 QuickBooks Online 2023, e-commerce sales manual journal entry method example. Get ready to earn the skills needed to boost your bank books on up with QuickBooks Online 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. Here we are in our QuickBooks Online test company file using the accounted view as opposed to the business view. You can toggle between the two views by going to the cog up top and switching the view down below. Duplicating some tabs to put reports in like we do every time. Right click the tab up top to duplicate it. We're going to right click again to duplicate again. Back to the tab to the middle go down to the reports on the left hand side. Let's open up the balance sheet report as it's thinking tab to the right reports on the left. And this time we want the P and L the profit and loss report. I'm going to close up the hamburger. We're going to look at this. This time I'm going to look at it for October. So 10 01 and two five. That's where I have the data for the current example. Then we're going to go to 10 30 to five and let's run it. So nothing's in it though. Thus far that's what we want to see tab to the middle closing up the hamburger same thing. We're going to go from 10 01 to five to 10 30 to five and run that one. Okay. Let's tab to the left. We've been thinking about e-commerce situations selling inventory but not on ground in a store but online with the help of third party applications. For example Shopify or Amazon and we've kind of been focusing in on a Shopify situation here. We might look at Amazon in more depth in a future presentation. So in a prior presentation we looked at the concept of using a journal entry to pull the information from Shopify into our system. And this mirrors what many applications. So even if you're using an app method you might have a similar kind of process. So it's useful to understand this method so you can kind of see what's happening with the app. Because a lot of apps are still going to be confusing because they're pulling in a lot of information and trying to summarize it possibly in some way shape or form. So the general idea is that we had our income from the Shopify side of stuff and we can look at our reports and we can compare those to the payouts. So what we did is we looked at the payout. We looked at the items that were included in this payout. The payout is going to actually hit our bank account. And then we thought about the reports that give us more detail such as the sales reports breaking that information out. So instead of waiting for the payout to just hit the bank feed because we do expect the payouts to hit the bank feeds. If we just add it as revenue when that happens then we're going to lose some of the detail. So what we want to do manually what we did last time in Excel manually or in a prior presentation is to mirror this data from Shopify into the system here. Make a journal entry which posts all of this information into a clearing account. And then when we see it hit the clearing account hit our bank account using the bank feeds will decrease the clearing account. So let's let's actually put this into our system and again this will kind of mirror what some of the applications will do. So just a quick recap. We imagined that the sales side according to Shopify for a particular deposit included multiple sales that were kind of grouped together with gross sales of this amount minus the discounts. No returns for this example. And then we had shipping that we charged for the shipping expenses and sales taxes that we collected for a total of this amount. But then that would be the total amount of of like the sales that we had and what we collected on it. However the payout methods that we had and were managing our Shopify store were not just Shopify payments but we allowed people to pay us with PayPal. So if they pay us with PayPal then we're going to say this amount was paid out through PayPal which is a third party processor which is going to charge its own fees. And then we had the rest paid out by Shopify and then the Shopify payments because they're through Shopify now another third party. We know what the fees are because we can see them in the reports in Shopify and that gives us our payout that we expect to hit on the bank account. So then we made a journal entry of all this data so that we still tie out to this payout but we have all the detail from these reports. That's what we want to do. So we're going to say the Shopify sales here is coming from if I use my little things here it's coming from there and then we had our discount that is coming from there. And then nobody turns the Shopify shipping income and then the sales tax and then the payments. Let's clear this out here and then the fees and then the Shopify payment clearing account and then there's nothing here. So that's going to be our journal entry that we posted last time. Let's make that green to our our worksheet so we can see how it looks like in a in an Excel kind of format. Let's go ahead and put this into Excel now. And again as we do this remember that this is something that is similar to what some of the recommended softwares will typically do in trying to group this information. So whether we do it manually or software we got to kind of understand these clearing accounts to some degree. So what we're going to do is we're going to enter a journal entry. So I'm going to go up to my new button up top and I'm going to say that we're going to make a journal entry. Now a lot of people if they're not accountants don't like journal entries but but when you have a very long complex transaction there's not really any other way around it. We could probably use another form but it would just it be just as complex as just doing a journal entry. So let's we're going to have to do the journal entry. So we're going to say this happens on 10 let's say 101525 and the journal entry you can come up with a template if you use this should be pretty much the same all the time. And then you could just plug in so you can memorize the journal entry so you can see what the debits and credits are and then plug this stuff into the journal entry. So we're going to say we have the Shopify sales so Shopify sales we're going to have here. Let's just make sure I've got now if you don't have these accounts set up you can you can make these accounts as you go with adding a new button up top. So so you can do that but I'm kind of copying this from the accounts that are going to be set up when we use the app. So if you set up a new account it would be an income type of account. So the bottom line is it would be an income type of account that you'd be putting the money into. So then we're going to say according to our thing here that that was 162489 so I'm going to say all right. And that's going to be a credit because revenue goes up with a credit and now it disappeared Shopify sales is going to be a credit of 1624.89. And I should maybe put a description on the date of the of the deposit or to group it to note what it is but I'm not going to do it here. For the example I'm going to say all right and then we had Shopify discounts. See if I have Shopify Shopify discount. So here's our discount. Now the discount if you were to set this one up would generally be also a revenue or income type of account. So if you went new item revenue or income type of account and this one is actually going to be a contra income account meaning it's going to bring income down. So you might think it should be an expense but it's generally netting out from the from the revenue side of things. So it gets down to net sales that we'll get we'll get to instead of having it as an expense even though the expense would get to the same bottom line. So that's going to be 1699 according to our worksheet and then we didn't have any returns. So I'll just skip that one. But if you had returns you could say Shopify returns. So I don't have Shopify. Let's just make this one up. Shopify returns. And I'm going to say tab. And if I had returns you might have another account for that would also be usually an income account because it's going to be a sales returns and allowances. So it's going to act like an expense but in the income area usually I'm going to make it an other primary income Shopify returns. All right. But we didn't have any. So I'm just going to put a zero there. And then we had Shopify shipping. So we got Shopify shipping shipping income account. Okay. This would also be an income account because we're paying for shipping of course. But this is what we're charging for the shipping so that when the money goes out for shipping then we will make. That's when we'll decrease the account when it hits the checking account. Right. But right now we're charging for shipping. So that's going to be income a credit for 6.56. It's going to be an income account. And then we'll have the related expense account that will bring the net income back down when we pay for the shipping. And then we had sales tax sales tax. So I have sales tax to pay. Let's pick that one. That should be a liability account. So if you're going to if you're going to list this one if you had sales tax you would want to make it generally on other current liabilities. And normal that the sales tax isn't something that we can really do using the sales tax widget in QuickBooks so much. Because to do it right we would have to enter the sales receipts or an invoice for each sale. And obviously we're not doing that because we're pulling in a group or summary of the sales. So we're going to have to track our sales tax independently. So sales tax payable. You might also need to track sales tax by location for example so that you know where to remit each sales tax. We might talk a little bit more about that in the future but it's 15.45. It's a credit because it's a it's a liability that we're going to have to pay in the liabilities going up. And then we've got the Shopify pay pal a clearing account. So I'm going to call it Shopify pay pal clearing account. And then this one is usually you can put it as an other current asset is what I would typically put it in. It's kind of like a bank account in some ways because we have the money but then we're going to transfer it to the bank. But we don't we're not going to connect it to bank fees or anything. So generally an other current asset account other current asset is usually what we would go with. There it is other current asset. OK. And then it's going to I'm just going to call it other other current asset. All right. Let's say save on that one. And so that one is going to be for the 1299.55. That's the amount that got paid out. But it's going to go through the other portal to Shopify. So now instead of putting it into the shop of I mean to buy PayPal instead of putting it into the PayPal checking account. We're going to put it into this clearing account. And that's probably necessary for PayPal because PayPal is going to charge us a fee most likely before it actually goes into our PayPal account. All right. And then we're going to have the next one is going to be fees. We're going to say fees. Let's say fees and charges. I'll make that an expense. You might make that a cost a good sold if you want. They're both kinds of expenses decreasing net income. I'm going to put it in as an expense. It's going to be a debit of 15.48. And then we're going to have then the Shopify clearing Shopify payments clearing. I'm going to make up another clearing account. This is for the amount that was paid by customers through the Shopify portal. It's also going to be an other current asset account. I'm just going to put other current asset here. Shopify clearing account. So I'm going to say OK. And that's for the amount that was paid with the Shopify payments. And we know what that is. So we could put that directly into the checking account and then match it with the bank feeds because it should be exact. But the clearing account method is is good. So we so we might want to double check it with the clearing. And that's basically it. But if you had any other if you were off if your journal entry was off by an immaterial amount you might put the rest in you know Shopify sales again. Shopify sales just to just to zero out your balance. But the totals should be debits equal the credits. And just like we had over here except we represented the debits and credits as positive and negative numbers. And the the the debits and credits should basically be the same if you were to do this periodically for every time you got a payment. For example. And so you may be able to make this a reoccurring payment. And also note that when you get paid out by your Shopify it might be useful. You might be able to set your payment schedules to be paid in a certain schedule. If you can if you can tell Shopify to pay you like every two weeks or something like that that might make it less work to to group your payments then if they paid out you know every day or something like that. So but every time you you're matching the payout then it would be a similar debit and credit you would just have to make sure that you pull the proper numbers in and categorize it. You might make this a memorized transaction and then just adjust the amounts so that you can see where the debits and credits are. So let's see if hopefully we got this right let's save it and close it if not that's okay because I'll be able to see it. I'm going to check the financial statements now and see if it does what we would expect it to do. So let's go on over to our balance sheet and I'm going to say run this now I can kind of compare this to our worksheet over here. Let's take a copy of this and before we did the second couple transactions it would look like this this would be our ending balances we had in our worksheet format. So let's go and check it out. So let's we ran this for October. So we know that the the Shopify sales is going up that's going to be an income statement. Let's go to the income statement on the sales side. We've got the income items of the Shopify sales. Now notice I have these sub accounts here because I pulled this in. I created some of these accounts from the integration that we're going to use in a second in another example. So if you don't have like this other little carrot right here that's okay. This might be good you know might look better without it. But the point is that it's under the income item here for the discount and then you've got the Shopify sales which is the full amount. This is kind of a contra revenue account. It's a little out of order. You'll note because it's being ordered in QuickBooks by the account name alphabetical order within the account category of income. You can use account numbers to order it differently because you would think this would be on top for example. But they're all in the income category. That's the main thing. The discounts then decreasing it and then we've got the shop of the shipping income an increase because that's what we collected on shipping to get to a total income. So if I minimize this total income of the one six five four forty six. If I go over here and we look at our income on our trial balance. We're looking down to here was was basically income one six five four forty six right. That's all part of the income section. And then we have the expense which you could have put in the cost of good sold if you if you you know you can argue that that could be a cost of good sold. But I'm going to put it in fees and charges for the expense. That matches this number here. So our net income which is the sum of everything under the equity in our trial balance is one six three eight ninety eight. So there's the one six three eight ninety eight. That looks good. And then on the balance sheet side of things it hasn't yet hit the checking account and it hasn't gone into our our PayPal account yet. What we have then is the amounts that went into the clearing account. So these are clearing accounts because they're going to go up and then back down just like we did in our example problem over here. They were here and then we're going to move them into our checking account and PayPal checking with the use and help of the bank feeds which should bring these back down. We're just going to move these from here up to here when they clear the bank feed transactions. So that's the general idea. And then we had the sales tax that we broke out down here as a liability because and then if we had to pay the sales tax when we pay the sales tax we're going to decrease the checking account. And we're going to credit debit this or reduce this to bring it back down to zero. All right. So the next thing that's going to happen is we expect these amounts to then enter our bank account with the bank feeds. So if I go to and this one's not going to go in there exactly because PayPal is going to probably charge us a fee at the Paymel PayPal processing level. Whereas this one should be exact and I should be able to pull it right into my checking account. So let's do that if I go back on over here and let's do the exact one if I go into our checking account. Now we uploaded these last time just so we can see the process. We're going to see our deposits coming in and it's probably going to have some kind of description that's going to be able to tell us because it's an electronic payment that it came from the Shopify pay. What it's not going to tell us is is all the customers that that bought stuff. Right. I don't have that detail. I have that detail over here because I can look at each of these individual transactions and see what was purchased. When I bring it over here under this journal entry method I'm not I'm not adding all that detail either on the journal entry or when we make the banking payments. We're just trying to make our financial statements as detailed as we can. We're not trying to get the detail on the customer level breaking up the customers because all of that kind of stuff is on the Shopify side and we probably don't need it other than adding them to our mailing list or something like that. So if I was to look at this I could say there's the payment and I would probably want to open up my clearing account right here and just double check to say OK does that match something that's in my clearing account. I only have one number at this point. So of course I can see that it does. But if you look at the detail you can say OK that matches and we should see in our clearing account the clearing account going up and then going back down periodically being zero in the balance. Right. So if I go over and I'm going to say OK I'm going to post this. It's a deposit. I see it in my clearing account and I'm just going to put the other side to the Shopify Shopify payment clearing account. Which is that one. So I'm just going to that's going to reduce this amount. Just want to Shopify payment clearing. Yeah. And that's going to reduce that amount and I probably don't want to automate this this transaction. I just want to probably double check them. All of my deposits from Shopify are going to go to that clearing account. In other words and you could make a rule like I could make a rule over here and say all of these Shopify payments according to the description should should be going to that clearing account. And you could make a rule. But but then I would say don't auto add it. Instead I'm just going to double check it because I would like to double check that that number actually matches something that's in the Shopify account over here. Exactly. Now note that if we did not use the clearing account and we just entered this with the journal entry directly into the the checking account. Or if we use like a deposit form to enter the journal like you could use a deposit form to enter a journal entry. Then the matching mechanism would actually find the match possibly. And so that actually might work quite well in this one because this should be exactly tied out. So but in any case we'll save it here. So I'm going to say Shopify clearing. And so let's add it and check it out. And so if I go back on over to my balance sheet my balance sheet exit and we save run it. Now we've got the the clearing account for the payments clearing account went back down. So if I see this clearing account if I go into it this should be the pattern that I should I should see it should see it going up and then going back down. Where's and I don't where did it go. I think I went into inventory. Let's go into this one. This is you got to hit the right zero that one. So then so it goes up with the journal entry and then it goes back down with the deposit form that we created from the bank feeds. And then it's back down to zero. That's what a clearing account means. It's not a temporary account. Those are income statement accounts for the most part because they close out to equity. This is a clearing account. All right. I'm going to exit this one. And then let's do the same thing on the PayPal side. Same thing but PayPal hit us with an added fee. So note there's an added little wrinkle on this one. Now like sometimes PayPal will actually if you use the PayPal integration you can see it's a little bit different. So PayPal integration will actually break out the fees. So for example if I look at if I look at this one it's it's had some different options than a normal bank feed. And it's saying hey look there were fees of 766 so it might actually take care of the fees. And it also looks a little bit different that you can make it go to a sales receipt or deposit form than the other bank feeds. So when you use PayPal you could set it up as like a normal bank feed or you could set up the PayPal integration which might give you that added bit of detail of those fees. I use the PayPal integration but we just uploaded from an Excel or CSV file so we don't have that breakout here. So that means that this amount is not going to match out to exactly the amount that we put in our clearing account. It's not going to match out exactly to if I go to my clearing account I'm at here and if I go here then I'm at that. And that you would kind of expect that to happen due to the due to the fees unless again you have that integration that exactly broke out the fees. So I can I can match this one out and I'm and I can account for the clearing it's not going to clear out perfectly. So I'm going to say all right I can see that matches out and they charge me some fees on it. And so let's say this is going to go not to the Shopify clearing but to the Shopify PayPal clearing. And it's not going to exactly bring it down to zero because of the fees. So I'm going to say add it. All right. And then if I go back on over to the balance sheet we're going to say run and now the the the pay the PayPal clearing still has $5.55 in it. So if I go into that the clearing account went up with the journal entry went back down with a deposit just like the other one but it left $5.55. And so I can double check that if I want to look at my PayPal stuff but I can assume that that's going to be fees for PayPal. So I can read I could further reduce my clearing account with a journal entry if I needed if I needed to if it wasn't taken care of by the PayPal integration app. So and then the other side went into my PayPal bank account which is moved it up to the bank account. So that's how those clearing accounts work. So let's do that last journal entry. I'm just going to say all right. Let's just journal and realize journal journal journal realize it out of the $5.55 that last bit. So I'm going to take the $5.55 out and I'm going to say let's go plus new journal entry boom. And I'm going to say that it's going to go into charge what do they call it something like Shopify Shopify fees. Let's just say fees PayPal fees. I have a PayPal fees. Let's do that one. So that should be an expense form and it's going to be 5.55 and is that how much it should be. Yes. And then the other side is going to go to the PayPal clearing account 5.55. Okay. So let's go ahead and save that. So we'll say save and close. And then if I go back to my balance sheet and run it, that clearing account should go back down to zero. So the Shopify PayPal clearing back to zero and then I'm going to go back on up and exit. And my income statement now has the fees and charges. It's probably nice to break out. Notice in this method you can break out your fees for the PayPal fees versus the Shopify fees and other kinds of fees. And that might help you manage what best practices are for your business. So the bottom line is our bottom line is 1633.43 and that should match your 1633.43. But now we have more detail on the income and expenses. Let's compare that. If I bring this up to November 1132.5 and I run this side by side month by month comparison on the income statement. You could see what we did on the other method, which was just waiting until it hits the bank, right? When I waited until it hit the bank, we just recorded everything in Shopify sales. I think we weren't breaking out this or this. And we just waited until it hit the bank and then we made a journal entry adjusting for the fees like imagining. We're matching it out to the 1099. So this gives us a little bit more detail. It's a fairly basic example of it, but it breaks out a bit more detail than simply waiting until something clears the bank in order to record it. And also what we'll talk about in future presentations is the integrations, which could include like an integration for the commerce integrations that are actually in QuickBooks now, which does a similar thing as this journal entry method. So you might be thinking, I don't want to deal with all those clearing accounts and whatnot. And if you don't want to do that, you might have a, if you have a small business, you can just do the cash method and not do any of these integrations. But if you're going to try to, if you're going to try to pull in data and then the clearing accounts are still going to be there because your only other option is to pull in everything and then try to deal with, and then try to deal with a perpetual inventory system, which is harder. The clearing accounts are simplification. They're supposed to make it easier. So, and that's basically what, so if you set up your commerce thing, then within QuickBooks to pull in the integration, it will actually set up clearing accounts kind of automatically. It'll have default clearing accounts. You can change them, but it'll set up clearing accounts for you to kind of pull this stuff in basically doing that journal entry for you. So you still have to kind of understand the process. If you're going to use integrations, most integrations that are kind of recommended, which are summarizing the data in some way that you're pulling in to QuickBooks.