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5 Common Mistakes Found in a Quick Audit and How to Fix Them

Sep 26, 2017 5:24:26 PM Kathy Dise QuickBooks

quickbooks-audit-mistakes-.jpgAuditing your QuickBooks monthly not only ensures your financial information is correct, but it also helps you to make better business decisions. If you haven’t done so already, complete this quick checklist to ensure your QuickBooks are in order. The following are the five most common mistakes found in a quick audit and how to fix them.

1. Transactions are categorized in the incorrect account

After finding an error by reviewing Profit & Loss or the Balance Sheet Detail Report

  • While looking at the report, click the transaction
  • Change the account to the correct one
  • Click “save and close”

If you have or are a bookkeeper using the Accountant’s version of QuickBooks Online or Desktop, use the batch re-categorization function in the Accountant’s Toolbox.

2. Old Uncleared Transactions

A check that wasn’t cashed. You could contact the payee and reissue the check if needed.  Or if the payee can’t be contacted and the payee is an individual, you file once a year with Unclaimed Funds.

A duplicate transaction. If it is simply two of the same transaction, say a check entered, you can delete the unreconciled check as long as the check/transaction is dated during a period when taxes have not been filed.  If taxes have been filed for that period, prepare a Journal Entry to reverse the transaction dated in the current year.  The offsetting category could be Prior Period Adjustment (an Other Income Account).

A transfer. Often, we see a transfer from one account to another entered as two transactions both offset by the other account AND each transaction has been reconciled in just one account.  The result is two unreconciled transactions, one in each account.  An easy fix would be to change the account from the other bank or credit card account to a clearing account where the two transactions offset each other(or Other Income or Bank Charges).  

3. Undeposited Funds

Sometimes we will find 50+ transactions from prior years in Undeposited Funds. How does this happen? Payments are received to Undeposited Funds, then a deposit is made to an income account possibly through a bank feed. Undeposited Funds build up.  The fix is easy if all the transactions are for the current taxable period:

  1. Determine the account all the Deposits are made to
  2. Click Make Deposit
  3. Check all the transactions in the period
  4. A deposit screen opens listing all those deposits and a total
  5. Add a line
  6. Account is the account determined in Step 1.
  7. Amount is negative for the full amount of the deposit so the result is a Zero amount to be deposited
  8. Date is a day in the period

When the Undeposited Funds are for prior tax periods, follow the instructions above through Step 5 then:

  1. Account is Prior Period Adjustment (an Other Income Account)
  2. Same as above
  3. Date is a day in the tax period

4. Amounts in Uncategorized account

Research the transaction memo and categorize it from there. For example, say there is a transaction with a memo that says “Holiday Inn.” This is very likely to be recategorized as Travel, or in some cases you may not be familiar with a restaurant/store and you will have to research what service/products the store provides to be able to correctly categorize it. In some cases, there may not be a memo, or the transaction could be a check or PayPal purchase. Reviewing your QuickBooks file monthly limits these situations.  It is hard to remember a transaction or pull a copy of a check 11 months after the transaction.

5. Inconsistent Account Totals by Month on the Profit & Loss

When looking at a Profit & Loss statement with columns by month, you may notice that five of the six months this year-to-date are all fairly consistent, and then one of the months is way off. For example say: Jan, March, April, May and June for utilities is roughly in the $1,500-$2,000 range, then you see on the P&L that February is only $300. When you come across this, it is likely that you put the February utility in the wrong account.

To fix, do an advanced search for “memo” or “line description” and use keywords that you use when booking utility in the memo. Once you find the transaction for that missing month, open it and re-categorize the transaction into the correct account, which is utilities in this situation.

Doing a Quick Audit of your QuickBooks file on a monthly basis and fixing any errors is important.  Your financial information is correct so you will make better decisions. Plus, you won’t be frustrated when you know something is wrong and don’t know how to fix it.

If you spend more time focusing on growing your business and less time on the bookkeeping, consider having BudgetEase do the bookkeeping for you.

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Kathy Dise

Written by Kathy Dise

Kathy has over 30 years experience helping small businesses succeed. As a commercial lender, commercialization expert and now as a QuickBooks diamond level advisor, Kathy understands the challenges small business owners face. Her experience helps business owners quickly accomplish their financial goals. As the owner of BudgetEase, Kathy works with clients to develop a plan to efficiently process 1,000s of small transactions so owners can make informed decisions. She lives in Shaker Heights, OH with her husband Ralph and enjoys golf, curling and walking in Cleveland’s fabulous Metro Parks.