WSW E-Commerce Fundamentals - E-Commerce Accounting
===
[00:00:00]
Dan DeLong: welcome to another Workshop Wednesdays, whoops, where it's just moved on me that it's casual conversations for serious workflows brought to you by schoolbookkeeping. com where you can be the best bookkeeper you can be. Hey, look at that. I've got two, two taglines in there for Two for one, right?
How are you, Rachel?
Rachel Dauchy: I'm great. How are you? [00:01:00]
Dan DeLong: Very good. Very good. We're just screaming under the, coming in on two wheels making sure we could hear each other right before we go live, but everything seems to be working out okay. If you're if you're catching us on Facebook we, the streaming platform that we are using, we can't see Who you are, unless you activate a a little thing on Facebook, cause some of the groups we put it into like the CBG group or the Abo Facebook group their settings are private.
So we can't necessarily see unless you acknowledge. And so that's that link that I just posted in there about, being able to see that on the, on allowing the streaming platform to see who you are, so we can see you in the chat, right? Yeah, and
Rachel Dauchy: Susan's here. Hi, Susan.
Dan DeLong: Susan has avoided the what was the name of the storm that came through there?
I I I Ida or something. So she weathered the storm and she's back again. So that's awesome.
Rachel Dauchy: We have a horrible storm [00:02:00] here in, in Michigan right now. It's terrible.
Dan DeLong: Oh. Good thing you are hunkered down for this workshop Wednesday. We are coming in for a landing here on on the e commerce fundamentals, a discussion that we've been having with Rachel while Carrie is apparently on sabbatical for the workshop.
Apparently it doesn't. She does exist. I believe me she is there, but you did a lot of summer traveling. And so it was great to have you through this as almost like a substitute for Carrie, but there is no substitute for Carrie, but we are finishing up our e commerce fundamentals and we've had Rachel Dauchy joining us because She specializes in that industry and we're putting it all together today with e commerce accounting where this is really where accounting accountants and bookkeepers want to Putting all those pieces together makes it for a smooth process.
[00:03:00] That's like where you where you specialize in. Rachel.
Rachel Dauchy: Yeah. And I also have, I don't know if I mentioned, I'm sure I mentioned this before, but I also have an e commerce store and that's one of the reasons I was running a little late is because we're trying to get on TikTok for business.
And let me tell you, it is so many little things are so frustrating, and I don't even know. If anybody has any suggestions on how to get approved for TikTok for business, please let me
Dan DeLong: know. Yeah, that I don't know, I don't know, I'm I'm torn on that one because, there's always those like what we were talking before about marketplaces.
I think TikTok has some of those rules and regulations that they have to be in their exclusive club when it comes to being able to sell sell on TikTok, is that what you're running up
Rachel Dauchy: against? Well, no, because Shopify [00:04:00] pushes to the TikTok channel, so you can list your items on TikTok for business.
You can even do little videos on Vimeo, or Vimeo, or however it's pronounced that. And it pushes Vimeo. And it pulls in your Shopify catalog, and that which we just discovered earlier today, where I was explaining to my assistant to save the image and then upload it back, and nope, pulls it right in, it's incredible.
And then you can push your Vimeo Little videos you make straight to TikTok, but we're now we can't figure it out But if you have your product catalog connected to Facebook Selling your Facebook shop your Instagram shop and your tik tok shop They can click and shop and buy right at that moment.
And that's what you want.
Dan DeLong: Ah Yes, cuz you got to get that impulse buy they go if you leave if you have to leave An app, like if you're in TikTok, mindlessly, mindfully [00:05:00] or mindlessly scrolling, I'm not sure which. But if you're scrolling, you don't want to leave TikTok or the app that you're in.
Right,
Rachel Dauchy: you want to buy right in there. Yeah, and the reason that I know that... It's cause I always buy like that.
Dan DeLong: Right. You are your best and worst.
Rachel Dauchy: I'm like, Oh, I have to have those pair of ultra comfy shoes.
Dan DeLong: Bye. Yeah. When somebody says. Check link in bio. That's like, forget it, right? That's like watching a buffered YouTube video on an airplane. Yeah,
Rachel Dauchy: that's too many steps. I'm like, I'm not going to go back to 2011. No, you have to have the shop now, click on the fade, so it takes you right to their store.
Dan DeLong: Right. Or
Rachel Dauchy: you can even buy it in Facebook, but then those sales actually do get, now that, to segue into the accounting. Those sales actually do get in Shopify, for instance, [00:06:00] if somebody is buying on the Facebook channel or the Instagram channel, those sales are included in your Shopify reporting totals.
Dan DeLong: So let, yeah, so let's set the stage here for, the accounting aspect of and I love the name of your business, NetDeposited, because that really at its base as a fundamental concept is really where businesses tend to tend to get lost in, the accounting aspect of selling stuff online, right?
So talk a little bit about. Net deposited and what that meant. And, the mission or of your business and what you're trying to solve for for e commerce sellers.
Rachel Dauchy: Sure. So there's two parts of it, really. And first, the part of it is understanding the accounting, and then the other part of it is understanding the accounting software.
And in my case, I exclusively use [00:07:00] QuickBooks Online. And the reason that I do is because I really love app integration and all the various things that I can connect with QuickBooks Online. But when I first started using QuickBooks Online, it took me a while before I completely understood how everything worked, even though I've used all kinds of different accounting softwares in the past.
But QuickBooks Online is a lot different. And One of my very first clients, started getting payouts through the bank feed and I was just recording those directly to sales. And then I realized, wait, I'm doing this all wrong. And I really reverse engineered and figured out the proper way to do the accounting and Man, there's nothing like making mistakes to figure out the right way to do it.
That's why, when somebody explains to me that they made a huge mistake, I totally get it. I have too. And that's the best way to learn. So it turns out that what's coming through the big feed [00:08:00] is essentially your payout. It's your net deposit of What you're getting from your day of sales or period of sales, whichever the Platform that's paying you out.
It's either paying for a day's worth of sales with shopify payments There's usually a two day lag and it's paying you out for one day's worth of sales. If it's Amazon, which we've talked about before, there's usually a two week period that they're collecting all the information, and then they'll pay you out your totals two weeks later, and so on.
Some are, Stripe and Square, and all of them have payouts. And and it's our job as accountants to reconcile those payouts with what they're saying they're paying you out. Because what they're paying out is one thing, what they're saying they're paying you out is another thing. So you have your net payout that's being reported on, Stripe or whatever it is.
And then there's the corresponding gross [00:09:00] sale that's responsible for that day. It really depends on how you're posting those sales. to QuickBooks, whether there's a couple different ways. I don't know if you want to get into that right now, but I'm happy to talk about that, but a couple of different ways that you're posting your gross sales, but really that's what you need to do is you need to post those sales first on an accrual basis.
And then that payout is going to come through the bank feed a couple of days later. So that's really, there's a lot of different moving parts to that, but that's the. That's the concept of what
Dan DeLong: you want. So the general concept is that you want to, when the sale happens, you want to account for the sale.
And then when the payout happens, you want to account for the payout, but reconciling the discrepancy between the gross sale and the fees and things that may have been taken out along the way to basically reconcile that. Those sales campaign. And I wanted to [00:10:00] revisit a term that you used accrual based accounting which got me stuck when I first heard it.
And I want to make sure that we just unpack that. And that's what we, that's what we're referring to when we're talking about accrual based accounting with regards to e commerce, because when I think of accrual base, I'm thinking of an invoice and a payment later. Whereas in a in an e commerce situation, the payments already happened, right?
But the payout. Has not, right? And is that where you're talking about accrual based accounting in that regard, where it's the sale versus the payment versus the, an invoice and a payment later from a customer. Yeah,
Rachel Dauchy: but what you just said, and maybe you misspoke, but what you said was the payment first and then the payout later.
But I like to, but, and what you are saying is right, the customer made the payment and then you get the payout. But I like to think of it as to avoid all confusion is [00:11:00] the sale was made, you get the payout later. So it's really like accounting one on one is you are recognizing whatever transaction. in the period that it was earned or it was expensed is really the right way to think about accrual accounting.
So I earned that sale on that day. My customer went onto my website And paid for and ordered that widget on that day. I'm not going to see that cash till three days later, but that needs to be recorded on that day. So like you said, it's similar to an invoice, although in e commerce we don't use that, but There, I invoiced if I'm a landscaper, I invoiced the, my customer on April 5th.
That is the date of the sale. He may not pay [00:12:00] me until May 5th. And so the opposite would be as if you're doing cash based accounting. You would recognize the sale of that when it was paid, not when it was earned. Accrual is really making sure that you're recognizing it in the accounting period, which is the month that it was earned.
Dan DeLong: Yeah, I guess the I guess the challenge that that I originally had about, hearing accrual based accounting is I was thinking of the QuickBooks method,, what it means to QuickBooks when you talk about cash versus accrual, right. Um, as these, as these particular transactions are coming in, it doesn't matter if you Put it on a cash basis or accrual basis because they'll come in As sales receipts for the most part Or journal entries and that is recognized On a cash versus accrual basis, right?
So you could say this is accrual based accounting for for the sale coming in and then the [00:13:00] payout coming in. But from a QuickBooks perspective, it doesn't matter if you run your reports on a cash versus accrual because they're going to see the same data regardless, right? So there, there is no, there's no difference.
When it comes to, oh I run this profit and loss on an accrual basis versus a cash basis. It's not going to change the data in any way because you're really concerned about it in, from an e commerce perspective, is that sale that has come in and that payout has come in and that's what I'm reconciling.
Which doesn't have any impact on the reporting aspect of it.
Rachel Dauchy: I'm thinking in terms of a connector that you're using. So let's say, for instance, you're using a connector that's recording your sales receipts. So it's posting sales receipts. And then it'll also post the, if it's Stripe or something, and maybe you're using Cinder, it's also going to post your expected payout on the [00:14:00] debit side of the clearing account.
Yes, it is posting the cash that you're receiving, and then what's going to come through the bank feed is going to match with that. I don't... Yeah, that might be a little,
Dan DeLong: That's a little bit more than a fundamental topic, I think. And since we're talking about e commerce fundamentals, but I just wanted to set that distinction that when we talk about accrual based accounting, when it comes to e commerce accounting, we're talking about.
Accounting for the sales and reconciling that to the payout which is not the QuickBooks terminology of the reporting that you're
Rachel Dauchy: running. You're, you are a QuickBooks expert and pro and I might not be understanding exactly what you're saying about running the report. I
Dan DeLong: think I smell smoke.
Yeah,
Rachel Dauchy: . What the report is going to say if you run it on a cash basis Is going to be what your [00:15:00] connector has posted as that payout. Maybe I'm just thinking it in terms of that. If you're talking of if you're talking about you're sending invoices and clients not paying till later, then you're, yeah, that's going to be a totally different.
I guess what you're saying in terms of e commerce is there's not much difference on that accrual versus cash reporting, I
Dan DeLong: guess. Yeah. And then, and it all depends on, it all depends on how that data is getting into QuickBooks.
Rachel Dauchy: Yeah. That's really what I'm trying to say. Yeah. It really depends on how the data is getting into QuickBooks because I'm running into this so much is that it really depends on the connector because sometimes the connector.
isn't posting your expected payout. It's only posting the sale. And it really talk. It really depends on the connectors ability to grab that payout data. And and this is all about automation. I'm not talking about me [00:16:00] running a report and posting a journal entry. I'm talking about connection settings.
And Some of them, you have to not match, but add your payouts into a clearing account. Some of them, if it's Stripe, it's match, match, match. Some of them, you just have to deposit right into that clearing account. So it's really, really specific on what connector is doing what. And then what the payment method is, because it's all gonna be a different type of ad or match.
Dan DeLong: Yeah. We'll put a pin on that that term that you called a clearing account. We'll talk a little bit more about that because that is ultimately what you a mechanism that that accounting professionals will utilize to help. Reconcile that sale to the payout, right?
But there's going to be some some variances from sales channel to sales channel, right? We've talked about, the online shopping cart experience versus the [00:17:00] marketplace, there could be a various difference between the timing of those deposits.
It may happen, pretty regularly. It may be on demand or it may be, as we talked about, Amazon could be every 14 days, right? Before you actually get that. And then a lot of stuff has happened between those 14 days and a lot of fees, as if you ever had an Amazon seller, a lot of fees will come out.
Between the time that there was some sales or some returns and there's some fulfilled by or shipping sales tax type of thing that came into that settlement report that you're that you are. accounting for, right? And as a, as someone who specializes in e commerce clients the mechanism that you're doing that is is a clearing account, right?
So talk a little bit about that clearing account aspect and how you utilize that.
Rachel Dauchy: Sure. So I'll give an example of one that I actually have to manually [00:18:00] post. So My firm, Net Deposited, I sell swag, and actually I sell swag featured, featuring the leading ladies, Machine Works, which is Kelly G.
and Kristen E. Seraldo, and they sell some of their swag on my store, and I've got some other swag, it's really fun, and so I sell it on Shopify, and every time that there's a sale that comes through, I must have set my connector up wrong, because I got a payout with no yeah. It didn't match to anything.
And I was like, weird, what happened to my actual sales posting? For some reason it didn't come in. So I have to manually do that. So now what I can do is I can actually create a sales receipt. And then I can have the payment account be Shopify Payments Clearing. So that means it's similar to undeposited funds.[00:19:00]
So really what I like to boil it down to is I call it not necessarily a clearing account, but my payments to be expected account. Not sales to be expected, but payment to be expected. So for example, if I've got a whole bunch of sales in my store, I, and I want, and I'm not using a connector or something like that, but I want to put them all in one sales receipt, then I can post that sales receipt, and then in the payment account, It's it's, I'll just say Shopify Payments, but I'm going to call it Shopify Payments Clearing, okay?
So what that has done is it's recorded a credit to sale and debit to the clearing account, right? So then when that actual payment comes through, I want to deposit that payment to the clearing [00:20:00] account. I want to deposit to the other side of the clearing account. What, Dan, what would happen if I just deposited that payout right to sale?
Dan DeLong: If you deposited the payment right to sale, now you've double stated your income because the sale came in. It's posting to, to sales revenue. The payout comes in and then it's posting to revenue. So now you've double stated your income and now you're paying more taxes. Yeah, so
Rachel Dauchy: you've duplicated your income.
and then you're not clearing out what?
Dan DeLong: You're not clearing out the discrepancy of that clearing account. Yeah, you're not
Rachel Dauchy: clearing out your clearing. Yeah so that's really, really important. So that's what we mean by all these sales need to post. Whether I'm posting a sales receipt, whether or not I'm posting a daily journal entry full of daily sales whether or not the connector is posting a journal entry or the connector is posting a sales receipt with the offset.
To strike clearing or something like that. So you always [00:21:00] want that sales revenue posting no, I don't ever post a sales receipt directly to the bank account I guess you could and then it can match but I usually just do a clearing account, but The
Dan DeLong: challenge, the challenge with that question there, the comment, if you post your sales receipt directly to the bank account, it's rare.
Unless you're doing a one, if this is a one to one relation, relationship, then then that's fine. Like I sold one thing for 100. My payout is 97 something because of the fees that were taken out for Shopify. Wait for that to handle but that never happens with a no because
Rachel Dauchy: you're getting a
Dan DeLong: Yeah, you're gonna be having you're gonna be having two three four, maybe hundreds of sales in that day which will then Compile into your payout account and then Shopify at its discretion will, whatever it's [00:22:00] batched closeout is, we'll then say, okay, here's all the funds that here's all the payments that are expected.
Let's put them in their account.
Rachel Dauchy: Shall we? Yeah. So that's how I do it is I, let's say I'm doing a cleanup and I do this all the time. I'm doing a cleanup and I'm going into my client's Stripe and I see Sales receipt, sales receipt, sales receipt. They didn't put it in and I'm like, okay I've got to add these three sales receipts.
If it's a ton, I bring them in like with Sassan or something But if it's like two or three, I'll go in. I'll look at the sales receipts. I'll be like, okay These are the line items. Here's the amount for the fee. So I am capturing the fee in the sales receipt And then offset strike clearing that way when I've got let's say then I've got three transactions that add up to one thousand dollars in strike clearing.
Then when the actual payouts come through I add those to the other side of strike clearing because what has been posted in strike clearing [00:23:00] is my net, it's my sales receipt, but it's got it totals to my net payout, right? Because I've got, let's say I've got 500 worth of sales, and then I've got a strike fee for 27 that I've added in that makes it a negative 27.
So then my net amount is blah, blah, blah. And then that's what comes in through the bank feed. So yeah, the person who said, then you're missing the fees, but if you put it. In the sales receipt that works, but you still don't want to do pay to cash because like Dan said, it's very rarely that you're going to get a payout for one sales receipt.
You're going to get a batched payout for a whole bunch of stuff. So that's why it's really important to use that clearing account. So now if you're using something like Sender with Stripe for sales receipts, then you can do Cinder will post sales receipt, sales receipt, sales [00:24:00] receipt, and it'll post expected payment, expected payment, expected payment.
But those expected payments are batched up, but Stripe is telling Cinder what that batched amount will be. So it'll go post, post, post, and then what's coming through the bank feed will match with that. But it's not gonna be the exact amount of the sales receipt, if that makes any sense at all.
Dan DeLong: Yeah.
So basically what you're
Rachel Dauchy: doing, I
Dan DeLong: mean, what you, It can get complicated, but the system that you've created for this is what QuickBooks Payments is doing automagically, right? When you send your invoice send your invoices to your customers and you have five or six, seven, payments in a day or in a batch and then QuickBooks then handles the rest, right?
It, it will make the payments for you when they happen, and then it will group the payments together [00:25:00] as a funded when it's all funded and then it will account for the fees. Automatically. So that's kind of like, yeah. And then you'll get a email, the magic of a QuickBook payment.
Rachel Dauchy: Yeah. Then you'll get an email that says, we are depositing $3,050 into your account. And then you're like, oh, okay. 'cause I had four invoices that I sent out that. Total that, right? So yeah, it's batching it. But the mo the other example I wanted to give was a journal entry, right? Yeah.
So let's say you're do, because that's when a clearing account is really important.
Dan DeLong: If somebody did comment a journal entry, bad that really
Rachel Dauchy: depends on what you're using QuickBooks for. So for the e-commerce people, we're really not using QuickBooks. For reporting. We're using it for the standard PNL and balance sheet, of course, but we're usually pulling sales reports on the platform.
So in that case, it's okay that we're using journal entries to record a day's worth of sales. Because [00:26:00] if you have a high volume seller that's got hundreds and hundreds of individual sales per day, you don't really want all those sales receipts in QuickBooks. And so you want to capture a journal entry for the day.
So Let's say it's posting let's say we're using bookkeep, and bookkeep is posting a sales journal entry for the day. On the credit side, we have gross sales, and then on the debit side, we have less discounts, less returns. That's contra revenue on the debit side. Then we have sales tax collected credit because that's the natural balance.
And then. And then shipping income, if there's usually a shipping income, is separated out, and then in Shopify at least there is. And then on the debit side, we have payments to be expected. So that would be, maybe you've got a lump for PayPal payments to be expected, that's going to go on PayPal payments clearing.[00:27:00]
Let's say you've got a Shopify payments. Expected that's gonna lump all that there. Then they're gonna post the payment journal entry and the payment journal entry clears out the clearing because remember that sales journal entry had a debit side to clearing. So the payment journal entry is going to have a credit side to the clearing account because it's going to clear out the clearing and then it's going to debit what Dan?
Dan DeLong: I'm muted. I was trying to, I was trying to follow your trying to follow your chart. And I was actually trying to look up Ledger Artists had actually said, I would love a visual for this. And this is what you're this is what you're describing. And I wanted to post, I wanted to post
Rachel Dauchy: I am a T account girl.
I love describing it in T accounts. So I am happy to do that, like maybe at some point, but. Anyway, there's [00:28:00] always two sides to everything and I am the kind of person I always go into the transaction journal because I want to see how it looks like in accounting. And so when you're using a connector like Bookkeep, And it's Shopify, okay?
You are going to always want a sales journal entry and a payment journal entry. Because you want to clear out the clearing. So your payment journal entry is going to credit the clearing, clear out that clearing, just like undeposited funds. Because what dollar balance do I want for that clearing?
Dan DeLong: We want the again I'm lost in your example, but we want the balance to be zero, right?
Zero!
Rachel Dauchy: Exactly! We want
Dan DeLong: that balance to be zero. That will reconcile the two together.
Rachel Dauchy: Yeah. So we want zero. So then the credit side of the pay, of the posting journal is going to be the credit side, and then the debit side is going to be the cash, because they're receiving that cash. So you post that [00:29:00] payment journal entry and then what do you get in the bank feed?
Match, match, match, match, match, match all the way down because it's matching your expected payouts. So that's why I like to call it Payments to be expected. So if let's say I'm not using a connector yeah. So I, and I use bookkeep a lot. Cause I love those journal entries with the daily sale. I've got my revenue posting, which they call it your.
E commerce posting for the day. And then the payment journal entry. Now you have to understand how to map all that. But if you do, then you get that match. And all of this is to set up for that match. And and you want that clearing account always clearing out. Because then, at the end of the month, it's a snap to reconcile.
If it's not, then you're posting that other side to something wrong. So that's how you know, if my, your clearing account isn't clearing out, [00:30:00] you're doing something wrong. Now if I didn't have a connector, like Bookkeep, posting something, I could pull the report and I could post my own journal entry.
gross sales, sales tax payable and so on and so on with the debit side to payments to be expected. And then I could just wait for it to come through the bank feed and, it may match that way. Or if it doesn't, I could just Add it to the clearing account. So there's a big difference between matching and adding.
And I'm telling you, like, it took me a really, really, really long time to get this all straight. Because even if you, if, even if you understand debits and credits and when you increase cash, it's a debit. When you increase revenue did I say, wait, did I just say that wrong? Increase the cash, increase to revenue is a [00:31:00] credit.
You can, if you know all those, that's fine, still maneuvering it all in QuickBooks and how that's coming through the payouts. It still takes a while. It can be really funky, but, somebody had posted they saw something about how they do this at the bookkeep webinar. These Connectors are so amazing.
They have so much, they have so many resources Cinder has lots of articles on why you should use a clearing account. I've sent that article to a few different people Bookkeep in their resource center has a whole bunch of information on Clearing accounts, why they're important, why you need it for accrual based accounting.
So there's all kinds of different ways you can refine your understanding on that.
Dan DeLong: Yeah. And this will all boil down to if we, if you go back and you watch the other topics that we discussed about the e commerce fundamentals, a lot of these things come into play as [00:32:00] to how I'm doing all this in.
QuickBooks, right? The. The aspect of sales tax, right? So where are you tracking your sales tax? Are you doing all that in QuickBooks? Or are you doing all that in someplace else, right? So if you're handling it outside of QuickBooks the person that that, We have a comment here can upload invoices, the CSV files with the sales tax module turned on to work around for that.
That obviously that tells me doing tax sales tax, where sales tax turned on and then there's a sales tax consideration. So that's a bigger. Issue then, just bringing in the sales tax collected from the sales channel or not, if you're using marketplace, we talked about those types of things.
The other considerations of, is this am I tracking my inventory? Levels in inside of QuickBooks but all that boils down to is whether or not I'm bringing in, I want to bring in my sales in a [00:33:00] detailed fashion, or do I need to bring in my sales in a summary, right? So as somebody had said, a journal entry is bad, a journal entry is not necessarily bad or good in this particular case, because that, that certainly could be the real, the transaction to use, but if you are using Inventory.
And if you are using sales tax yeah, then it would be bad, right? Right. Because if you're You're not using a you're not using a sales transaction, so that now that sales transaction, because it's a journal entry, doesn't flow into the sales tax reports.
Rachel Dauchy: Yeah, so that's, and I'm so glad you said that, because that's another reason to determine can I use a journal entry to bring in all my daily sales?
If I'm tracking inventory in QuickBooks, you cannot. It's sales transaction only so you can hit the product service item and you can hit the sales tax. So in that situation so she can't [00:34:00] upload the invoices as a CSV file. I would still if it's e commerce, I would upload them as sales receipts. But I would also probably turn off the sales tax module and then just create another Because the sales tax module is meant to...
Use the rates in the system, right? But you can create another sales tax liability account. If the sales tax is already being calculated in some platform, and it's just being imported to hit the right GL account, you can turn it off. Oh, can you not use it after, wait, you couldn't turn it off after it's been used.
Oh, you know what? That I'm not sure. Yeah,
Dan DeLong: I mean that, that particular work work scenario is likely not something that we can work through in a live webinar. We probably would want to either reach out to us on School of Bookkeeping through Quick Answers, and we can maybe work through this cause there's more [00:35:00] to it than just importing invoices as an invoice.
Thank you. Invoices because of e commerce accounts.
Rachel Dauchy: If you're uploading sales receipts, then you can create a product service item line of sales tax. And then you can point that to your own created liability account, upload all of the sales receipts. So then you've got one sales tax payable, even if that sales tax center is turned on, then you're hitting.
A non sales tax center sales tax liability account if that makes sense
Dan DeLong: Um, yeah, but there's more questions than answers, with that particular scenario Don't hold us to any, because Rachel told you so type of thing. Because there's more to it and we probably wanna get a
Rachel Dauchy: little, A little bit.
Yeah. It really, and that's why I always need to know what's going on with their business. But if they're a high volume business and that you are bringing in those journal entries, the sales tax is getting calculated in the platform based on the [00:36:00] settings that have been set up in that platform, either by you or.
If they've done it correctly. And so anyway, you bring in your sales and it's going to have for the day and it's going to have a sales tax collected for the day. And then that'll dump in whatever sales tax liability you've created. Let's say, presumably you started with a new file with them, never turned on the sales tax center.
You just created Shopify sales tax payable, and it could be many states, but it's all dumping in that one thing. And then all of the sales tax payments clear out that payable. That's how I do it. I, people have asked me before, Oh, do you create different liability accounts for each state? I don't, cause I have people with Nexus and.
14 states. I don't want 14 Lines on my balance sheet. I just do Shopify sales tax payable and then whatever payment tax drawer or avalara initiates Comes out of that account or that's where I put it [00:37:00] through the bank feed
Dan DeLong: This is what boils bubbles up to the surface when you are talking about, you know am I bringing in my sales in a summary or a detail right because if you are You know, the answer to that question is, am I using some functionality inside of QuickBooks after that sale comes in, right?
A journal entry would be fine, but if I'm tracking inventory and if in QuickBooks and if I'm tracking sales tax, you don't want to use a You don't want to use that, right? Because if I'm using the functionality if I'm using the functionality inside of QuickBooks to prepare my sales tax reports, I am cutting off my nose to spite my face because a journal entry is not going to flow into those reports.
A journal entry is not going to deduct. The the inventory on hand because those items are not even a reference. So
Rachel Dauchy: I usually we'll run a [00:38:00] sales tax liability report in Shopify anyway, or wherever else, not in QuickBooks. But if you do have, you need to hit product service items, then you can't bring in and whether or not you've created a fee or sale or a sales tax or whatever to a product service or item that you then want to run a report in QuickBooks.
That wouldn't be appropriate. But, I do have people that though they have a hybrid situation. Aye, aye, aye. So they have, they are using product services and they invoice wholesale out of QuickBooks. So I do have to bring high volume into QuickBooks using the connectors because I need to hit product service item because they want to run the report out of QuickBooks.
So in that situation, I do have to create. A dummy sales tax liability. And I am not using the sales tax center, but also neither is he, cause he's selling wholesale. So yeah, it [00:39:00] can, Oh my gosh. But there are situations cause if somebody is using product services in QuickBooks for their purposes usually my clients are invoicing.
That's usually the only thing they're doing in there. And then I'm bringing in sales. from an e commerce channel, then I can't use a journal entry. I have to use the sales receipt because we need product service items.
Dan DeLong: So we've we've talked about this detail versus summary, and there's some caveats to that of functionality that's being used inside of QuickBooks, sales tax consideration, inventory options that we had talked about, where are they tracking the inventory in general?
But then there's this other aspect of, okay, I've got multiple online places that I'm selling. And, all of those, as Rachel talked about, there's a clearing account for each kind of sales channel. But what if I have something like PayPal that could potentially be a payment method on [00:40:00] multiple sales channels, right?
That really throws things, throws a huge curve because, as you have a sale in Shopify, for example, and they pay with PayPal. And then you have a sale on Amazon and they've paid with PayPal. Where does that go? Because that sale either came in, if you're having all your sales going through your clearing account Amazon's not going to pay you.
Yeah,
Rachel Dauchy: but I've learned the lesson the hard way. I never allow my clients to use one PayPal for multi channel. They have to use a separate PayPal for each channel. Because... That's exactly the problem is then your PayPal payments clearing is never going to clear. And then what if they don't sweep their balance to their checking account?
That PayPal payments is never going to clear. So you want to make sure that there's a lot of questions you want to ask if they're using PayPal. Number one, are they [00:41:00] using PayPal as a payment method only? Yeah. Are they using it for more than one channel? Are they purchasing things with PayPal? Because if they are, then you've got complexity in PayPal.
And in that situation, I always connect PayPal to QuickBooks as a bank account because You have money in, because it's the payment method. Then you've got transfers back and forth to the different checking accounts or whatever PayPal has it connected to. And then you've got, presumably, expenses that they're making.
Hopefully they're not! And then and then, so you've got to deal with that PayPal, capture all that PayPal activity. Now if they're only using it as a payment method to receive maybe you could get away without connecting it, but I still always connect it just because of the transfers I still like to do that, but Don't or highly discourage your clients from using one PayPal for several [00:42:00] channels.
And if you do, you charge them more. Because that adds complexity that is, is, it's another level of crazy.
Dan DeLong: Well, and it's not exclusive to PayPal, right? There's all sorts of other payment methods that people can ultimately use. There's a lot of buy now pay later, types of things with Sezzle that can be, on multiple sales channels.
So that's something to consider. When you have, when you're taking on a client is do they have these sort of situations because it is going, as you're talking about, like the simplistic method is putting everything through a clearing account. And if there is anything that diverts funds from coming through that that one payment method or that, that particular payment source, that's just going to make it far more complex.
And then the sales will never match the clearing account because you're not going to have your end all be all of zero, which is what your goal is, when you [00:43:00] go to reconcile. Do you actually, I want to ask you, do you actually reconcile this clearing account or do you You actually want to get it back down to zero.
So you get your reports from the sales channel and you get your payments payments that have been deposited and you'll reconcile that as part of your service. Is that
Rachel Dauchy: right? Yeah. Yeah. I reconcile the payment clearing accounts to zero. I reconciled Stripe to what the balance says.
I reconcile PayPal to what the balance says. So some of them are a little funky. They actually will tell you what a balance is at the end of the month. But but what I was going to say is Oh, I think it, Oh, no. What I was going to say is it is, can be a little counterintuitive because the client thinks Oh, I'm just going to hold my balance.
It's going to be so much easier for you. And it's actually the opposite. Because if you're holding that balance, then you're treating that payment method like a bank [00:44:00] account. And then I, my clearing just sits there. And so I explain to them, you want to set your PayPal or your Stripe or your Square or whatever.
On to a daily sweep. That way it's coming out every day and my clearing account is moving because I want that to reconcile to zero at the end of the month and it's easier for me. And I also want, if I've got a match set up through my connector, I want that. I don't want stuff just sitting in there.
Stripe or their PayPal because, and they don't know. So I've had to have the conversations with them before and say, actually, you want to set this on daily sweep because that makes things more, it flows better for me. And they're like, Oh, I never would have thought that. It is just very counterintuitive, but they also think that if they connect that one square account to their big commerce, [00:45:00] And, the square they're selling in store, and they have it connected to something else.
That just adds this complexity, so I always tell them, one if they can do it, one payment method per channel. And maybe they have to set up two PayPals, maybe three PayPals, but I have clients that do that. Because... Having to deal with multiple payouts going into one PayPal clearing, it's even, I can't get it to balance sometimes.
Dan DeLong: Getting it to that, that promised land of zero is it's like changing tires on a moving vehicle. And one of our viewers there finally threw up the red flags okay, I need help. Right, so best way to get help from us is go to Quick Answers. Now Rachel, you're actually a an elite member of School of Bookkeeping.
Can you talk a little bit about the Quick Answers your Quick Answers types of experiences that you've had? [00:46:00]
Rachel Dauchy: Yeah, so because we were saying earlier, a lot of my clients, what we're using QuickBooks for is a general ledger where we're dumping in a lot of data coming in from other places. So a lot of times I'll forget how do we do this one thing in QuickBooks?
Sometimes I'll have a one off thing or a special situation and I can't remember exactly how to do it. Because it's just not part of my regular workflow, I'll just go to quick answers and I'll ask them because I'm like, I totally forgot how to do this. How do I apply this credit memo to this one thing, but my account's already reconciled, so I'm not finding it in the match?
They're experts on that, so it's, I couldn't do it without
Dan DeLong: that. And if you just want to try it out, we have a day pass, right? We have a one day, one day pass, you get 24 hour access to it. Really try it out, plus that gives you a 49 coupon to apply towards becoming an elite member. So there's really no risk when it comes to that [00:47:00] because it costs 49 for a day pass, you get a 49 coupon.
To use for the elite membership, which includes a monthly access to quick answer. So that kind of Puts a bow on and I think we've created more chaos, by the possibility
But that does bring up a good point like What you said is if you do have a more complex client You should be your fees should be relative or Directly proportionate to the amount of complexity that you're going to run into. You don't want to be promising the moon and not even getting the rocket off the ground.
Definitely, have your reward versus your your potential deep end of the pool be relative to what you're expecting to have. And Rachel, I appreciate you joining us again. We've we try to keep these under a half hour and here we are at 53 minutes. So we definitely,
Rachel Dauchy: yeah.
And I feel like we barely scratched the surface. It's we could talk about [00:48:00] this forever. And, but the one last thing I just wanted to add is. This is also how I do it. And it, I'm not saying this is written in stone or, there's plenty of QuickBooks specialists that, maybe they have a different way of doing it or maybe they have a different workflow or something like that.
There's different ways to achieve what you want. This is, my way. Some people don't like to connect PayPal as a bank. I always do. That's just, I find. That I get more accuracy and it's better on my brain when I do it that way. So this is just my method. It's, it isn't the method.
Dan DeLong: Yeah, there's that's one of the pluses and minuses of of QuickBooks is there is more than one way to do things.
And it doesn't necessarily mean there is only one way to do things. Cause there are certainly several different you asked. You ask ten accountants even who aren't using QuickBooks how to do things, [00:49:00] you'll get potentially ten different answers of how that needs to work. We appreciate you joining us again for the workshop.
We are going to take a little break on the workshop Wednesday, and we'll probably pick this up in in October. So if you're joining us just bear in mind that we'll return in October when we when we pick up our workshop, Rachel, again, thank you for joining us on this journey through e commerce.
We really appreciate your insights through this as well. Yeah, of course. All right. And we'll see you next time on the workshop Wednesday. Have a great day.
