Handling Deposits

Note: this FAQ is a monster and represents one of the harder issues in accounting for a small business.  To better understand this FAQ you should probably have read How the Blue Categorization Engine Works or Tips for Automatically Categorizing Sales Transactions first.  As always, we strongly suggest you work with a great accountant who can advise you on your individual situation.

 

How to handle deposits is more of an accounting question than a Cheqbook one, but it comes up often enough that we need to address it.  Besides the whole idea behind Cheqbook is to automate the accounting process as much as possible, and that works best if you learn a few tips!

There are two major types of deposits: traditional paper Bank Deposits and Merchant Deposits (aka credit card deposits).

Additionally a deposit may be a payment from Cheqbook's Customer Invoicing (AP) system, or not.  This creates four plus types of deposits each of which has to be handled differently:

  • Bank Deposits
  • Bank Deposits from Customer Invoicing
  • Merchant Deposits
  • Merchant Deposits from Customer Invoicing

You could also have mixes of some of these in a single deposit.  However we're not going to address these hybrids - we advise you to seek advice from your regular accountant if you're mixing deposits like this.

Bank Deposits

These deposits can vary depending on the type of business.  They can be mostly checks especially if you're using the Cheqbook invoicing system, or mostly cash if your receipts are primarily done in a cash register, or some mix of the two.  Generally these should be categorized directly to a sales or income account, and you should be able to automate this process if you don't need to split these into different categories (or even if you do!)

For example, suppose a cookie store keeps a bank of $300 in its cash register, does only cash sales, and every night makes a deposit of the amount over $300 into the bank.  This cookie store could teach Cheqbook to categorize all its manual bank deposits to "Sales" and would not have to enter the transaction each time since it would download from the bank within a day or so.  

If the store owner wanted to report on sales of cookies from other items, they could manually change the transaction later and split it into different income accounts. 

Merchant Deposits

Work almost exactly the same way as bank deposits, except you didn't have the trip to the bank!  Such deposits should be categorized the first time with a default account like "Sales", and if necessary edited later to split the transaction into different sales categories.

Additionally in some cases the merchant service gives you net deposits, taking the merchant fee out of every transaction instead of as a separate transaction you can categorize to expense at the end of the month.  Because it creates a lot of work to fix these, we strongly recommend you ask your merchant provider to charge your fees at month's end in a separate transaction.  We've found that most will.  If not, you'll either have to visit each transaction in your bank account register and split it into sales (negative) and merchant fees (positive) to equal the deposit you received (see example below).   If you're more skilled and want to save a lot of entry time you can book the net fees as an expense against sales once a month when you get your merchant invoice (this is a faster but much more advanced method, discuss it with your accountant if you're interested first).

Bank Deposits from Customer Invoicing

If your company uses the Customer Invoicing feature for all of your sales, then the procedure is different.

  1. Go to Invoices from the Cheqbook screen
  2. Select the invoices that you've received payment for (you can do more than one).
  3. If the payment isn't a full payment, change the payment amount for each invoice as necessary.
  4. When you're sure everything matches your deposit click the "Apply Payments" button
  5. Leave the account as "Undeposited Funds" (anything else is beyond the scope of this FAQ)
  6. Select the deposit date, enter any notes, and click "Save".
  7. Then, go and take deposit to the bank!
  8. When the bank deposit transaction downloads from your bank, set the default category to"Undeposited Funds" as well.

This will allow your bank deposits to be automatically applied to your customer payments.  

Merchant Deposits from Customer Invoicing

If you're taking credit card payments for your customer invoicing, follow steps 1 through 8 just as you did with Bank Deposits above (skipping number 7 the trip to the bank of course!).  Everything should work, unless again you have merchant deposits that are net of merchant fees.  In those cases you'll have to split your transactions between "Undeposited Funds" and "Merchant Fees" similar to what you did above. 

Here's an Example (with a State Sales Tax as well)

You charge a customer's credit card $105, for a $100 sale, with a 5% sales tax.  This is your only credit card sale of the day.  Three days later the bank deposits $101.85 in your account, which is the $105 less a 3% service charge.  If you've automatically categorized your merchant deposits to sales, the transaction will originally look like this:

Checking          $101.85      (the deposit)

Sales               -$101.85    (the sale)

When you've manually opened and correctly split that transaction it will look like this:

Checking                   $101.85      (the deposit)

Sales                        -$100.00       (the sale)

Sales Tax Payable      -$5.00       (the taxes owed)

Merchant Fees              $3.15        (the merchant fee expense)

Don't worry about the negatives for now, that's just how credits vs debits are expressed in traditional accounting.

Summary

We'd love to be able to fully automate accounting, but as you can see that's simply not possible.  The best Cheqbook can do is automate most of it, as well as recommend that you create automatic categorizations that are as close as possible to the 100% correct transaction.  As you can see the original sales categorization is almost right, and might be fine if you were using a profit and loss report to make quick decisions about your company on the fly.  However monthly, quarterly or annually either you or your accountant must correct it.  An experienced accountant will know exactly how to fix an entire year's worth of these in one transaction, if necessary, so we always recommend you work with a good one!

 

Have more questions? Submit a request

2 Comments

  • 0
    Avatar
    Chad D Simmons

    Thank you Doug.  I will record my Sales Tax Payable liability, Gift Card Sale Payable liability and any Cash over/under in my Bank Deposits.  I will also changes the date on my transactions to reflect the day I made the sale versus the day I or the merchant deposits the money in the bank account.  This will allow my to accurately reflect my daily sales history by putting my bank and merchant sales together.

  • 0
    Avatar
    Roshan Richards

    I am a little confused on the example you gave, and I have 2 questions.  You were talking about marking invoices as paid to "Undeposited Funds" and also clearing them that way when they show up in our accounts.  But in the example you gave you have it listed as "Sales."  Q1:  Did you actually mean to say "Undeposited Funds" instead of Sales, or am I not following and there is some time that you put Sales and another time you put UF?  Q2:  I am also confused as to when I split out the sales tax.  If I do that won't it appear in my book as being zero and then I won't know how much I am to pay quarterly?

    Sorry for my ignorance!  I just want to make sure I am doing this right and saving a lot of time and headache later on :) 

Please sign in to leave a comment.
Powered by Zendesk