Quickbooks and Journal Entries for Earnings (Beginner)

PeteM360 · ‎January 30, 2023

Hi. I have a small clinic that utilizes clinic software for appointments, invoices, payments, and everything to manage the clinic. The software is not directly integrated into Quickbooks and recommends rather than importing each transaction, and attempting to match transactions, that I simply use a Journal Entry monthly in Quickbooks to enter the amount of money that I earn, and a second journal entry to track the fees charged by the Merchant bank, and leave the minutiae details in the clinic software...no need to track them all there and then again in Quickbooks (my accountant agrees). While I understand the concept, I'm not exactly sure how to implement this in Quickbooks. I'm about as accounting savvy as a cardboard box. We're newly established, so luckily I only have a few transactions. I just want to make sure I do this right from the start so I don't have issues from the start that compound exponentially.

Let's say I have earned $1,000 in the business. This came through a merchant account, so $900 came into my bank account (let's call it "accountx"), and $100 was removed due to merchant account fees prior to depositing to my account.

so now I have $900 sitting in my bank account, and the transactions were imported into Quickbooks and I need to account for that $1000 that sits in my clinic software.

I wasn't sure at this point how to record the accounts properly in the Journal entry

1. What account gets credited $900 and which account would get debited that same amount?

2. When recording merchant fees, which account would get credited $100 and which account would get debited?

And finally, once this is complete, how do you handle the associated transactions in the bank register? Do you simply categorize them / reconcile / Match...what to do with this now?

Thank you so much for your help with this.

Rainflurry · ‎January 30, 2023

@PeteM360

I'm about as accounting savvy as a cardboard box.

That's funny. A cardboard box wouldn't even know that debits and credits need to equal each other so you're doing pretty good IMO.

Let's start with your last question about the bank register. When reconciling your accounts each month, it's extremely helpful to match your entries in QB with your bank deposits/withdrawals. So, if you receive daily payouts from your cc merchant, then making daily sales entries in QB enables you to reconcile quickly and to make sure that you are receiving all of your payouts as expected. CC merchant fees are always a bit of a headache if they reduce your daily payout since it is extra work to enter them every day. Some cc merchants deposit the gross sales and then withdraw their processing fees, which makes reconciling easier IMO. An option is to enter daily sales and monthly merchant fees. But, if you prefer to just make a single weekly or monthly entry, that's your choice. It just makes hunting down any issues a little more time-consuming.

If you choose to make a journal entry for daily, weekly, or monthly income, here's how you would do it based on your example:

	Debit	Credit
Bank Account (net payout)	$900.00
Merchant Account Fee (expense)	$100.00
Income		$1,000.00

Another option (and a better one IMO) is to enter a sales receipt instead of a journal entry (New > Sales receipt). If you go that route, you need to set up two service products (Sales > Products and services > New). One can be called 'Sales' or 'Income', and under 'Income account', select your income account. The other product can be called 'Merchant Fees', and under 'Income account', select your Merchant Fees expense account. If you don't have a Merchant Fees expense account, set one up. Then, when you enter the sales receipt, enter the sales amount as a positive amount ($1,000) and the merchant fees as a negative amount (-$100.00). That will then leave $900.00 that will be deposited into your bank account. Sales receipts are better IMO because they show up on some reports when journal entries do not. Hope that helps.

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Rainflurry · ‎January 30, 2023

@PeteM360

I'm about as accounting savvy as a cardboard box.

That's funny. A cardboard box wouldn't even know that debits and credits need to equal each other so you're doing pretty good IMO.

Let's start with your last question about the bank register. When reconciling your accounts each month, it's extremely helpful to match your entries in QB with your bank deposits/withdrawals. So, if you receive daily payouts from your cc merchant, then making daily sales entries in QB enables you to reconcile quickly and to make sure that you are receiving all of your payouts as expected. CC merchant fees are always a bit of a headache if they reduce your daily payout since it is extra work to enter them every day. Some cc merchants deposit the gross sales and then withdraw their processing fees, which makes reconciling easier IMO. An option is to enter daily sales and monthly merchant fees. But, if you prefer to just make a single weekly or monthly entry, that's your choice. It just makes hunting down any issues a little more time-consuming.

If you choose to make a journal entry for daily, weekly, or monthly income, here's how you would do it based on your example:

	Debit	Credit
Bank Account (net payout)	$900.00
Merchant Account Fee (expense)	$100.00
Income		$1,000.00

Another option (and a better one IMO) is to enter a sales receipt instead of a journal entry (New > Sales receipt). If you go that route, you need to set up two service products (Sales > Products and services > New). One can be called 'Sales' or 'Income', and under 'Income account', select your income account. The other product can be called 'Merchant Fees', and under 'Income account', select your Merchant Fees expense account. If you don't have a Merchant Fees expense account, set one up. Then, when you enter the sales receipt, enter the sales amount as a positive amount ($1,000) and the merchant fees as a negative amount (-$100.00). That will then leave $900.00 that will be deposited into your bank account. Sales receipts are better IMO because they show up on some reports when journal entries do not. Hope that helps.

PeteM360 · ‎January 31, 2023

@Rainflurry

I've been looking around for about 5 days and haven't been able to find an explanation like this. I am VERY grateful for your time in this...This was EXACTLY what I needed. I think I'm going to take your recommendation...I'm going to let the daily sales trickle in, and simply categorize them to an "income" account. I think this will help, as you suggest, minimize discrepancies, allow me to keep a close eye on the transactions while we get off the ground, and allow easier reconciliation if something doesn't go as planned.

The Sales receipt is brilliant as well and reverberates with me more than a journal entry. A could of questions for clarification if I may...

1. If I decide to allow the standard transactions to flow from the bank as income daily, and handle the merchant fees via a sales receipt to true-up the account at the end of the month, do I create a sales receipt for, as in my example, $100 that goes to the "sales" income account, and then also a second -$100 entry that goes to the "Merchant Fees" expense account. This, combined with my daily bank transactions, should then get me to the $1000 total sales I'm looking for and account for merchant fees.

2. If I decide to handle everything through a Sales Receipt (so one sales receipt at the end of the month that accounts for all monies) in the future, would I use your suggestion above, where I add $1000 to the "sales" income account, and the -$100 through the "merchant fees" expense account? If I end up going that route, how do you handle the transactions that download from the bank...do they just not get categorized...or maybe not even imported into Quickbooks (disassociate my bank account)? Because if I categorize them into an income account, then that would double and misrepresent the amount of income.

And again, I want to thank you so much.

Rainflurry · ‎February 01, 2023

@PeteM360

1) Yes. That will work and sounds like the best solution if you want to use bank feeds.

2) Also yes. That will work and sounds like the best solution if you don't want to use bank feeds. However, if you use bank feeds for a high volume of other, non-income transactions, option 1 sounds like the way to go.

PeteM360 · ‎February 01, 2023

@Rainflurry

Again, thank you for the help with this. You helped get me up and running.

FritzF · ‎February 13, 2023

Hello again, Rainflurry.

I appreciate you for always sharing your knowledge about QuickBooks. This will definitely help other users as well in the future. Please keep on posting here in the Community.

Keep safe and have a great rest of the day.

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