+1-802-778-9005

How to Record Things in QuickBooks Desktop and Online?

Excerpt:

QuickBooks provides comprehensive solutions for managing financial transactions, including refunds, deposits, credit card payments, and sales tax payments. It helps businesses track various processes such as issuing refunds, recording deposits, handling credit card processing fees, managing loans, and processing bounced checks. With these features, QuickBooks ensures accuracy in financial records, streamlines accounting workflows, and helps businesses stay organized while simplifying tasks like tax filing and loan management.

Call Now
Home>>Become An Expert With QuickBooks Training & Certification How to Record Things in QuickBooks Desktop and Online?

Submit Your Details to Continue Reading

Navigation

QuickBooks Desktop and Online platforms are the focus of this guide, which provides practical instructions for recording a wide range of common and complex financial transactions, targeting business owners and bookkeepers. It covers essential bookkeeping functions, detailing the correct two-step workflow for bank deposits using the crucial Undeposited Funds account to ensure reconciliation accuracy. The content provides solutions for debt management by specifying how to accurately split loan payments between a Liability Account for principal and an Interest Expense Account for tax-deductible costs. For operational issues, it stresses using the dedicated Record Bounced Check feature over manual entries for NSF payments and clarifies the use of Equity Accounts to track owner contributions, preventing them from being mistakenly categorized as taxable income. Furthermore, the guide addresses compliance for non-cash and future revenue, detailing the use of Journal Entries for depreciation and classifying customer prepayments as a liability (Unearned Revenue) until services are rendered, with the latest IRS guidance confirming that the Employee Retention Credit (ERC) refund can be recorded simply as Other Income in the year received.

Highlights (Key Facts & Solutions)

  • Undeposited Funds: This is a temporary asset account used to group multiple customer payments into a single Bank Deposit transaction total to ensure your QuickBooks register matches the lump sum on your bank statement.
  • Loan Payments: Loan repayments must be split using the Write Checks feature or a Journal Entry, dedicating a portion to the Loan Liability Account (principal) and the remainder to an Interest Expense Account (tax-deductible interest).
  • Bounced Checks (NSF): The dedicated Record Bounced Check feature is the most efficient method, as it automatically reverses the payment, reopens the associated invoice (reinstating Accounts Receivable), and records bank fees.
  • Owner Contributions: Funds introduced by the owner are not taxable income; they must be recorded as a Credit to an Equity Account (e.g., Owner’s Equity or Partner’s Equity) on the Balance Sheet.
  • Depreciation: As a non-cash adjustment, depreciation is recorded using a manual Journal Entry to Debit the Depreciation Expense (P&L) and Credit the Accumulated Depreciation (Balance Sheet) account.
  • Customer Prepayments: Funds received before services are delivered are Unearned Revenue and must be classified as an Other Current Liability until the sale is completed, adhering to the Revenue Recognition Principle.
  • ERC Refund: The latest IRS guidance allows for the simplest accounting treatment, which is to record the full refund amount as Other Income in the tax year the check is received, avoiding the need to amend prior-year tax returns.

Refund

QuickBooks offers a couple ways to handle issuing refunds to customers. You can create a refund receipt to process the return of products or services, specifying the customer, payment method, and refunded items. This is useful if you need to track inventory or account for the original sale. Alternatively, you can record an expense for the refund amount, crediting the customer’s account and debiting the bank account used for the original deposit. This method is simpler but doesn’t provide specific details about the returned items.

Deposits

In QuickBooks, deposits are a way to record the money you receive from customers and clients. They help you match your bank statements by grouping together payments you’ve received into a single record that reflects what you deposited at the bank. This can be done for multiple payments at once, as long as they all appear together on your deposit slip. Recording deposits keeps your books accurate and makes reconciling your accounts, which ensures your records match your bank’s, a breeze.

Bank Deposits

In QuickBooks, recording bank deposits helps ensure your financial records match your actual bank statements. You use the Bank Deposit feature to group together payments you’ve received, like invoice payments or sales receipts. These payments are initially placed in an Undeposited Funds account. When you make a deposit to the bank, you’ll create a new Bank Deposit record specifying which undeposited funds are being included and the bank account they’re going into. This process keeps your books accurate and makes reconciling your accounts with the bank much smoother.

  • How to Record Bank Deposits in QuickBooks Desktop and Online

Security Deposit

In QuickBooks, you can track security deposits you receive from tenants as a liability. This means it represents money you owe the tenant eventually. There are a couple of steps involved. First, create a specific account in your chart of accounts to house these deposits. Then, when you receive a security deposit, record it using this account. Since it’s not income you can keep, it shouldn’t be recorded as income. Finally, QuickBooks allows you to set up memorized transactions to streamline recording future security deposits.

Credit Card Processing Fees

QuickBooks charges fees for processing credit card payments made through their system. These fees vary depending on how the transaction is made. The most common rate is 2.99% for online payments using cards or digital wallets like Apple Pay. In-person swiped payments are slightly cheaper at 2.5%. However, manually entering card information incurs the highest fee of 3.5%. ACH bank transfers are a more affordable option at a flat 1% fee. It’s important to consider these processing fees when calculating your overall income and pricing your products or services.

Credit Card Payments

QuickBooks offers two ways to handle credit card payments: receiving them from customers and paying down your own credit card balance. If you want to accept credit card payments, you’ll need to sign up for QuickBooks Payments, a separate service. Once approved, you can accept payments online, by phone, or even set up recurring payments. On the other hand, to record payments you make towards your business credit card, you can use the “Pay down credit card” function. This lets you track how much you owe and keeps your accounts balanced.

Credit Card Refund

Recording a credit card refund in QuickBooks helps you keep your books accurate. You can do this by creating a refund receipt. Simply choose “Refund receipt” under the “New” menu. Select the customer you’re refunding and enter details matching the original sale. Choose “Credit Card” as the payment method and specify the account from which the refund comes. This process ensures both your customer and your accounts reflect the returned purchase.

Credit Card Transactions

QuickBooks handles credit card transactions in two main ways: recording your charges and recording your payments. When you use your credit card, you can enter it as an expense with the appropriate category, like office supplies or travel. QuickBooks will track this as a credit card expense, not affecting your checking account balance yet. When you pay your credit card bill, you’ll record a transfer from your checking account to the credit card account, reducing the credit card liability. This way, QuickBooks reflects both your spending and your credit card debt.

  • How to Record Credit Card Transactions in QuickBooks Desktop and Online

Cash Back Rewards

QuickBooks allows you to track the cash back rewards you earn on your credit cards. You’ll need to create an income account specifically for these rewards if you don’t have one already. When you receive your cash back statement, you can record it as a credit card credit transaction. Choose the credit card account and your new income account, then enter the amount. This way, you can see how much cash back you’re accumulating and how it impacts your overall income.

Credit Card Rewards

QuickBooks allows you to track the cash back or rewards you earn on your credit cards. To do this, you’ll need to create an income account specifically for credit card rewards. Once you have that set up, you can record your rewards as a credit card credit transaction. This increases your credit card balance (reducing what you owe) and adds the earned rewards to your income account. This way, you can easily monitor how much you’re earning in rewards over time.

Depreciation

QuickBooks allows you to track depreciation, which is the gradual decrease in the value of an asset over time. To do this, you’ll need to set up a depreciation expense account. Once that’s done, you can record depreciation by creating a journal entry. This entry will decrease the value of the asset and increase the accumulated depreciation account. QuickBooks doesn’t automatically calculate depreciation for you, so you’ll need to determine the amount yourself based on the asset’s value, salvage value, and useful life.

Loans

QuickBooks allows you to manage your business loans effectively. You can set up a specific liability account to track what you owe on the loan. This account will be either a long-term liability (for loans lasting more than a year) or a current liability (for loans to be repaid within the year). When you receive the loan, you create a journal entry to record it, crediting the liability account and debiting the appropriate asset account (if the loan is used to purchase an asset). Finally, you can record your loan payments through the banking menu, specifying the loan account and interest expense. This way, QuickBooks helps you keep your loan activity organized and transparent.

Vehicle Loan

Recording a vehicle loan in QuickBooks involves creating two accounts: a liability account for the loan itself and an asset account for the vehicle. First, you’ll set up the liability account under “Chart of Accounts” as “Notes Payable” with a descriptive name like “Auto Loan.” Then, you’ll make a journal entry to record the loan. This entry debits the vehicle asset account (usually a “Fixed Asset”) for the loan amount and credits the liability account you just created. This creates a record of the loan and how much the vehicle cost. QuickBooks offers additional resources to guide you through down payments and tracking depreciation on the vehicle over time.

Loan Payable

In QuickBooks, a loan payable account tracks money you owe to a lender. There are two main types: long-term loans (typically for over a year) and current loans (due within the year). You’ll need to set up a liability account under “Chart of Accounts” specifying the loan type. QuickBooks uses “Notes Payable” for long-term loans and “Loan Payable” for current loans. You can customize the account name for better identification (e.g., “Equipment Loan”). When you receive the loan amount, you record it as a credit to this account. As you make repayments, QuickBooks debits the loan payable account, decreasing your liability.

Bounced Checks

When you encounter a bounced check in QuickBooks, you’ll need to take action to adjust your records and collect the payment. QuickBooks offers a couple of methods to handle this. You can use the “Record Bounced Check” feature, which automatically updates the original invoice to unpaid, creates an expense for the withdrawn funds, and allows you to charge a fee to the customer. Alternatively, you can achieve this through a journal entry, specifying the accounts affected by the bounced check and any associated fees. This ensures your books reflect the reality of the situation and helps you recover the owed amount.

Returned Check

When you encounter a returned check in QuickBooks, there are steps to take to reflect the bounced payment and any associated fees. QuickBooks offers two methods depending on your version (Online or Desktop) and whether the check was entered before the deposit. In both situations, you’ll need to recategorize the bank transaction to show the customer still owes the money. You’ll also need to unapply the payment from the original invoice to mark it as outstanding again. QuickBooks can even help manage any bank service fees by creating an expense for them. This ensures your records stay accurate and reflects the bounced check effectively.

NSF Check

When you receive a check from a customer and it bounces due to non-sufficient funds (NSF), QuickBooks offers ways to record this in your accounts. You can utilize the “Record Bounced Cheque” feature specifically designed for this situation. This feature helps you reverse the original payment and track the bounced check amount. Alternatively, you can create a journal entry to debit your accounts receivable and credit the bank account that received the original deposit. This ensures your records accurately reflect the bounced check and maintains your financial clarity. Remember, the bounced check shouldn’t be waiting in an Undeposited Funds account as it needs to have gone through the bank for it to be considered NSF.

  • How to Record NSF Checks in QuickBooks Desktop and Online

Bad Check

When you receive a bad check, also known as a Non-Sufficient Funds (NSF) check, in QuickBooks, you need to take action to reflect the bounced payment and keep your records accurate. QuickBooks offers two main methods: using the “Record Bounced Cheque” feature or creating a journal entry. The “Record Bounced Cheque” option streamlines the process by reversing the original payment and creating an expense for the deducted amount. This keeps the original invoice open and allows you to track the customer’s outstanding balance. If you prefer more control, you can make a journal entry debiting your accounts receivable and crediting the bank account that received the bad check. This method achieves the same result but requires a few more steps.

  • How to Record Bad Checks in QuickBooks Desktop and Online

Hand Written Check

Even though QuickBooks doesn’t directly print handwritten checks, you can still record them to keep your finances organized. Both QuickBooks Online and Desktop versions allow you to manually enter these checks in the bank register. This way, you can add the date, payee information, amount, and account details. Entering these handwritten checks ensures your records reflect the outflow of cash and keeps your checkbook register balanced.

Sales Tax Payments

QuickBooks itself doesn’t process your sales tax payments, but it helps you track and record them. After you’ve filed your sales tax return, you can use QuickBooks to record the payment you made to your state or local tax agency. This process involves specifying the amount, date, and bank account used for the payment. QuickBooks keeps your sales tax information organized, so you can easily see how much you owe and ensure your records are accurate come tax time.

Vendor Refund

Recording a vendor refund in QuickBooks ensures your books accurately reflect the money you get back from a supplier. There are two main steps: creating a vendor credit and recording the deposit. The vendor credit reduces your accounts payable balance for that vendor and specifies the expense category affected by the refund. Then, you record the deposit itself, linking it to the vendor and the expense category you used in the credit. This process keeps your records clean and simplifies tracking your spending.

Payroll

QuickBooks offers payroll services that can simplify your business’s payroll process. You can set up payroll information for employees and contractors, calculate taxes and deductions, and generate paychecks or enable direct deposit. QuickBooks can even help you with tasks like filing payroll taxes and managing timesheets for hourly workers. There are different service tiers available, with pricing based on the number of employees you have and features you need.

Payroll That Was Processed Outside

Even though you process payroll through a separate service, you can still track it within QuickBooks. To do this, you’ll want to use the journal entry function. This allows you to manually record the payroll information like wages, taxes, and other deductions. By creating specific expense accounts in your Chart of Accounts, you can categorize these costs and ensure your overall financial records in QuickBooks accurately reflect your payroll activity.

ERC Refund

Recording an ERC refund in QuickBooks involves creating a new account specifically for the credit and then depositing the funds. You’ll need to choose the appropriate account type within QuickBooks (usually “Other Income Account”) and name it clearly, like “Employee Retention Tax Credit”. Once the account is set up, you can record the ERC refund through the “Make Deposit” function, specifying the bank account that received the funds and the date of deposit. For accurate record-keeping, it’s recommended to link the deposit to the “COVID expenses” used to claim the ERC in the first place.

Reimbursement

QuickBooks offers a couple ways to handle reimbursing employees for out-of-pocket expenses. If you use QuickBooks Online Payroll, you can set up a “Reimbursement” pay type. This allows you to easily track these payments alongside regular wages. For more specific tracking, you can also create a custom payroll item linked to an expense account. This gives you a detailed breakdown of the reimbursement reason and category. No matter which method you choose, QuickBooks helps ensure your employee reimbursements are documented and accounted for accurately.

401k Employer Contributions

In QuickBooks, you can set up separate entries for tracking your company’s contributions to your employees’ 401k plans. This involves creating a new company contribution item under the payroll item list. You’ll specify details like the provider and account number, and link it to expense and liability accounts for proper tracking. This helps categorize these contributions as payroll expenses while keeping them distinct from employee deductions.

401k Forfeitures

While QuickBooks doesn’t have a built-in function for 401k forfeitures, you can still record them using journal entries. The key is to create a separate account, like “Forfeited 401k Contributions.” When a forfeiture occurs, debit this account for the amount and credit another account depending on how you plan to use the forfeited funds. A common option is to credit the “Employer Contributions” account, reducing your company’s contribution obligation. Remember to include clear descriptions in your journal entry to maintain a proper audit trail.

Employer Paid Health Insurance

In QuickBooks, you can track employer-paid health insurance for your employees. There are two main ways to handle this. You can create a company contribution payroll item. This will track the total amount the company pays towards health insurance for all employees. Alternatively, you can create a custom expense transaction. This is useful if you want to track the health insurance expense separately for each employee or plan. Whichever method you choose, QuickBooks helps you record these contributions accurately so you can maintain good financial records and ensure proper reporting on employee W-2s.

ERC Credit

The Employee Retention Credit (ERC) isn’t directly recorded as a credit within QuickBooks itself. However, QuickBooks can help you manage the ERC process. You can set up a specific account in your Chart of Accounts to track the ERC funds you receive. Additionally, if you used specific COVID-related expenses to qualify for the ERC, you can record the actual ERC payout as a deposit in QuickBooks, linking it back to that expense account. This helps maintain a clear record of how the ERC funds were used.

Receipt of Vendor Invoice

When you receive an invoice from a vendor in QuickBooks, it’s not recorded as a receipt, but rather a bill. QuickBooks differentiates between money coming in (income) and money going out (expenses). To record the vendor invoice, you’ll enter it as a bill in the Vendors section. This creates a record of the amount you owe the vendor and allows you to track upcoming payments. You can also attach a digital copy of the invoice to the bill for easy reference.

Expenses

QuickBooks helps you track and manage your business expenses efficiently. You can record expenses you’ve already paid for by entering the payee, payment account, date, and method. QuickBooks also categorizes your expenses, making it easier to understand where your money is going. This information is helpful for budgeting, identifying areas to cut costs, and generating reports for tax purposes.

Insurance Claim Payment

Recording insurance claim payments in QuickBooks involves creating a specific account within your Chart of Accounts to track this income. Once you have this account set up, you can record the insurance company’s payment as a deposit. QuickBooks offers two main methods: a bank deposit for the direct funds received or a journal entry if the insurance company pays a vendor or contractor on your behalf. This ensures proper categorization and facilitates tracking the insurance payout within your financial records.

Personal Money Put Into Business

There are two main ways to record personal funds used in your business with QuickBooks. If it was a one-time investment to get your business started or ongoing capital you contribute, you’ll want to create an equity account (Owner’s Equity for a sole proprietor) and record it as a deposit to that account. This keeps track of your overall investment in the business. If you accidentally used your personal funds for a business expense, you can use a journal entry. Debit the expense category (office supplies, for instance) and credit the owner’s equity account for the same amount. This way, you ensure proper expense recording and maintain a clear separation between your personal and business finances.

Sale Of An Asset

Recording the sale of an asset in QuickBooks involves a few steps. First, you’ll need to determine the selling price and factor in any accumulated depreciation. Then, QuickBooks uses a journal entry to remove the asset and its depreciation from your books. This entry credits the asset account and debits the accumulated depreciation account. You’ll also debit your cash account for the amount received and credit an “other income” account for any gain on the sale, or a loss if the selling price was lower than the asset’s book value. Finally, you can mark the asset account as inactive to show it’s no longer owned.

Bad Debt

In QuickBooks, bad debt refers to money owed by a customer that you’re unlikely to collect. To account for this, you’ll need a “bad debt expense” account in your chart of accounts. When you write off an invoice as bad debt, you create a credit memo for the amount and apply it to the invoice. This reduces your accounts receivable and increases your bad debt expense, keeping your financial records accurate.

Stock Investments

QuickBooks doesn’t directly track stock market investments like inventory. However, you can still record them for overall financial tracking. You’ll need to set up an investment account as an “Other Current Asset” and create subcategories if you want to track specific stocks. When you buy stocks, record a journal entry debiting the investment account and crediting your cash account. Updating the value requires another journal entry debiting the investment account for increases (unrealized gains) or crediting it for decreases (unrealized losses), with the offsetting entry in an “Unrealized Gain/Loss on Investments” account. Remember, this method tracks the investment’s impact on your net worth, but not the stock price itself.

Employee Retention Credit

QuickBooks can’t directly calculate or file for the Employee Retention Credit (ERC), but it can help you track the credit once you’ve received it. You’ll need to create a new account in your Chart of Accounts to record the ERC as “Other Income.” Then, when you receive the credit, you can record a deposit using the “Make Deposit” function. Be sure to identify the ERC account and the expense accounts used to calculate the credit. This helps maintain accurate records for tax purposes.

Tips

QuickBooks offers helpful features to manage tips for both you and your employees. You can enable accepting tips on invoices, allowing customers to add a gratuity during payment. QuickBooks can also track tips designated for employees. By setting up a dedicated tips liability account, you can record employee tips and ensure accurate payroll and tax reporting.

Cash Withdrawal

Recording cash withdrawals in QuickBooks requires setting up a dedicated account first. This account, typically named “Petty Cash” or “Cash Bank Account,” is categorized as a bank account within the Chart of Accounts. Once created, you can record the withdrawal using various methods like writing a check to the “Cash” account or creating a journal entry specifying the withdrawal amount and the bank account it reduces. This helps maintain accurate financial records by reflecting the movement of funds from your bank account to physical cash.

Chargeback

When a customer disputes a credit card transaction you processed, it can lead to a chargeback. This means the money gets reversed and goes back to the customer. QuickBooks offers two ways to record this in your accounts. You can either process it as a refund through the Customers menu and Credit Memos/Refunds function, or record it as a business expense by writing a check. Whichever method you choose, it’s important to keep the original invoice unpaid to reflect the disputed amount.

Donation

In QuickBooks, you can record both cash and in-kind donations. The first step is to set up a “Charitable Contributions” expense account if you don’t have one already. To record a cash donation, you can use a check or an expense check. For in-kind donations, you’ll need to create an item with the fair market value and then issue a credit memo for the donation amount. This helps you keep track of your charitable giving for tax purposes.

How to Record a Donation in QuickBooks Desktop and Online

Journal Entry

In QuickBooks, a journal entry isn’t for everyday transactions like sales or bills. It’s a manual tool for specific situations. Think of it as a behind-the-scenes adjustment. You might use it to record something that doesn’t fit a normal category, like prepaying for rent, or to transfer money between accounts. The key is understanding debits and credits to ensure your books balance. If this sounds complex, consulting with an accountant is always a good idea.

Partner Buyout

Recording a partner buyout in QuickBooks involves creating a journal entry to reflect the transfer of ownership. This entry will typically debit the buying partner’s equity account for the buyout amount and credit accounts for the selling partner’s share of assets (cash, inventory, equipment) and liabilities. Depending on the situation, you might also need to create a new equity account for the remaining partner if they are transitioning to a sole proprietorship. Consulting with an accountant is recommended to ensure the buyout is documented accurately and impacts your financial statements appropriately.

Transfer

QuickBooks allows you to record transfers between your accounts easily. This helps categorize your finances accurately and keeps track of funds moving internally. You can record a new transfer directly in QuickBooks by specifying the from and to accounts, amount, and date. There’s also an option to record a transfer from an existing bank transaction by marking it as a transfer and specifying the destination account. This way, QuickBooks ensures your accounts reflect the movement of funds within your business.

Customer Prepayments

In QuickBooks, customer prepayments allow you to record money received from a client before you deliver your products or services. To track these prepayments effectively, you’ll first need to set up a specific liability account, like “Customer Prepayments.” Then, you can create a service item named “Customer Pre-Payment” and link it to that liability account. When a customer gives you a deposit, you can record it using a sales receipt with the pre-payment item. This will show the prepayment as a liability on your books, and the funds will be deposited into your bank account. Finally, when you deliver the product or service and create an invoice, you can apply the prepayment amount towards the invoice balance.

Interest Income

QuickBooks allows you to track interest income earned on your business accounts, like savings or money market accounts. You can set up a specific “Interest Earned” account under the “Other Income” category within your Chart of Accounts. This helps categorize this income separately from your main business revenue. When you receive interest, you can record it as a bank deposit, selecting your bank account and the “Interest Earned” account. This way, you have a clear record of all interest income for accurate financial reporting and tax purposes.

Inventory

QuickBooks offers inventory management tools to help businesses track and organize their stock. You can set it up to include products, services, and even bundles. By adding inventory items, you can track their quantity on hand, set reorder points to be alerted when stock runs low, and gain insights into what sells best. This helps with maintaining proper stock levels, avoiding stockouts, and ensuring you have what you need to fulfill customer orders.

K-1 Income

QuickBooks itself can’t generate a K-1 form, which is used to report income from partnerships, S corporations, and trusts. However, you can use QuickBooks to track the income reported on your K-1. This involves setting up a specific account for K-1 income and then recording the income as a deposit transaction. Categorizing it accurately ensures proper tax implications are reflected in your financials. QuickBooks helps you manage the information but won’t replace the need for the official K-1 form itself.

FAQ

How does QuickBooks handle the difference between a Bank Deposit and the Undeposited Funds account?

The Undeposited Funds account is a crucial temporary asset account used to hold customer payments (cash, checks, credit card receipts) that have been received but have not yet been physically or electronically deposited into the bank.

  • The Problem: If you receive five individual $100 payments and deposit them together, your bank statement shows one lump sum of $500. If you record each payment directly into the bank register in QuickBooks, your records will show five separate $100 entries. This mismatch makes bank reconciliation extremely difficult.
  • The Solution: The Undeposited Funds workflow involves two steps:
    1. Payments are first directed into the Undeposited Funds account.
    2. The Bank Deposit feature is used to group the individual payments from the Undeposited Funds account into a single transaction total that exactly matches the deposit amount on your bank statement.

When recording a loan, why must I split the payment between two different accounts in QuickBooks?

You must split the loan payment to accurately reflect the two distinct components of any standard loan repayment: the principal and the interest. Failing to split the payment misrepresents your company’s financial position.

  • Principal Payment: This part of the payment reduces the actual debt you owe. It is recorded as a debit to the Loan Liability Account (a balance sheet account).
  • Interest Payment: This is the cost of borrowing the money and is a true business expense. It is recorded as a debit to an Interest Expense Account (a profit and loss account).
  • Transaction: The total cash outflow for the full payment is recorded as a credit to your Bank Account.

Accurate splitting ensures your Balance Sheet correctly shows the remaining liability and your Profit and Loss (P&L) Report correctly shows your expenses for tax purposes. You can often track this using the Write Checks feature in QuickBooks and splitting the amount between the two categories on the Expenses tab.

What is the fastest and most effective way to reverse a Bounced Check (NSF Check) payment in QuickBooks?

The most effective method is using QuickBooks’ built-in Record Bounced Check feature, available in both Desktop and Online versions, as it streamlines three key actions automatically.

  • Steps Performed Automatically:
    • The original customer payment is reversed from the bank account.
    • The original invoice is reopened and marked as unpaid (reinstating the Accounts Receivable balance).
    • It allows you to record the bank fee you incurred and optionally charge the customer a new invoice for that fee.

Using this integrated tool is faster and less prone to the complex debit/credit errors that can occur when manually reversing a payment via a journal entry.

How should I categorize Personal Money Put Into the Business to avoid it being taxed as income?

Personal funds that an owner puts into the business are considered an Owner’s Contribution (or Member Contribution for an LLC) and are not taxable income to the business.

  • Account Type: These funds must be recorded using an Equity Account on the Balance Sheet (e.g., Owner’s Equity or Partner’s Equity).
  • Transaction Recording: When the funds are deposited:
    • You Debit the Bank Account (Asset increase).
    • You Credit the Owner’s Equity account (Equity increase).

Recording it as equity ensures the funds are tracked as an investment in the business, maintaining the separation between owner funds and taxable business revenue. If it is incorrectly recorded as an Income account, it will be subject to income tax.

Why do I need to use a Journal Entry to record Depreciation if it does not involve a cash transaction?

A Journal Entry is mandatory for recording depreciation because it is a non-cash adjustment required to comply with accounting standards. It systematically allocates the cost of a fixed asset over its useful life.

  • Non-Cash Transaction: No money changes hands, so you cannot use a simple Check or Expense form.
  • Journal Entry Action:
    • You Debit the Depreciation Expense Account (increases expense on P&L).
    • You Credit the Accumulated Depreciation Account (increases the contra-asset on the Balance Sheet).

QuickBooks Online does not automatically calculate depreciation; the manual journal entry is the tool used to enter the amount calculated by your accountant, thereby adjusting the book value of the asset on the Balance Sheet.

When is a customer payment recorded to the Customer Prepayments account instead of the main Income Account?

A customer payment is recorded as a Prepayment—a type of Other Current Liability—when the money is received before the goods or services are delivered.

  • Why a Liability? The payment represents Unearned Revenue. Since you have not yet fulfilled your obligation (delivered the product or service), the money legally represents a debt owed to the customer until the work is complete.
  • Workflow:
    • You set up a Service Item linked to the Other Current Liability account (Customer Prepayments).
    • The payment is received using this item, putting the money on your Balance Sheet as a Liability.
    • When the work is complete, the liability is reduced, and the income is then recognized.

Recording the payment this way adheres to the Revenue Recognition Principle, ensuring income is only reported when it is actually earned.

What is the latest correct accounting treatment for the Employee Retention Credit (ERC) Refund once the check is received?

The latest IRS guidance offers flexibility for the Employee Retention Credit (ERC) refund, which is based on a business’s qualified wages from a prior year. While the most accurate accounting treatment is to reduce the original wage expense in the prior year (via an amended return), the IRS now allows a simpler approach:

  • Option 1 (Preferred for Simplicity): Report the full ERC refund amount as Income in the tax year the check is received. This eliminates the need to amend the prior year’s income tax return to reduce the original wage deduction.
  • Option 2 (Technically Correct/Traditional): Record the refund as a reduction of the Wage Expense account for the year the credit applies, requiring an amended income tax return for that year.

In QuickBooks, you should deposit the refund and categorize it to a dedicated Other Income account (e.g., Employee Retention Credit Income) if following the simple Option 1.

Disclaimer: The information outlined above for “How to Record Things in QuickBooks Desktop and Online?” is applicable to all supported versions, including QuickBooks Desktop Pro, Premier, Accountant, and Enterprise. It is designed to work with operating systems such as Windows 7, 10, and 11, as well as macOS.