Incorrectly entering transfers in QuickBooks Online (QBO) can impact a number of reporting and reconciliation functions for your business. First, if your transfer is incorrectly entered as an expense, your profit and loss statement will be understated (too many expenses). In addition, if the transfer is to another bank/credit account, or to an owner’s account, your assets/liabilities or owners’ equity accounts will be out of balance. Remember, paying your credit card bill is not an expense, it is a transfer, and you have already recorded the expense through your connected credit card. This will cause your connected bank accounts balance not to match your QBO balance, and will make account reconciliations a nightmare.
Another matter to consider is the GST aspect. If transfers are recorded as expenses, you will be incorrectly claiming excess GST credits on your periodic returns and remittances. This means you are underpaying GST and could be subject to penalties and reassessments.
To make good business decisions, you need prepare accurate reports and remittances; enter your transfers correctly:
1. When the transfer shows up in your connected account register for your bank account, select it and ensure it is coded as a transfer.
2. Select the correct account the money is being transferred to (credit card, different bank account, and owner’s withdrawals) and add the transaction.
3. If the account being transferred to is also connected to your QBO, the transaction will also show in that specific accounts register. Make sure for the second account you are “Matching” the transaction, not “Adding” the transaction. This will ensure that the transaction is matched in both accounts, not recorded as an expense, and keep your QBO clean and in order.
If you have questions on how to set up and account for transfers correctly don’t stress we can help!
Email me directly: Cameron@mathesonfinance.com