How Transactions in QuickBooks Online Impact Reports

Do you understand how transactions in QuickBooks Online impact reports? It would probably surprise you to know how few people really do. It’s easy enough to start using Quickbooks Online. You record a check, and it’s pretty straight forward. We’ve all written checks before. It’s an easy and familiar form to fill out. Many transactions will be easy to record this way.

How to Record Rent

Write a rent check, and you code it to “Rent Expense.”

Decrease the bank account, increase rent expense.

Credit the bank account, Debit Rent Expense.

The banks have us confused about debits and credits.

So what about when the transactions get more complicated?

A customer pays an invoice via credit card, and we get the money. Then the customer issues a chargeback, and the money is taken away. Then we win the chargeback, and the money is returned to us. When things get this hairy, the only way to get it right is to understand  how transactions in QuickBooks Online impact reports.

I was just recently asked, right on YouTube, how to handle that scenario (video coming soon).

Business Owners know when something doesn’t look right, but they can’t always explain or fix it.

Many business owners who call me up, start out by telling me some version of the same story.

Their numbers just don’t look right.

So I work with people to clean up their books. Sometimes it’s the business owner trying to do their own books without having the right experience. Sometimes it’s an inexperienced bookkeeper.

The Picture

I would guess that 90% of bookkeeping errors could be prevented by simply having a better understanding of how transactions in QuickBooks Online impact reports . Your reports, or your financial statements give you the financial picture of your company. Every transaction you record is like another brush stroke.

If you can learn to reverse engineer things, and think first in terms of what a transaction should look like on the reports, you will start to gain a better perspective on how transactions in QuickBooks Online impact reports.

In short, understanding  how transactions in QuickBooks Online impact reports will make you a more powerful bookkeeper.

Whether you are the business owner doing your own books, or you want to make sure that you understand whether or not your bookkeeper knows what (s)he is doing, this information is invaluable.

If you are the bookkeeper, then of course you need this understanding so you can be a more effective bookkeeper, and win the respect of the CPA’s and EA’s who share your clients with you.

Here’s an example, using the scenario I described above.

By the time the customer issues the chargeback, the payment is already in the bank. 

Now the merchant processor is taking that money back, while they review the ticket. Think it through. You gave the customer credit for paying, and the bank credited that money to your account (speaking from the bank’s perspective now). Now the bank reversed that payment and deducted it from your account.

Isn’t it as if the customer never paid now? Yes it is. So that’s what the books need to show.

You can’t delete the original payment, because you actually did get that money. The bank took the money away separately when the chargeback was issued. Your bank will reflect both of these events.

When bank deducts the chargeback from your bank account, you’ll need to record an expense.

In accounting, that’s a credit to the bank account, to decrease the balance.

So where does the debit go?

The answer is just above.

Since the bank took the money away, the customer owes us the money again. You guessed it. Accounts Receivable

Debits increase Assets > Accounts Receivable is an asset.

Now you can figure out very easily how to record this.

The transaction:

Debit Accounts Receivable.

Credit Bank Account.

Since QuickBooks Online gives us forms to use, when we want to credit a bank account, that’s a check or an expense.

So we code that check to Accounts Receivable, and when we do that, we’ll need to associate the customer with that line item, so that QuickBooks Online knows whom to add the accounts receivable balance to.

Then you go collect. I don’t care if the merchant processor agrees with the customer. That just means the merchant processor got it wrong (and they often do). The customer still owes the money.

Now I have to decide if I want to collect, or write it off. If I write it off then the next time that customer wants to do business with me I either make them pay up front (plus the old balance) or I don’t do business with them.

The video in this post demonstrates this using much simpler examples!

Want to learn more about debits and credits? <– Click that

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