Because your small business bank account charges are “bank fed”, anomalies stand out. We can remember the first time an “anomaly” stood out in the QBO bank feed of a business checking account like it was yesterday. A busy client had written a check out to a local car dealership for a friend to hold a car they were interested in purchasing. The client was specifically told that the check would not be deposited. She relied upon that promise.
When the check came through the QBO bank feed it was recognized as “uncategorized”. This transaction stood out in the client’s bank feed because their usual expenses were for birds and pet supplies they purchased and sold to their customers. And while it was entirely possible that the client had purchased a company vehicle, it seemed unlikely considering the nature of the business. For this reason, we decided to send an inquiry to the client regarding the unknown expense. The client was grateful for the notification and was able to quickly recover her funds. The daily bank feed categorization process in QBO can help small business owners avoid fraudulent bank and credit card charges quickly and easily.
The QBO credit card feed provides high visibility of personal credit card charges
Many small business owners have company credit cards they assign to their employees. Individual credit card account numbers are issued by the bank for each cardholder. These individual accounts are then connected to QBO bank feeds. The main company credit card account is setup on the Balance Sheet as a “Master” account with the individual cardholder accounts setup as “Sub-accounts” to this account.
Credit card charges rapidly come through the bank feed, which significantly increases the visibility of “personal credit card charges”. Unknown credit card charges can be placed into “uncategorized expenses” until they are resolved. Custom bank rules should be created to automatically expense routine business-related employee credit card charges.
Small business owners need to know that credit card charges are not accrued in QBO
With a cash accounting method, expenses are posted to your Profit and Loss report when they are paid. The only exception is with credit card charges. Even if you have not paid the balance of your business credit card account, the credit card account charges will post to your Profit and Loss report as soon as they are added to your credit card account register. Think of your credit card as a “Micro-Loan” that you got for your business to pay for your business expenses. Technically you are paying for these businesses expenses as soon as you charge them to your credit card account.
Credit card LIABILITY remains on the Balance Sheet while the EXPENSE of the credit card charges show up on the Profit and Loss report. This is commonly referred to by the IRS as cash basis taxpayer credit card charges. The expense is recorded when the charge is incurred, and you don’t have to wait until you have paid off your credit card balance for these charges to be included in your current business expenses.
Monthly reconciliation of your connected QBO accounts reduces fraudulent charges
Reconciling QBO connected bank and credit card accounts provides small business owners and their accountants clear visibility to their bank and credit card account activity. It is easy to recognize duplicate, unexpected, and/or unauthorized charges during the reconciliation process.
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The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.