Categorize QuickBooks Transactions With Confidence (Full Transcript)

[00:00:00] Speaker 1: In this video, I'll show you exactly how to categorize transactions in QuickBooks Online, so your reports are accurate and tax time isn't a guessing game. I'm David, and we'll start with the basics, like getting your transactions into QuickBooks and working with the built-in AI Categorizer. Then I'll show you the major tools you need to know, bank rules and how to handle credit card payments, transfers, and receipts. By the end, you'll be able to clear a whole month of transactions in one sitting. So, get started with me with the link in the description below, and a big shout out to QuickBooks for sponsoring this video. Let's go. Okay, here we are on the home screen. The first thing we'll do is to get your transactions into QuickBooks. Follow along with me. I'll go to All Apps, and then go to Accounting, then click on Bank Transactions. You can collapse this menu to go full screen. This is where your bank transactions and your credit card transactions appear, but only if you've linked those accounts. If you haven't done that yet, click the Link Account button here in the top right. Here, you can search for your bank and then sign in. Your bank password goes to the bank, not to QuickBooks. Eventually, you'll select the accounts you want to sync, and then you'll end up on the transaction screen. Now, for some reason, if you can't link your bank account, you can always upload transactions manually by clicking this down arrow, then Upload From File. The file is a data table, or a CSV, where you have at least the vendor, the date of the transaction, as well as whether money came in or money left your account. You'll drag and drop that file into the Upload box, and QuickBooks will start processing it. On this screen, you'll first choose the account associated with those transactions. This is for our checking account, so I'll select it here. Next, QuickBooks asks us about the file format. My experience is the right answers are usually filled in, but double-check just to make sure. When you're done, click Continue. On this final page, it'll ask you which transactions you want to download. Generally, you'll want to get all of them, so click that checkbox at the top, scroll down, and click Continue, then Yes. Once you click Done, you'll see all those transactions imported. Before we get into the transaction table, pay attention to this Pending versus Posted versus Excluded selector. Pending transactions are waiting on you to categorize them. Posted transactions are those that have already been categorized or matched. Excluded has transactions you've told QuickBooks not to count. Usually, you won't have much here, if anything at all. Go ahead and get the rest of the transactions from your other accounts in before we go to the next step. Now, your transaction page probably looks a lot like mine. Every one of these rows needs a category, and I also recommend you fill in the From slash To column with the vendor or customer as appropriate. You'll need the category to calculate your tax deductions for the year. You'll need the vendor or customer for reporting. When you first get started, you're gonna see a ton of orange exclamation marks and blue info icons. Both are the result of QuickBooks AI at work. Blue means medium confidence in what you need to put there. You can click on that icon, and it gives you a suggestion. It's a decent guess, for example, that the vendor for a transaction for Hope Mills Flower Company is actually Hope Mills Flower Company. Click Add to Vendor List here, and it shortcuts the vendor creation for you. Now, you need to be careful with the orange exclamation mark. It's just a best guess, so make sure it's right. QuickBooks has guessed this is food and beverage sales because we are a donut shop. You can change this by looking inside of the category and looking for a better match. When you've set the category and the vendor, you can click Post to save the transaction in your records. I won't add a vendor or customer to this line because this was a cash deposit. Clicking Post now removes the transaction from this view and adds it into the posted view. Now, as you categorize more transactions, you'll start to see a third type of icon, the green check mark. This means there's a strong pattern of you using this vendor or this category in your own history, so you can likely just accept those on site. When you have a lot of transactions with their data already filled in, you can post all of them at once. You can check transactions one at a time, or you can select a range of transactions by holding the Shift key and clicking over a range. Double check everything looks good and then click Post. Let's go back to our donut shop and look at a number of different types of transactions together. Notice I added my savings account here too. First up is the credit card payment. It shows up in your bank transactions because it's money leaving your checking account, but it's not an expense. See, the expenses already got recorded when you made your individual purchases on the card. Those show up under the credit card account. If we go back and categorize this as an expense, we'll double count the money spent. Fortunately, if you track both the credit card and the bank account, QuickBooks usually catches this. Notice the pair badge that shows up in the category. That means it won't be double counted. If you need to set this by hand, you can click on a transaction to reveal a detailed view. Then change the transaction type from its default, which is usually expense, to credit card payment. Those same steps will work from the credit card account too. This is also a type of transaction you don't need to worry about the from or to column. Now, a transfer between two accounts that you own works the same way. Money moving from checking to savings isn't income and it isn't an expense. It's the same dollars in a different place. QuickBooks recognizes this with a pair badge, and so you can post this the same way. Now, you might also use QuickBooks for invoicing. And if you do, an invoice payment will show up with a match badge. This means that QuickBooks already has a record of this money, in this case, an open invoice, so you're connecting them rather than creating something new. Your invoice should already have line items broken out by category, so you don't need to do that again. You can just click match. Now, sometimes you might run into a transaction you don't know how to categorize. This Intuit transaction is for software, but if we spent the time and looked through all the expense list, we wouldn't see anything for software. So my little trick for you when you can't tell what category you should select is to select all of them in the list and then go over to ChatGPT and ask which category is the best fit. So earlier I did this, I just asked which of the following categories should I select for a transaction that pays for QuickBooks Online? And then I pasted everything in. It'll give you a decent answer, but remember, it's not financial advice. Consider asking your accountant if you're still unsure. Now, what do you suppose you do if a transaction can be split into multiple categories? This was a $400 Costco trip where we bought two types of things. To split a transaction, instead of clicking Post, click this dropdown arrow and then click Split. Each line item here represents a part of the whole cost. So let's say I spent $318 on supplies like flour and sugar that would go under costs of goods sold. Notice the difference here says how much I still need to account for. So the remaining $94.20, that was spent on shop supplies. So I'm just gonna type supplies. Those are the categories. You still wanna fill in the vendor, which is this dropdown box. I quickly filled in Costco there. That's nothing new. And then I click Split and Post. Now these next couple for the Kevin Cookie Company are just my bad. I put personal expenses on the company card. I just couldn't stay away from those cookies. So I've got two of these expenses. I'm not gonna edit them one at a time. I'll check both and then click Edit. Starting off with transaction type, these are expenses. These are both for the same vendor, the Kevin Cookie Company. Now these accounts don't have anywhere to park personal expenses. So I'm going to add one. You can click Add New Account. I'll call it Owner's Personal Expenses. I'll select Equity from the account type because I'm taking equity out of the business. Then under Detail Type, I'll select Owner's Equity. I'll click Save a couple of times and commit the expense. Now, how you handle money you take out of the business has real tax consequences. If you work with a bookkeeper, make sure you ask them what account is right for you to set. So with that, we've looked at how the AI handles things and we've gone through some one-off transactions. Now it's time to get smart about the repetitive transactions. So Joe's Landscaping cuts our grass twice a month. Instead of categorizing this 24 times a year, we're gonna teach QuickBooks to do it once. I'll click the down arrow in one of those transaction rows and then click Create Rule. A rule is an if statement. If the transaction's description contains Joe's Landscaping, then we'll do this to the transaction. So fill in the category and the payee and change the bank memo if you need to. And then you can see what your rule does by clicking Test Rule. We expected two transactions this month because Joe comes twice a month. Now, before you click Save, you've got to give this rule a name. I have a little trick I'm gonna share with you on how to name rules to keep track of them. It's basically a formula. It starts with what I match on, then it goes to what I'm doing to the transaction. In this case, I want the description to contain Joe's Landscaping. So I'll type D for the description, hyphen, and then Joe's Landscaping. Again, this tells me that this rule fires when the bank transaction's description contains Joe's Landscaping. And then I'll say V because it sets the vendor and then C because it sets the category. You can add more here. Say you wanted to say the actual type of the category, but I've usually found that's unnecessary. Second thing you need to know is about this auto post switch. If you leave this on, it will post transactions automatically. You will never see them inside the pending table. I'll leave this one off so you can see the impact on the transaction screen. See, both of those transactions now have this rule badge, which indicates that a rule matched it and did some work. Now, rules run in a priority order. So if you wanna change that or anything else about the rule, go back to your accounting app and then click on the rules tab. I like to start with auto post turned off until I get comfortable with the rule over a couple of months, and then I'll turn it on. So that wraps up the basics of categorization. You just apply those principles time and time again to all of the transactions in your list, and you'll be good to go. But you still need to add receipts for those transactions. So let's cover that next. If you have the receipt file downloaded on your machine, then one of the fastest ways to do it is just to click and drag it onto the transaction row. You'll see it pop up under the paperclip icon on that row. If you get a receipt in your email, head over to the accounting app and this time click on receipts. You'll see an email address in the top of the screen where you can forward those receipts. When you forward an email with a receipt, you'll get a pop-up in the bottom right-hand corner of the screen to let you know it's been received and it's processing. Receipts will show up in the for review list at the bottom of the screen. Then you can click the review button to try to match it with a transaction. Now, QuickBooks uses AI to pull out all the line items from the receipt. That does save you a bunch of time, but you are here to try and match this with an existing expense. So make sure to click on search for a match here. That's easy to miss. Now, this is the really confusing thing. You can only search for transactions that you've already posted here. I just posted this transaction so it shows up. But again, if you have not posted it, the transaction is still in pending. You will not be able to match it with a receipt this way. Once you make the match, the receipt is attached to the expense. Make sure to click save to save your progress. If you just have a paper receipt, use the QuickBooks app. You'll sign in, take a photo of the receipt, and a few minutes later, it shows up in the receipts tab. It takes a few minutes more to find a match, but you'll see it has, and then you can just click match instead of review. You now know everything you need to finish your categorization. And I know when you're done, you just want to put your feet up and get a glass of lemonade, but there's one more thing that's worth doing, and that's checking your work. Go over to the reports tab and click on standard reports. Then open your profit and loss report. Change the report period to look at the month you just did a bunch of transactions for. Get in the habit of reading this statement. Every month, you'll get a sense for what to expect for each of these line items. What you're looking for is anything that looks out of the ordinary. And also, it's just good practice. See, we're not even covering our costs right now, and I can't even blame the accounting. Now you have everything you need to handle a full month of transactions, categorized with receipts, with your reports agreeing. The one thing left is reconciling your accounts against your bank statements, and I made a whole video on that which you can watch here. Remember, you can get started with QuickBooks Online using the link in the description below. I'll see you next time.