed-based side of things give my accountant this information as well as the loan document at the end of the year and allow my accountant to then properly put the equipment on the books properly do the sub ledger and then properly do the amortization table for the loan also breaking out short-term and long-term portion of the loan that's actually a fairly good system to do because the accountant often has to has to do a lot of that stuff anyways because there might be a difference between book depreciation and tax depreciation and the loan amortization table you still might need to do some accruals for amortization so so that's just some some ideas that you can use for putting it on the books but from a bank feed standpoint if it's over a certain dollar amount that's an indication or if there's a loan related to it that you need to put it in the books on equipment right and so we can make a rule for it let's say we're going to say it's a rule and let's say this is going to be the office depot office depot let's say equipment over 1000 let's say and it's a money out rule we'll say it goes to all bank accounts and now this time i want all conditions to be met i'm going to make two conditions now one condition being bank text instead of the description is what i like to do typically which contains office depot that's the basic and then we'll add a rule and say if the amount is greater uh text amount no the amount is greater than $1000 if it's greater than $1000 then you apply the rule if it's less than $1000 we'll probably have another rule called office depot under you know $1000 which will go to supplies if it's greater than $1000 then then we can put it to the equipment account so test the rule two of them are greater than $1000 and then expenses it's going to go to an expense category machinery and equipment an asset instead of an expense account who you paid uh we paid office depot and then tags no tags uh we'll we'll have the memo and then again i'm not going to record it automatically i'm going to want to confirm them as we go so i'm going to save it boom and so now let's check out our rule i can sort this up top well let's just keep it this way right now so so these two they have the rule has been applied it has not been applied to these two not because there's a different number or because it's capitalized necessarily but because there's uh because these are below a thousand so it didn't meet both of the conditions these two did meet both conditions and that's why it's being applied out so if i go into this then uh and i say okay confirm the rule has been applied boom roger that confirm and then it's been moved for review to the categorized so we're over here in the categorized for the office depot go into the balance sheet run it and we can see that in machinery and equipment there it is the 2700 if i drill down from the end to the source document there's the source document and if i drill down in from here i get to the actual expense form the entire form rather than just the one line now note if i if i provide this to my accountant these days the beauty is you can provide this entire thing to your accountant allowing them access to the file so that they can look up the detail in the machinery and equipment to see the purchases that were made which typically are not going to be a lot of them because you don't purchase equipment every day or at every cycle it happens periodically they can drill down on this and determine the actual line item of the purchase however they this doesn't give them the information possibly to to to put the detailed description again of each line item that's why with the purchases you might want to get the attachment of a pdf of the document and then attach it that's that would be great because then then the accountant has everything they need to properly put it on the amortization schedule in such a way that they can calculate depreciation in the current period as well as deal with any kind of uh disposals that happen in the future by putting a lot of detail in it so that's what you want to see i'm going to close that back out and then on the other side uh it went to the checking account of course so checking account went down uh with a because it we paid it if we paid it all in cash and then nothing happened to the profit and loss if i go to the pnl nothing happened even though we purchased something even if we paid cash because we haven't yet incurred it when will something happen to the profit and loss it will happen when we depreciate it allocating the cost uh over you know the useful life when we use the equipment so if i go back to the balance sheet if we think about this as assets liabilities and equity we can see that you know the assets are now a negative because all we've looked at is decreases 146 uh is that uh i'm sorry the total the total assets should be yeah it's still a negative but just but because we have a okay we okay that makes sense and then we've got the total liabilities we don't have any liabilities we haven't taken out any loans we have no accounts payable no credit card at this point so that total value then is allocated to us the the owners right so we kind of owe the company right now 146 dollars which we can then further break out to the types of owners sole proprietor then it would just be one person partnership we would allocate to the partner capital accounts and if it was a corporation then we can allocate basically just to the retained earnings and the capital stock and then the allocation to the partners will be in the format of how many shares uh they own so also note that if we did have a net positive instead of a negative value here on the kind of like the bottom line of the balance sheet it doesn't mean that like if this came out to be if we had the checking account uh was higher here or we had other assets let's say we had more equipment of 10 000 dollars and we had a positive uh number down here that doesn't mean necessarily that we could give this equity to the owner because remember that the the assets are not in the form of cash right this big asset right here that we have is in the form of equipment we'd have to sell the equipment in order to to realize the value of the company if we wanted to liquidate it so it's useful to keep that in mind because because a lot of times when people look at the value of the company they kind of figure well look this person's just holding on to this amount of cash because that's the net equity or value of the company on a book basis that's like well no because they'd have to liquidate the company and most companies are not designed to hold on to a lot of cash they're designed to invest the cash in the things needed to generate revenue which of course are like machinery and equipment and inventory that they're purchasing those things to generate revenue into the future they actually shouldn't be holding on to a bunch of cash that they're not planning on reinvesting into the business for machinery and equipment and inventory you would think because if they have the cash and they're not doing that they could give the cash to someone else and this is going to be a bigger issue for some businesses like farms or a classic example for example all of their money is going to be in the land basically right and in the and in the equipment so that so even though they could have a big net value down here they actually don't have a lot of cash because all of the money is in the land and the equipment which is that's just the nature of different types of businesses other businesses you don't need a big capital investment if you're a youtuber then you don't have a big capital investment you know you got to buy a microphone and a computer and stuff but it's not like buying you know land a farm or something so that's just something to note there and we'll continue on these transactions in a future presentation let's open up a trial balance before i go though let's right click and duplicate i also want to show this other form because i think it's the easiest one to kind of check our numbers and see what's going on so i'm going to type in trial balance so even if you're not good with the debits and the credits the trial balance is a useful form 010124 and this is going to go to 022924 and that's basically the balance sheet on top of the income statement is what we have here so we have the checking account we've got the machinery and equipment these are the balance sheet accounts and then we have no equity section why because the income statement is basically the equity section this whole thing will roll into equity on a yearly basis meaning if i go up to 010125 to 010125 then you can see that that income statement rolled into retained earnings so this is a useful form i'm going to go back 010124022924 because as you're checking your numbers you can actually go to this form which is a lot shorter notice that if i go to the balance sheet i can have all these subtotals and you have actually a long document and then the income statement whereas if you go to a trial balance you just got this clean balance sheet on top of the income statement and i can drill down into either balance sheet accounts uh or the income statement accounts from one report so oftentimes when i'm working in practice instead of having both the balance sheet and income statement open i'll just have the trial balance open because then i can verify and just kind of double check that what is happening is what i thought should happen as i do the data input