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Waterford Business Solutions

Doubling, Tripling Income, oh my.

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Doubling, Tripling Income, oh my.

Doubling, Tripling Income, oh my.

Many issues arise when bookkeeping software allows integration with other software. One of the most common issues that we run into while working with new clients is the integration between their invoicing software and Quickbooks.

Of course, we do not limit this to Quickbooks software and the invoicing software we have experience with, but we will use these as our primary examples for this blog. So, what type of issues does this integration cause? It all comes down to income.

Many clients come to us with inaccurate income numbers on the books. It can be as little as a few hundred dollars, but we have seen cases where there is double or even triple the accurate income on the Profit and loss statement due to misuse of the integration.

This blog helps you explicitly navigate these issues before they become detrimental to your books’ revenue accuracy.

Invoicing Systems

The starting factor of this problem is when there is an invoicing system, especially third-party invoicing systems integrated into QuickBooks. Our experience is mainly with HouseCall Pro and ServiceTitan.

However, even if you are invoicing directly from QuickBooks, you can experience duplication issues. Most third-party systems include a button that triggers the integration when the invoice is sent. Thus, we see the income on the profit and loss on an accrual basis as soon as the invoice button is activated.

After the invoice integrates into QuickBooks, it will be on the accounts receivable report until you receive payments. When payment is received, it will be incorporated into the Payments to Deposit account or Undeposited Funds in QuickBooks. This account is a holding place for payments that have been taken but have not yet reached the bank account.

There are a few reasons why the payment may not have reached the bank, including checks that are still physically on hand or credit card payments that are still in the processing time frame.

Undeposited Funds

The most crucial part about undeposited funds account that often causes mistakes is how bank deposits are created from them. Bank deposits have to match precisely the payments that come into the bank. Some people will deposit each payment individually, even though the bank has three payments in one deposit.

For example, if you have three customer payments of $140, $100, and $150 but deposited in your bank account at once, the bank deposit must include all 3. There is no way to match 3 individual deposits to one bank feed deposit. Undeposited Funds aims to group all three of these payments to ensure that matching the bank feed is possible instead of duplicating the payment.

Often, QuickBooks users take these three payments in undeposited funds and add them individually to the bank register. The bank feed totals $390, which is added to the bank register and goes directly to sales. You are now accounting for $100, $140, $150, and $390, duplicating your income. The doubling comes from the income from the invoice and payment, but you also have the income from the bank feed you manually added.

Companies find undeposited funds essential for tracking whether their checks deposit promptly. It will indicate when a check does not arrive at your bank so you can review what happened there. Sometimes, a tech forgot to turn in a check, or sometimes, the payment was never received, so the tech should not have marked this invoice as paid yet.

If you never received the payment, you must delete it from QuickBooks. If you don’t, you will account for money your business did not receive. This could lead to being taxed on money you never got.

Bank Feed

The bank feed is the other function in QuickBooks that pairs with the Undeposited Fund’s role in causing inaccurate income. Both QuickBooks Online and the QuickBooks desktop version offer this feature. You can directly connect your bank account so that transactions will automatically appear in your bank feed.

It’s beneficial because you can track all transactions and ensure they are accounted for in the books. You have to code and classify. It makes the bank reconciliation process easier and more timely since you can add transactions as soon as they clear the bank and update them in QuickBooks.

The bank feed includes innovative learning that aims to help with coding; however, it often falls short, leading to miscategorizing and miscoding.

Matching in the bank feed is key to income accuracy. When you create the bank deposit to correct what actually reached your bank or the physical deposit, a match option will pop up. If you use invoicing software, you should never add income directly to Sales or any other income account in the accounts chart.

The innovative learning will put the income directly into an income account if there are no matches. Following this and leaving all payments in undeposited funds will also cause duplication.

Any auto-add rules set up in QuickBooks for income can also cause issues because they will not auto-match even if your integrations work correctly for any software. For example, HouseCall Pro will automatically create your credit card deposits once they are processed, assuming there are no errors.

If you have any auto-add rules regarding income, they will still add the income to sales instead of matching these perfectly made deposits.

If you have auto-add set up so that all incoming money from the bank feeds goes to sales, you will probably have refunds from vendors, insurance refunds, etc., all of which will inflate your income.

Manual Deposit Creation

Above, we mention that third-party invoicing software automatically creates credit card deposits, but what about financing payments, cash, or checks? Your accountant or bookkeeper must manually create these deposits.

For cash, keeping a cash-on-hand account is recommended since it is impossible to track precisely which dollar came from which customer.

When a bank deposit includes cash, it may be short of what the customer paid, so the cash-on-hand account acts as a holding place for the total cash. Add a line at the bottom to make that bank deposit, subtract cash from cash on hand, and increase the deposit.

For checks, there was an example above that I will repeat here.

If you had three checks, $100, $140, and $150, you would select all three to create the $390 deposit to match the bank feed.

Finally, you must do things differently to create a deposit from financing payments. The customer will pay the full amount, while the business will receive less after the financing fees.

You will have to use the same line at the bottom of the deposit as you did for cash, but instead, you will add a negative, going against the consumer financing expense.

All of these deposits should match those coming through the bank feed.

While software and integrations have many great features, they sometimes require manual work for accuracy. It will take more time, but accounting takes time. Accounting is an entire web of checks and balances. Undeposited funds help prevent losing money. However, taking shortcuts or misusing them can lead to duplicate income.

This is true for any form of accounting you use. Sage, Xero, QuickBooks, and even Excel or paper bookkeeping all need these checks and balances. We recommend using this software’s tools, but always with a grain of salt. Overall, understanding how the software can help you and where you should put in the work will help you afford the income issues caused by these integrations.

Check out our youtube video Doubling Trippling Income Oh My! withJames to give you a first hand recap.If you are still determining which plan works best for you or need additional help or have any questions, Waterford Business Solutions is happy to help.

This blog can help you work through some income issues you have. If not, please give us a call at 864-351-0852 or shoot us an email at info@waterfordbusiness.com.

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Doubling, Tripling Income, oh my.