Top 6 QuickBooks® Accounting Mistakes You May Be Making
QuickBooks® is among the most popular accounting and bookkeeping systems because it offers incredibly robust features that simplify everything from sending invoices to digitizing receipts. However, as good as QuickBooks® might be at preserving and organizing your financial data, it’s still possible to make mistakes from time to time. And failing to catch QuickBooks® errors early can be costly. So we created this quick guide to help you learn how to fix some of the most common QuickBooks® accounting mistakes small businesses make.
Mistake #1: Your Items list is messy and outdated.
If your business sells products, those products are known as “Items” in QuickBooks® Desktop and “Products and Services” in QuickBooks® Online. You may have started out with a nicely organized list of Items and correct corresponding information. However, a list of Items will likely become disorganized and outdated over time without periodic maintenance.
The solution is fairly simple. First, review your Items list for products you no longer sell and deactivate them. Next, ensure that every Item you do still sell is labeled correctly (e.g., inventory or non-inventory). While you’re doing that, double-check that the price is still accurate. Lastly, tag each of your products with the correct revenue and cost amounts.
Mistake #2: You’re not reconciling your bank account and credit card.
QuickBooks® can automatically import data from your business bank accounts into your QuickBooks® account. It will even automatically categorize your transactions. However, you’ll still need to reconcile your accounts to ensure everything is correct. Therefore, we recommend setting aside time each month for reconciling QuickBooks®. Or outsource your bookkeeping tasks if you’re short on time.
To ensure your transactions are accurate, open up the reconciliation module in QuickBooks®. Then, scrutinize every transaction to ensure it is entered properly into QuickBooks®.
Mistake #3: You’re seeing customers with negative balances.
It’s essential to check your accounts receivable report on a regular basis. One major red flag to look for is customer accounts that reflect negative balances. A negative account balance implies that a customer has overpaid, which is typically NOT the case— instead, a negative account balance usually results when your deposits are applied to invoices incorrectly.
The first step to solve this problem is to ensure that every customer payment is applied to the corresponding open invoice. Then, if you encounter a discrepancy, you must create a journal entry or issue a credit memo to offset the difference.
Mistake #4: Your report indicates vendors haven’t been paid.
Your accounts payable aging report is a type of accounting document that you should be reviewing on a regular basis. It lists all of your vendors, including the invoices you’re responsible for paying and their due dates. In QuickBooks®, you can also see how many days you’re past due on any given invoice that you haven’t paid yet.
If you’re in the habit of paying your invoices promptly and you’re positive that you aren’t late on any bills, then an accounts payable aging report indicating past due bills can be cause for alarm. Fortunately, it may be a simple QuickBooks® error, rather than a payment mistake. The solution is to check and ensure that payments have been correctly applied to their corresponding bills.
Mistake #5: You’re seeing a significant volume of QuickBooks® errors across transactions.
It is easy to fix an occasional QuickBooks® mistake here and there, but what if you notice that many of your transactions seem incorrect? The cause may be deleted transactions or “corrections” you attempted to make.
QuickBooks® is quite smart; it’s programmed to understand the relationships between transactions. As such, transactions are frequently linked together. And accounting errors often result when one transaction is deleted without deleting its associated transaction. Therefore, it’s always best to check with your Certified Public Accountant (CPA) before clicking “delete.”
To determine whether this mistake affects your business books, run a Journal report in QuickBooks®. If you find multiple Transaction IDs with only one entry, it’s best to enlist a CPA’s help to correct these mistakes and provide additional QuickBooks® training to prevent these mistakes.
Mistake #6: Using the wrong method of accounting.
When you first set up your business, you had to choose between the cash basis or the accrual method of accounting. With the cash method, you report revenue and expenses when they are received and paid. The accrual method, in contrast, records these transactions when they are incurred. If you’ve configured QuickBooks® to use the wrong method for your business, it could result in over-reporting or under-reporting income to the IRS. This can be a very costly mistake.
Double-check that the correct accounting method for your business has been entered into QuickBooks®. If not, you can easily switch your financial reports from accrual to cash or vice versa. If you aren’t sure which accounting method you’re using, talk to your CPA. Many startups and small businesses use the cash method.
How To Fix These Quickbooks® Accounting Mistakes
1. Confirm Your Accounting Method in QuickBooks®
Double-check the accounting method – accrual or cash basis – that has been entered into QuickBooks® to ensure you are not over-reporting or under-reporting income to the IRS.
2. Perform Monthly Reconciliations of Bank Accounts and Credit Cards
Monthly reconciliations enable you to catch accounting mistakes in a timely manner, make corrections, and prevent them from compounding throughout the year. It’s best to review every transaction for the month to ensure accuracy and start the next month with a clean slate.
3. Review Your Accounts Receivable Report Each Month
Look for accounts with negative balances – which suggests that customers may have overpaid. Determine if there was actually an overpayment or if an accounting mistake was made. Accounting mistakes should be corrected in QuickBooks® before reconciling your books.
4. Review The Accounts Payable Aging Report On A Monthly Basis
Look for past-due accounts that you know have been paid. These indicate that payments have been incorrectly applied in QuickBooks® and should be fixed before performing the monthly reconciliation.
5. Review The Journal Report Each Month
Look for transaction IDs with only one entry, indicating an accounting mistake has been made. Correcting journal entries should be done with the guidance of a CPA before reconciling the books.
6. Do QuickBooks Clean-Up Once A Year
After the year-end reconciliation is complete, it’s a great time to do some QuickBooks housekeeping. Make sure your list of products, services, and prices is up to date.
Are you in need of expert QuickBooks® help to fix accounting mistakes? When you partner with Accounting Meister, our Certified QuickBooks® ProAdvisor can assist you with finding and fixing mistakes, customizing the software to fit your business needs, and providing QuickBooks® training so you and your team can avoid making costly QuickBooks® accounting mistakes. Schedule a free 15-minute consultation with a QuickBooks® expert in our North Port, Florida office today!
