 QuickBooks Online. Bank feeds and your accounting system. Get ready to start moving on up with QuickBooks Online. 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 browser. We're going to be opening up the free QuickBooks Online test drive by typing into our browser QuickBooks Online test drive searching within the results I'm looking for the one that has into it.com within it because QuickBooks is owned by into it then I'm going to choose the United States version so I'm going to go to the United States version and verify that we are not a robot and continue. Remember that we are in currently the accounting view. We will be toggling back and forth with the cog up top between the business view and the accounting view. So I'm going to go back on over but first I'm going to open up two reports in new tabs which is going to be our customary opening process. I'm going to do that by going to the tab up top right clicking on it and duplicating that tab then I'm going to go to the duplicated tab right click on it again and duplicate it again then as this one is thinking I'll usually go back to the middle tab and open up the report within it which is going to be our balance sheet which under the business view I'm sorry under the accountant view is on the reports on the left hand side and then we have our favorite report the balance sheet it's always going to be one of the favorites because it has to be. You have a problem if you're an accountant and the balance sheet is not one of your favorite reports so it's because it's a financial statement report. Okay then we're going to go to the tab to the right and we're going to go down to the reports down here and this time we're going to be choosing the profit and loss or income statement. Then I'm going to change the date range on these reports I think the easiest way to do it is to select the date I'm going to do a custom date range from 010122 meaning two digit, two digit, two digit of January 1st 2022 and then say tab and it'll put the slashes in the year properly in place to December 31st 22 12 31 22 tab 12 31 22 and then we need to make sure to run it to refresh the report back to the tab to the middle now we're going to go and do the same thing up top date range from 010122 January 1st 2022 tab to 12 31 22 December 31st 2022 tab and then make sure to run it okay so then we're going to go back to the first tab that's going to be the setup process that will do basically every time the financial statements being the end result what we're trying to create as we do the data input so now we want to think about the bank feeds and how the bank feeds and fit into the system now we're going to have a whole section or course in and of or in focusing on the bank feeds themselves but for the first practice problem we're not going to be focusing in on the bank feeds directly because we're trying to think about the accounting system once you have an understanding of the accounting system you can then put the bank feeds in place now note that most people when they purchase a QuickBooks software like a QuickBooks online they want to just dive in turn on the bank feeds and think that everything's just going to be automated from the bank feeds and that's all they have to do and in some cases that could be close to true depending on the type of bookkeeping you're doing and we'll talk about that more shortly but it's quite possible and quite likely and happens very often that people download all the transactions from the bank feeds and then don't know what to do because they have no concept of the accounting system and how the forms work you still have to have some idea of how the accounting system works or the bank feeds will go into your system they'll be in QuickBooks but they'll be in what I call bank feed limbo and we can see that over here bank feed limbo and it's in the banking tab if I'm in the accounting view and then we've got the banking information up here so we've got the checking account the savings account the master card so when you just connect to the bank you're gonna have all this information that's just in here it's not however been pulled over to create the end results the financial statements from an accounting perspective what are we trying to do enter normal transactions which are basically reflected with the plus button here which if we're on a cash basis might just be the expense forms or check forms and then the the sales receipts for the income side of things and as we enter those forms those are used to create the financial statements so then you can think well what's gonna happen if I just pull the information in from the bank what does the bank include what does the bank have all it has are increases and decreases to the checking account so we're missing some vital information we're even if we're on a cash basis and we're gonna rely on the bank we're still missing some vital information which might be the customers who we received the deposits from and the vendors who we paid to we might have that information kind of in the description but it's not going to be added as a customer or vendor in our system we're gonna have to add that typically and of course the vital account what is the thing we purchased for the person that we purchased from say a vendor is not necessarily the expense account we purchased for example from a telephone company which might be called Verizon but we have to assign it to the expense account so those are going to be some of the issues that once we have the information in the system we still have to think that the bank feeds are gonna be used to create forms generally and because we're talking about the bank account the forms we're gonna create are usually going to be like a deposit form and an expense type form increases decreases to the checking account now just to see this in the business view if I hit the drop down on the cog and we go to the business view then the location here of where the bank feeds are a little bit different but we'll just get a get a look and feel if I go back up to the get things done which is basically the home page or like the dashboard for example then the business overview here is where we can go to find the reports that's where we opened up the balance sheet and the income statement I'll go back to the home page or the get things done page and then the bank feeds are gonna be in the bookkeeping area and if we think about this is more of a tab type of layout on the business view as opposed to the drop down or drop to the side type of layout in the accounting view similar to Microsoft's office or Microsoft word for example we might call this like a ribbon and this would be a tab so we're in the bookkeeping tab and then we have this other area which are basically the groups and then we select the item in this group or in the transactions up top and here's gonna be our banking type of transactions so we're once again kind of in bank feed limbo we can of course close the hamburger and open up the hamburger within here as well now the next question is well what do I need to know about the bank feeds in order to turn them on and start you do utilizing them within my business to answer that we need to know what type of industry we are in are we on an accrual based system are we on a cashed based type of system do we deal with inventory do we have payroll and how are we dealing with payroll for example so for that we want to take a look at a flow chart and notice QuickBooks online does have a flow chart up here and they get things done page the home page and but it changes a lot and I think the static flow chart that's on the desktop view can be quite useful in this case I'm gonna jump on over to just a screenshot of a flow chart now notice that the flow chart will be the same we're looking at the flows by cycle for any kind of accounting process and the forms will even be you know basically the same for QuickBooks online I'm just looking at it to have a nice kind of sufficient flow chart that I'm used to so we can discuss the process and how the bank feeds might fit within it so first we break out the accounting process as we've seen in prior presentations by cycle so we've got the vendor cycle vendors being the people that we're going to be paying for goods and services and we expect at the end of the cycle money to be going out you might also call the cycle the purchases cycle the expenses cycle the accounts payable cycle we got the customer cycle then at the end of this cycle we expect money to be coming in for goods and services we provided to customers you might call this a sales cycle a revenue cycle and accounts receivable cycle and then you have the employee or payroll cycle money going out for of course the goods and services of employees their labor in that case okay when we think about the bank feeds how they're going to fit into these we can think about how they fit into each of these cycles and some of them they might be easier to fit in than others sometimes one way that we want to think about it is are we in a cash based system or an accrual based system and it's possible for a business for example to be on a cash based system for their vendor cycle for the cash that's going out and be on an accrual based system on the customer cycle meaning they have to invoice people and that's usually not dependent on just your choice it's not like well I'm just gonna choose the easy one when you get you can't do that because it's gonna be driven by the industry if you have to invoice someone that's usually driven you know by the industry whether you have to basically do that or not so as we get to a more complex system then we have to think about how the bank feeds are gonna fit in because remember the bank feeds are just you can think of just your bank statement they're just increases and decreases to the checking account this is a mock bank statement here so if you're looking at the increases to the checking account you might only have a dollar amount if you just deposit cash into the bank then all you can have a do how you have is a date and a dollar amount if you get an electronic transfer then you might have a memo section giving you some data that you can possibly draw the customer from so electronic transfers typically will be easier if we want to construct our books from the bank feeds on the decrease side all we have is a date and the decrease amount depending like if it was just a cash withdrawal that's all we're gonna have if we wrote checks we also have the check number but the check number is quite useful but then the dates not as useful because if we write checks then the date we wrote them could be significantly different than the date they clear the bank and if we do electronic transfers that's usually the easiest thing because then the date becomes more relevant and although we don't have the check number the amount hopefully will match up in that case and we have the memo which can help us to create the transactions so how given that information will it fit into our accounting process let's start from the easiest to the most difficult the easiest system would be a cashed-based system but also one that would be a step easier than a cashed-based system one in which we can wait till the deposit clears the bank before we record it this would be something like gig work right so if you if you just get YouTube income or something like that then you can wait till it actually clears the bank and it'll be an electronic transfer so then you can just pick it up at that point and the bank feed will basically record a deposit at that point because that's what the increases are from the bank feed and you and you can just record an increase to the checking account an increase to sales and you can even draw the customer like YouTube or Google or whatever and put that into the customer field now you lose a little detail doing that because the deposit form is not designed to increase revenue it should be invoices and sales receipts even if on a cashed basis we would use a sales receipt so you lose some detail in terms of the items that you would sell and some customer reports how you would manage the customer even though you can get the customer in the deposit but that might be more than worthwhile for just a small kind of system where you're doing gig work but that's not really a full service accounting system because usually we enter the data first and then check it to the bank and so most of the time we have to do that oftentimes so if you're in a cashed-based system which is like a food truck for example or restaurant anything with a cash register in that case you're typically gonna have to collect the cash at the point of sale which is still a cashed based system but you can't wait till the cash clears the bank because you're gonna have to record it at the time you make the sale and oftentimes what's imagine you're selling food you know meals for five dollars a meal or whatever you're selling you can't just deposit into the bank every time you make a sale the transaction into the bank otherwise the bank will have like a hundred five dollar transactions in it but that's not what's going to be recorded on the bank's side because at the end of the day you're gonna take that money combine it together if it's all cash and deposit it into the bank as one lump sum so we don't want a bunch of five dollar deposits on our side and then have to match that to what got deposited into the bank so now you've got this problem of well I'm gonna have my cash register I'm gonna want to make sure that my sales register ties out to what I actually got in cash as an internal control then I'm gonna make sure that I when I deposit it into the bank meaning I'm gonna have to put this into like a clearing I'm gonna have to record an increase in sales and put it into like undeposited cash and then I'm gonna take that undeposited cash and put it into the bank and the same grouping that it'll be seen on the bank side on the bank statement or bank feeds that is and then I'll have to match that to what I entered in my system so that's more of a full-service system even though it's still a cash-based system and you're kind of forced to do that given the nature of the business that you're in now if you have an accrual system then you're gonna be invoicing people and you can't just choose to be in an accrual system or not because it's gonna be driven by the industry if you're a landscaper if you're a law firm if you're a bookkeeping firm usually you have to do the work first and then send out the bill or invoice to the client and they're gonna have to pay you now when you send out the invoice it has nothing to do with cash so clearly you can't just build your books in that case with the bank feeds because now you have this whole transaction that has nothing to do with cash so then the question is well this is gonna increase an IOU when you invoice someone because you're like hey I did work you owe me money I'm increasing the IOU and you increase sales then you're gonna have to receive the money from the customer you're gonna have to track and make sure they pay you and then you're gonna make the deposit typically and then you usually match after making the deposit on our side what we deposited to what clears the bank although you can't imagine a system where the bank feed fits in for example your invoice you wait till something clears the bank and then you match the deposit to the invoice it's possible you could have an invoice and then receive the payment but put it and put it into undeposited funds and then match the deposit to undeposited funds or you could make the deposit to the whole thing which is probably most common if you have to invoice people and then just match what clears the bank to the deposit with the bank feeds and that would be part of the bank reconciliation process the bank feeds are still important still useful but they're not the thing that you're constructing your books from they're taking their normal task that they always have usually within the bank reconciliation before bank feeds of just verifying what you put into the system not creating what you put into the system in that case and then on the on the other side of things on the payment side of things a lot of small businesses can oftentimes be on a system where they can rely on the bank transactions the bank fees to construct their payments because if you're making all your payments as they come up by paying them with either a credit card or a direct bank feed transaction an electronic transaction the credit card can also be connected with the bank feeds so those are the easiest things to basically construct your books directly from the bank feed from because one their electronic transfers so they clear the bank quite quickly you don't have this time gap that you do with checks and two you've got the information in the memo which you can usually draw the vendor from so that you can create the vendor from that transaction now if you're so so that's the easiest thing so a lot of small businesses can do that can do a lot of automation on the payment side but if you're paying with checks you're actually writing physical checks then you don't typically want to wait till the check clears the bank before you record it in that case you would want to actually enter it in your system when you write the check and then use the bank feed to double-check when the check cleared the reason being that there's could be a big difference between when you write the check and when the check clears and that's what you want to track if someone calls you a vendor and they say where's my money you want to be able to say hey I wrote the check and a cleared or didn't clear if you if you don't enter anything into the system until the check cleared you're not even going to know that you wrote it really right and that's going to be a problem so but a lot of small businesses are moving away from writing checks and they're just doing electronic transactions and you don't really have that issue with there so you can oftentimes use the bank feeds now as businesses get larger then it becomes really a lot more and more important for businesses to to pay as late as possible because because it doesn't make a big difference if you pay your your hundred dollar electric bill today or 15 days from now but if you have a bunch of transactions that you can pay either now or 15 days and or you're not paying $100 but $10,000 per transaction then those 15 days become more relevant due to the time value of money and so you're going to want to enter the bills which is an accrual component doesn't have anything to do with cash and then organize them and pay them as late as possible that's an accrual component so then you got to think about if you're entering bills where does the where does the deposit fit in you can match the deposit to the bill or you can you can enter the bill and then pay the bill and then match the deposit to when it's paid which is basically the same as a bank reconciliation kind of process and then you've got inventory so inventories the next issue because inventory forces us to move away from an accrual process from a cash based system to an accrual based system usually you can try not to for example if you have inventory that you make customarily for custom jobs and you buy the inventory and you make it into whatever the end product is and then you sell it right away then maybe you can get away with as you buy the inventory you just expense it as cost the goods sold when you expense it and then when you actually sell the goods you create a sales receipt or whatever at that point in time and you're not actually tracking inventory as an asset you're just buying and selling it the turnaround is right away it's just in time system whatever you want to call it but if you're tracking any significant amount of inventory then usually when we purchase it we've got to put it on the books as an asset and then track the asset and then when we sell it we're gonna have to record the decrease in the asset the question then if you're tracking inventory do you have a periodic system or a perpetual inventory system you could think of a system in a periodic system when you track the inventory outside of QuickBooks and like an Excel worksheet and then you can make periodic adjustments so when you buy the inventory you don't have to worry about entering items which makes it a little bit easier you might be able to use the cash feeds if you don't have to enter the items and then you make periodic adjustments after counting the inventory nightly weekly or monthly decreasing the inventory recording the related cost of goods sold well we'll talk more about that later that could be going way over people's heads right now but it complicates the system it gets a little bit more complicated if you want a perpetual system the units of inventory being tracked within the QuickBooks system in that case when you buy the inventory even if I'm doing electronic transfer I usually have to enter it into the system first because I need to be tracking the units of inventory I have to set up items and track the items which can make it a little bit more complex to just use the bank feeds and when I sell the inventory I can't just use a deposit form to record the receipt which is usually the form used with an increase in the bank feed because I don't have that same items capacity to record the tracking of the items the inventory items I have to use the natural forms needed to record inventory invoices and the sales receipts and then finally payroll also greatly complicates things so obviously if you have to process payroll within QuickBooks then you can't use use just the bank feeds to pay your employees because you're gonna have to do the withholdings and everything which is its own world of complication now you could imagine a system when you don't run the payroll through QuickBooks and you hire a third party like an ADP or a paychecks I'm not advertising for them those are just the big two or some some big ones and and you can imagine them doing it and you still run your books on a cash based system trying to automate as much as you can and then make just adjustments for the payroll that's going to be actually tracked outside of QuickBooks that way that could be a system you can set up we might talk more about that later but if you run payroll within QuickBooks then clearly processing the checks has to be done you know as on the payroll system because you have to deal with the withholdings and then the liabilities which are a cruel kind of transactions related to the payroll liabilities social security Medicare and so on federal income tax state taxes and whatnot benefits and we'll do we'll get into that in more detail later but that's the general idea so the general idea if you have a very basic type of system where you're on a cash based system and you're not even just on a cash based system but you can you have mainly all electronic transfers and you can wait till transactions clear the bank before recording them like your gig economy and you're getting paid from a platform that's the easiest system to use and then when you're dealing with actual cash transactions that a cash register gets a little bit more complex and once you add a cruel components which include inventory which usually forces us into an accrual component then we got to think a little bit deeper in terms of how the bank feeds are going to fit in to our accounting system