 QuickBooks Online 2024. Enter transactions for owner deposit and loan deposit using bank feeds. Get ready and some coffee because we're going to be like bookkeeping Einstein with QuickBooks Online 2024. First a word from our sponsor. 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trimmed it down a bit okay it's an improvement if you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot think of it dot com here we are in our quick books online bank feed practice file we set up in a prior presentation opening the major financial statement reports like we do every time the reports on the left hand side in the favorites right clicking on that balance sheet report to open a link at a new tab right clicking the profit and loss to open a link at a new tab and once again right clicking on the trusty tb trial balance to open a link at a new tab if you don't have that trial balance in the favorites you can search for it let's tab to the right do some formatting here close up that hamburger put the button on the hamburger we're going to select the ranging changing the range change 010124 tab 022924 tab drop down let's see it month by month let's run it to refresh it let's tab to the right close up the hamburger again and then change that range 010124 tab 022924 tab and then select the drop down and we're going to say months run it to refresh it again let's tab to the right one more time we're closing the hamburger we've seen that the tomato is properly placed and so now we can close that hamburger and then change we'll still poke around at it changing the range change 010124 to 022924 and then drop down we want the months and then we're going to run it to refresh it okay let's go back to the balance sheet so now we're looking at the deposit side of things with the bank feeds last time we looked at the easiest kind of system where we have our deposits and they're all going to be just deposited directly to an income account which can only really happen if you're in the type of industry that allows that to happen however we still need to distinguish between the kind of deposits that are coming from the customer and the kind of deposits that might not be coming from the customer such as those coming from us the owner or from a bank in the form of a loan for example if we miscategorize those what will happen is we're going to end up with income that is not really income it's from us or it's from the loan which from the U.S. income tax perspective would be very bad because then we'd have to pay taxes on our own income is what we would end up doing probably and that wouldn't be good let's take a look at the flow chart to just recap the revenue side of things and how the bank feeds fits into that system so when we're looking at the revenue side of things it depends on the industry we are in as to how the bank feeds might work within our system last time we looked at the simplest system where if we have gig work which is get paid by youtube we can wait till it clears the bank we'll be able to see who it came from hopefully because it's an electronic transfer and then we could just create an account called like youtube income for example and record that or we might have a situation where we're at a cash register if you're at a cash register situation or you're making sales during the day and then you're going to deposit the cash into the account at the end of the night and or you have credit card sales you could wait until the money actually hits the bank account and then just record everything as revenue using the deposit form with the bank feeds in that kind of system and you wouldn't have the electronic transfer showing you who the money came from but that's okay in some instances because you wouldn't know who the money came from anyways because you're just selling to the public it's not like you're getting all of their contact information when you're at like a cash register type of situation however oftentimes you might also want to have an internal control that would be checking the money that you have in the cash register to the receipts before you make the deposit in which case you would have to basically make the deposit and then use the bank feeds as a checking feature and then we have an accrual system where you would have to actually invoice the client track accounts receivable that transaction not having cash involved in it and therefore the bank feeds will not help you with that although you can then think about connecting the bank feeds possibly to the invoice or the receipt payment or the deposit we'll talk about that later so let's imagine the first system right now where we're putting money directly into the bank possibly in the system where we're taking cash and we're just putting we're just going to deposit the cash into the bank and and wait till it clears the bank feeds and then recording it as revenue so if that were the case that would work fine but we would want to make sure that we can distinguish that from other kinds of deposits that we might make into the system from ourselves so let's go back to the first tab and let's go into the transactions closing up the hamburgie here's our bank feed transaction now if we had a deposit let's go into our deposits and filter by just money in so if we had a deposit that was just cash it might look something like this right just a cash deposit and like i say if it was if it was coming from customers and we were waiting till it clears the bank and we record that as revenue we can use that as our normal process however if we the owner put money into the bank then it might look the same and we have to have a system to make sure that we catch the fact that that should not be recorded as revenue but rather as an owner investment and usually you can see that because it's going to be possibly for a larger dollar amount maybe and possibly because it's going to be even in nature there's not going to be any pennies or anything involved which is often the case with sales especially if you have to deal with sales tax calculations okay and the other thing i just want to point out is the accounts that will be effective so let's go to the balance sheet deposits will will obviously be increasing the checking account the other side is going to be going into the equity side of things instead of into the income statement so let's just recap our our balance sheet accounts we've got assets liabilities and the equity so assets minus liabilities equals basically the equity kind of like the book value of the company when we first start the company what will typically end up happening is we need to buy machinery and equipment and inventory possibly to help us generate revenue and therefore we need to get initial cash into the business how do we do that possibly we take out a loan and that would be one way that we would have a deposit other than from customers and or we ourselves as the owners put money into the business so let's first think about that first one we the owner are putting money into the business hopefully this doesn't happen all the time but only when we're starting the business and when we're increasing the size of the business because as the business starts running we're hoping it generates revenue and cash and we take money out of the business which we saw in a prior presentation so you're not going to see putting money in the business all the time hopefully but when it happens we have to distinguish it from like another deposit so the draws of the business when we took out we put in the draws if you're a sole proprietor and you're putting money into the business you could put it into simply the owner's equity or like the retained earnings account but oftentimes you might want to do a similar thing as withdrawals and create an owner investment account to record the equity that's going in just making sure that it's an equity type of account if it were a partnership then you might have like five partners or something like that you would then need a capital account like the owner's equity a draws account and a an owner investment account per partner you actually might make a parent account as the partner's capital account and then subordinate accounts of draws owner investment type of accounts in it and then possibly the portion made of the net income since you have to deal with this net income that's in here that's pulling in that's not actually an account if it was a corporation then the you'll recall that this account would be called retained earnings and then the draws because everybody has to take the same draws are called dividends and then the money that comes into the business from the owners are called shareholders that's the capital when they buy the initial capital from the company not on the secondary market okay so that's going to be the idea let's go back to the first tab we're imagining we're a sole proprietor let's say this is us putting money into the business so we're going to say all right so this is going to be an the vendor is going to be owner owner this is going to be a customer so owner customer we're not really a customer but we have to choose customer or vendor so i'm going to put an owner or customer and then i'm going to create an account so we're going to say new account and then it's going to be an equity type this is the key it must be equity and then we have to do estimated health insurance health saving uh uh uh i'm just going to call it owner's equity for that subcategory and then i'm going to name it uh owner investment so owner investment it's not going to be a subcategory of anything let's save it and close it and so we're not going to assign a class now this is one that you're probably not going to assign a rule to because it's not something that's going to happen all the time and when you see that come up you probably want to just make sure that you can identify it so we might not want to have a rule for it and we want to be careful that we don't create a normal rule that would include the deposit automatically recording it as income with the rule we want to make sure when we're making the rules it will be able to distinguish money that's coming from a customer as a deposit and money that's coming from us or a loan so let's go ahead and uh confirm it and then if i go into the the the balance sheet and run it it would be increasing the checking account with a deposit and the other side is going to be down here in the owner's investment so if i go into the owner's investment then we can see the detail here it was recorded once again of course with a deposit form that being the typical form used i'm going to check on it when the checking account is increased that's the form used and there is our deposit closing that back out going back there it is now like with the draws the deposits typically will close out in normal bookkeeping to the equity account on a yearly basis at least but quickbooks doesn't automatically roll it into that account so if you want to close it out you you would have to do in a journal entry to do that on a yearly basis but if you don't do it it's not the end of the world it's just that this will then represent investments for the life of the business as opposed for the current period for example if i go to the next year this income will roll into the equity let me show you we're going to go 010125 to 010125 run it and you can see that the income is gone it went into equity but it did not roll in the investment and the draws which typically would be closed out under normal normal bookkeeping so you could do that manually with a journal entry okay 010124 to 0229 uh 24 the other way that we might have income come into the business that's not from a customer would typically be like a loan situation so if we have a loan there's a couple things to just keep in mind with the loans we kind of jump into a whole a whole can of worms as they say when we get into the loans because as the bookkeeper you might treat the loans a few different ways depending on on who you're working with in terms of your accountant and what kind of separation of duties you have so for example if you took out a loan and you and you just got money so you said you got a business loan and the money's increased in the checking account you'd see it come through the bank feeds and the other side's just going to go to a loan well that's going to be pretty easy to initially put on the books because because the full amount is going to be received in cash however oftentimes loans are financing equipment so you might be purchasing equipment for example and then you're taking on a loan as part of the purchase of that equipment so in that case you're going to see the the money come in uh to the bank feeds or or you know you're going you're going to actually see a partial payment possibly when you pay for the equipment putting down a down payment or something like that but you're not going to see the loan money going into the account so in that case if that were the scenario you have a few different options one you can you can talk to your accountant and have them you know possibly help you to to make sure that you're recording the transaction uh properly recording the equipment at the cost of the equipment the loan balance on on the books and the cash deposit or you could just say hey look i'm going to do everything on a cash based system over here on the bookkeeping side and then when myself or the accountant does the adjustments at the end of the year for taxes and possibly external reporting they can take care of the other issues meaning i'm just going to record the the the payment for the machinery not including the loan just the cash payment that i paid for it even though i financed it i'm going to keep the receipts of the transaction i'm going to when i add the machinery here i would like to actually include the purchase documentation and the loan documentation possibly as an attachment so that when i provide this to my cpa or my accountant at the end of the year they'll be able to see that to properly identify the equipment on the sub ledger and they'll be able to break out the loan properly which is something they might have to deal with anyways right because they're going to have to create an amortization table and whatnot so that might actually be a fairly easy thing to do anyways because they're still going to have to do it and then they could basically and then at the end of the year they're going to take that documentation and make an adjustment to properly record the machinery and equipment on the books including the loan to properly record the loan on the books at the same time so that's one issue with the loans uh how are you going to record it on the books the other issue is breaking out interest and principal and short term versus long term we'll take a look at those in a second let's first put the loan on the books let's go to the first tab let's imagine that the full amount we we got the loan that and the full amount came into bank feeds it was just went into our checking account we didn't finance the equipment so let's just imagine this strike payment was actually a loan from the bank so i'm going to pretend that this was a loan i'm going to go into it i'm going to say this i'm going to call it a vendor of a stripe bank loan is going to be the vendor just so we can identify it as a loan and i'm going to say tab save category now on the categories i'm going to call it an other current liability now here's another issue with a loan you if you pay it in installments you might have a current portion and a long term portion of the loan but it's useful to put all loans into one account so that so that you can tie them out to the loan balance i prefer putting all the loans into the current portion rather than the long term portion of the loan and then breaking out the long term portion if necessary if there is a long term portion annually if we need to which we may not always need to do if we're just doing the books for taxes because we might not need the balance sheet information for taxes so i'll talk more about that in a second i'm going to put it into other current liabilities it's going to be a loan so loans i'm just going to say loans loans to others and then i'm going to call it loan payable now also just realize that if you had multiple loans which is often the case for some businesses that finance equipment for example you might want to make a parent account called loans payable and then make a subsidiary account for all of your loans breaking out the loans possibly by institution but you probably also want the last four digits of the loan number i'm just going to put the last four digits of like a loan number just to show you that process here because that can help you to identify the loans so then i'm going to say let's save it now no class now this this is this is something that we might want to add an attachment to because again when we have this for the accountant side of things we might need them to create an amortization table to help us break out the interest and principal so it might be useful to do that we probably don't need a rule because we don't do loans all the time this isn't something that's going to be repetitive so the rule most likely would not be applicable here so let's go ahead and record it and check it out so if i go to the balance sheet we would have then an increase to the checking account and then the other side is on the balance sheet in a loan payable it should be on the balance sheet there it is loan payable so if i go into that we're going to see the transaction deposit loan payable if i go into it it's still going to be with the use of a deposit form so that looks good i'm going to close this out go back now if i did not identify it as a loan and i recorded the deposit as income uh same which the same thing would happen if i didn't identify my investment it would then record over here on the profit and loss as income which would make it our income statement look better it looks like we got more income but that's not that wouldn't be good for us for taxes because we have an income tax in the united states and we want our taxable income to be lower not higher right so that so we don't want we don't want to record income over here for sure if it was from a loan or if it was from the the owner so we have it properly broken out as a loan so just a couple other things to note on the loan while we're on the the loan information and thinking about how it's going to be impacting the bank feeds once we have the loan on the books the next question is how do we handle the payments for the loans sometimes the loan will actually give you the institution they gave you the loan will give you an amortization table but oftentimes they will not they'll just give you the terms of the loan because you can create your own amortization table from it so an amortization table looks something like this where you where you break out the principal and interest so you can calculate this is not the same loan but just note that you could you can build one in excel you can also use online just search for amortization table creation software or something and you'll get an online calculator for it i like using the online calculator as a double check and doing it in excel myself because then i can use it for other as an integration for other things as well but in any case so if it was a five-year loan it would be 60 months the rate in our case five percent this would be the monthly rate this is the payment so that will help you to break out the interest in principle which is one reason the financial institutions don't do it or give it to you possibly if they don't have to because then you can see how much interest you're you're actually paying but i also need to see the interest on a per payment basis so you can see this first payment we're going to say in this case we're paying the same amount each month which is often the case for installment loans like similar to a mortgage might not always be the case for a business loan but it's a pretty common kind of structure for a loan but in order to have the payments be the same the allocation between interest and principal reduction will differ and that's the trade-off so that's kind of like the issue so once we create the amortization schedule whenever we make a payment on the loan if we're trying to tie out to the amortization table we have to break out the interest in principle which is difficult to do with the bank fees so in other words you might try to automate the payments that you make on the loan on the on the decrease side of things money out you might say look i'm going to just say if this was a loan payment here i'm just going to break it out and and have this and automate this go into the loan now you could possibly put splits and have multiple accounts affected because there's going to be three accounts affected rather than two accounts however it's still you still won't basically be able to do it because every payment has a different allocation of interest in principle so that becomes kind of an issue for the bank fees you can't you can't just easily make a rule to record all the loan payments properly so that the loan balance will tie out after each payment so you have to basically do an adjustment to make that work if you want to automate it then you can do a system where you're saying okay i'm not going to do that what i'm going to do is i'm just going to record the payment as it comes to the bank feed to the loan balance in other words i'm just going to record the payment to the loan balance here ignoring the interest which is kind of like the rent on the purchasing power of the money and then and then at the end of the year i'm going to to provide this documentation to my accountant or cpa who can then create the amortization table if they need to and then they can break out the proper amount of interest with a journal entry they can do an adjusting entry to properly record the interest that actually works pretty well as long as you communicate well with your accountant because then you and or you can do it yourself right because then you can automate the payments on the loans without having to do anything during the year to to to get that done and then you can basically just do an adjusting entry for tax purposes possibly breaking out the interest so that you get possibly a deduction if that's applicable for your taxes for the interest expense okay so that's one thing the other thing that that you might have some options on is is the idea that you might need to break out the short-term and long-term portion of the loan so normally for external reporting purposes the the current liabilities are those that will be due within a year and long-term liabilities are those that are due after a year that's useful to people reading the financial statements because they want to know if you have enough current assets to pay off your current liabilities which are due shortly right if not then you're going to run into a cash flow problem and possibly be a going concern meaning have the like ability to go out of you might have to go out of business or something right so so so we need to break that but with a loan you can see if we make a monthly payment that means that part of the payment is short-term and part of the payment is long-term or part of the loan is short-term part is long-term so then the question is well uh am i going to break out short-term and long-term portion each month no probably not the easiest way to do that would be to break out the short-term and long-term at the end of the year when you need to possibly and you possibly might not even need to do that if you're a small business that is that is just recording a schedule c why because the schedule c is just the income statement basically you don't need the balance sheet on it so if you're doing your books primarily for for taxes you do need to break out the interest because that'll hit the income statement and possibly create a deduction for you but you may not need to break out the short-term and long-term portion of the loan because that's on the balance sheet and therefore may not impact your taxes if you have a basic schedule c tax return if you have a corporate tax return an s corporation possibly then maybe you need to then you might need to break it out but even then you may not you know depending on the circumstances so so there so there so there's that so then you'd have to so how would you break it out then you take your amortization schedule and you would and you would break out the short-term and long-term which i won't get into in detail in here but you could just you know look count the 12 payments out and have the short-term and long-term portion which again is something the accountant can do so couple so that's just a couple things to note when you want to make sure that the deposits from yourself and you're and from a loan if those come through you can distinguish them from deposits from client customers so that you don't record them as revenue number one the the deposits that come from yourself you're typically going to be putting into the equity section as owner investments if a sole proprietorship or a partnership and or a partnership capital investments or something and then and then it would be the sale of stock right would be the issuance of the stock for a corporation and then with the loans you have a few options in terms of of recording the loan if you purchased equipment and how you're going to deal with that do you want to stay in a cash-based system and be more reliant on yourself or your accountant at the end of the year to properly then do adjusting entries which can make it easier to automate your system or do you want to put more detail in as you're doing the bookkeeping for the purchase price of the equipment and then with the payments do you want to be breaking out each payment between interest and principal as they're paid which means less easy to automate or could you rely on the accountant to break out the proper amount of interest at your end or yourself with an adjusting entry and then and then do you need to be breaking out short-term and long-term portion of the loans you might not if to even if you do need to you probably only want to do that periodically so that you can still have each of the loan accounts tie into the amortization tables all right so let's go to the to the trial balance run it this is where we stand at this point in time if your numbers tie out to these numbers great if not it might be a date range issue you could change the date range and see if that is the issue if it is you can drill down on the numbers go to the source document change the date uh from the source document