How to Reduce Bookkeeping Errors in QuickBooks Online: S9E10

Online computerized accounting changes almost everything about bookkeeping. But don’t worry, our favorite Bookkeeping Mensch, Paul Rosenblum, is here to help you navigate the potential problems to come from these “advancements.” For example, QuickBooks Online creates problems that QuickBooks Desktop never had, like duplicate sales, mismatched credit card merchant fees, phantom accounts receivable, and sales tax reports that quietly go wrong. Paul draws on 30 years of hands-on bookkeeping experience to outline the challenges the transition creates for business owners and bookkeepers. And of course, he’s got advice on what to look out for to make sure things run smoothly for your QBO experiences. 

Transcript

Season 9 Episode 10: How to Reduce Bookkeeping Errors in QuickBooks Online

I know the last longer episode wasn’t really about bookkeeping per se, but I always try and relate whatever I’m talking about to the bookkeeping field. Today, let’s get back to it. Let’s talk about the difference between what I call ‘manual’ bookkeeping using desktop computer software and what is now called ‘online bookkeeping’ using cloud-based software that lives on the internet.  I’m Paul Rosenblum. 

When QuickBooks desktop was first introduced, it was a big change for bookkeepers doing bookkeeping manually. Using a computer is a whole different way of thinking. And although QuickBooks desktop was marketed for business owners to use themselves, bookkeepers and accountants knew that it was a necessary tool to purchase in their arsenal in producing good books and tax returns. For 30 years, I have used the desktop editions of QuickBooks and manually entered every bill and invoice and bank transactions just like I am writing this episode with my 2 hands and 10 fingers. No A.I. here, and no downloading transactions into the desktop editions of QuickBooks for me even though there was (and still is) that capability. 

I worked with bank statements, loan statements, credit card statements and everything else that I could get from the clients so that transactions are matched from the statements to what is entered in QuickBooks. There were, of course, always adjustments to make by the tax preparer for tax purposes, but if there were leftover transactions not reconciled in the bank account, for one example, they were much easier to find and correct than today. There was virtually an unlimited amount of accounts that I could add to the Chart of Accounts, meaning that I could add as many Fixed Assets separately in the books as I needed to.  But as time passes, technology improves things. That’s progress ----   or is it? 

Even though I am in the middle of hosting a webinar of QuickBooks Online, I do want to talk about specific things that QBO does in this modern accounting and bookkeeping world.  

As you probably know, you can download bank transactions into QuickBooks to be ready to categorize and accept into the database on your time. You can download 3rd party payroll entries in the form of journal entries directly into QuickBooks (except for paper checks, which you would use the downloaded transaction from the bank for the reconciliation which makes the whole process trickier). There are one or two journal entries per payroll period but depending on how many employees you have on direct deposit or paper checks, there might be 30 or 40 transactions directly downloaded from the bank account.

 I have learned to exclude the downloaded transactions from the bank download and use the entries downloaded by the payroll company directly if the bank account reconciles, except for paper checks which might not be cashed immediately like direct deposits.  I have talked about this general subject of bank downloads before, but the idea of downloading the bank transactions is to be able to match the downloaded transactions to transactions that have been already entered, knowing that they are correct and true. But that idea has disappeared. Downloaded transactions are now, in many cases, the only transactions unless the client or the bookkeeper are entering bills and invoices and sales receipts manually. 

For one example of this, an accountant called me the other day, and he had some questions about some things that I didn’t catch since the client is entering invoices and is supposed to be entering payments against those invoices.  If the client enters an invoice and someone pays with a check, then the downloaded transaction, in theory, should ‘match’ to the invoice or at the worst, I can match it to the proper invoice that a payment is attached to. But now, let’s talk about a different scenario. Credit Cards. 

There are lots of third-party merchant companies processing your incoming credit card transactions. In most cases, they deposit the total amount of the payment, and then the next day, automatically take out the merchant fee, which would be a cost of goods or an expense in your books. And they would both show up on the bank statement and in the download of transactions from the bank.  

However, if you have a customer credit card payment go through the Intuit (or QuickBooks) merchant system, they automatically enter a payment for you. The payment is for the full amount of the invoice, although the deposit subtracts the merchant fee, so the bank download will never match up to that automatic payment that QuickBooks automatically enters. This means that the bookkeeper has to log into the QuickBooks merchant software and look at each batch and add up the merchant charges to subtract that amount from the downloaded deposit figure from the bank. THIS is computerized online bookkeeping. A whole new day. A whole new set of problems that never existed before. It changes bookkeeping from what it has always been traditionally. One has to start thinking about what to do manually, and which bank downloads should be excluded and not used.

I had some transactions that were entered into the system as sales from the bank download but not matched up to anything since there was nothing to match it up to, since the dates and the amounts were different. Therefore, I ended up having double entries in sales, showing more sales than were actually made. The undeposited funds were also off because of the double entries. The bookkeeper can make a journal entry crediting undeposited funds and debiting sales, if all the undeposited funds are proven to be double entries.

This is one of the inherent problems with online computerized cloud based bookkeeping software. The client is in the software, the bookkeeper is in the software, and the accountant is in the software making entries, not just journal entries, making adjustments after the fact, but actually doing bookkeeping that the client or bookkeeper doesn’t know how to do. Too many hands in the pot, as they say. Just another reason why bookkeeping for the bookkeeper is tougher than it used to be. I now have to do my job, but also check all the entries the client made?  Why not just use another software for customer invoices, and let me do the tax-based bookkeeping without all the matching? 

All of this will affect sales, undeposited funds (where payments against customer invoices should go until the funds are in the bank), and in some cases, accounts receivable. I ran into a case a few weeks ago where 2025 invoices from Jan were showing up as unpaid in May of 2026. Very unlikely. In Accrual, they would count as double sales--- in a cash basis, they would not, but still an incorrect accounts receivable. 

I had a situation where a client paid $190.00 in sales tax for a quarter, but QuickBooks was showing a total of $50.51 being owed.  How did the client get that number? It ends up that there were sales coming in that had sales tax entered on the customer side, but no customer invoice was ever made in the QuickBooks database. Whether you create customer invoices or not, bookkeeping is about being consistent. And this is yet another reason why clients have to work with bookkeepers and communicate often about these kinds of things. By the way, the sales tax reports in QuicBooks are accurate only if you use invoices and sales receipts, along with payments against those invoices. If one enters a straight deposit for $108.75 and splits the transaction to have $100.00 go to sales and $8.75 go to sales tax payable, QB does not report on that transaction in the sales tax report. So, in other words, computerized accounting dictates how the bookkeeper should do their bookkeeping. Should it not be the other way around?  

I have a client that uses a credit union for their bank. If they pay a credit card statement with an electronic payment from the bank, and the payment doesn’t go through because of insufficient funds, I see the payment on the bank statement (and then the same amount as a deposit a few days later), but no payment on the credit card statement. Something else that the bookkeeper has to look at carefully. Sometimes, the client makes a payment on the last day of the month to the credit card – the bank shows that payment coming out of the bank account that day, but the credit card shows the payment in the next month. 

I also have seen where banks date an expense transaction on the bank statement with the transaction date, but the download from the same banks dates it as the date that it gets deducted by the bank, which could be up to 3 days later. It makes bank reconciliations that much harder. Progress. It makes things more complicated. Horse and carriages vs cars, traffic, car repairs, registration, insurance, honking horns, accidents, drunk driving, speeding tickets, and points on licenses. Progress.  Progress?  Call me cynical, but sometimes I wonder.

I miss the days that there were channels 2,4,5,7,9, 11 and 13 in NYC on television that you received with an antenna.  Now, you have to pay for streaming services, and one has to figure out the maze of services and pricing just to watch the shows or sports that you want to watch. Do you get a steaming stick or a ‘smart tv’?   But enough about my frustrations.

If you have a cash-based business, online accounting can work well. So, I don’t want to get into a rant here. I have several clients where online accounting is smooth. No bank loans or funding, no payroll entries coming in from third parties (or even QB payroll), no credit lines from banks, and few invoices to clients. I have the client enter the invoices and the payments into undeposited funds, and they can match the bank downloads.  So, not all is bad about this. 

Just because everyone else is going to online bookkeeping doesn’t mean that you have to. The decision should be thought carefully about, not just financially, but how the workflow is going to be between you and your bookkeeper if you have one. 

The marketing with QBO (I don’t know about the other online software programs firsthand), is that each version is feature based. The only online QuickBooks that gives you an unlimited about of accounts in the chart of accounts is the Advanced, and that’s about $275 a month. Most of the other software that has different tiers that I have seen either limits the number of transactions per month, or the number of customer invoices that you can create in a certain period. 

I was in the middle of a webinar of QuickBooks online last year in 2025, and the system went down and I couldn’t log back in. I waited about 15 minutes, and then we had to cancel the webinar until the next day.   So, one is at the mercy of the internet connection on your end and the servers at the other end where you are logging into.  

Online computerized accounting changes almost everything about bookkeeping. I have mostly adapted, but I am also very used to my ways and my workflow, so sometimes I miss things. Luckily, I work with accountants and CPA’s who go over the books, point things out that I might have missed, and then I’m able to correct them. Doesn’t happen often, but hey, I’m not perfect. I wish I was, but I am human. Another reason to work with an accountant or tax preparer who actually looks at the books and questions things with a new set of eyes.

I have run into situations with customer refunds and credits to clients that are done very differently in QuickBooks Online than in the desktop editions. A whole new procedure to learn. Why? Progress. Really? 

Accounts are made automatically for you as you turn on certain features like sales tax. Traditionally, when you pay sales tax to the state, you use the account ‘Sales Tax Payable’, but QBO creates an account for sales tax collected which is automatically attached to the invoices for customers being created.  

Software should NOT tell you how to do your bookkeeping or accounting. Bookkeeping software, like accounting software, should follow IRS tax rules, and make sure there aren’t two accounts in the chart that mean exactly the same thing. A.I. can do that! I recently ran into a situation where there was a sales tax payable account in the chart of accounts AND a NY State Department of Finance account created by QB when sales taxes were set up.  Two accounts that should be merged, but of course, the software did not let me do it. 

If you download transactions directly from a bank, should ALL banks provide the details of deposits if they are not electronic and they are paper checks?  If they don’t (and most don’t), then I have to log into the bank account and manually look at every deposit that has paper checks in it. 

We’ve talked about standards and regulations recently, but how about standards on how a bookkeeping software online is designed?  

Progress.  Lawlessness. Lawless progress --- is it really progress at all? I’m talking to you, A.I.  I still like my H.I. (Human Intelligence)

Just a few online accounting thoughts. 

I’m Paul Rosenblum