No kidding….the title does not rhyme but I dare you to tie accounting with a Halloween theme..it’s difficult!
If you frequently shop local, you’ll notice that Square (and others like it) are everywhere! These gadgets make it easy for businesses to accept payments in a store, farmer’s market, or food truck. I’ve noticed most people using them have high volume sales and don’t necessarily record every transaction as a sales receipt or invoice in QuickBooks Online….but you need to be sure you’re recording them correctly!
If you have a large number of transactions it make sense to connect this with QuickBooks Online. If you only have a few, keep reading for deposit tips!
When a payment from a merchant is received, it comes through the banking feature as a deposit. It’s so tempting to just click an income account and add the transaction. But beware, this is not right! As with many things in life…the easy way isn’t necessarily the right way. In this case, the easy way underreports your income, which the IRS does not like. It also does not record those fees, which are deductible business expenses.
What to do instead? There are a few different ways but I like doing daily sales receipts. You’ll create a daily sales receipt for the gross sale. So if you sold a bottle of homemade kambucha for $5, the total sales receipt would be $5 (allocate as needed for sales tax). Then the merchant takes $1 out of that $5. So go to ‘bank deposit’ and select that sales receipt to deposit. Then scroll down to the very bottom under “add new deposits”. You’ll do a line item for that merchant fee hitting a ‘merchant fee’ expense account and make it a negative number, (ex. -$1). This will make the total deposit at the bottom the correct amount of the sale after the fees are taken out. Then when you’re in the banking tab you can match the bank deposit to the payment you just entered!
When you run your Profit & Loss you’ll notice the $5 gross sale is at the top with revenue and the $1 merchant fee is recorded under expenses. This makes sure all income and fees are recognized! Which is the right thing to do.
Jordan Ilderton, CPA