Avoiding Costly QuickBooks Mistakes: What Every Business Owner Should Know
In this episode of QuickBooks Mastery for Small Business Success, Erica Northrup and Lee Davis highlight some of the most common—and costly—mistakes business owners make in QuickBooks.
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While QuickBooks is a powerful tool, it’s only as effective as the way it’s used. Small errors can snowball into bigger issues, especially when they go unnoticed for months.
1. Waiting Too Long to Reconcile
One of the most common mistakes is delaying reconciliation.
If your accounts don’t reconcile, it’s a clear sign something is off. Waiting months to address it only makes the problem harder to fix.
A better approach:
- Reconcile your accounts monthly
- Aim to complete this by the 10th of each month
Staying proactive helps you catch issues early and maintain accurate records.
2. Misusing “Ask My Accountant” and Uncategorized Accounts
When you’re unsure how to categorize a transaction, it often gets placed in:
- “Ask My Accountant”
- Uncategorized accounts
While this may feel like a temporary solution, letting these accounts build up creates confusion and extra work later.
Instead:
- Use your Schedule C as a guide for proper categorization
- Address unclear items regularly—not all at once during tax season
3. Not Using the Bank Feed Correctly
The bank feed is a powerful feature—but it’s often misused.
A common mistake is relying too heavily on automation without reviewing transactions. This can lead to incorrect categorization.
Best practices:
- Review transactions before accepting them
- Match transactions whenever possible instead of adding duplicates
- Ensure rules are set up correctly
When used properly, the bank feed can save time—but it still requires oversight.
4. Misunderstanding Undeposited Funds
Undeposited Funds can be confusing, but it serves an important purpose.
Think of it like a holding account (or bank bag) for checks before they are deposited.
A frequent mistake:
- Recording deposits through the bank feed and Undeposited Funds—resulting in duplicate entries
Understanding this workflow helps keep your income accurate and prevents duplication.
5. Incorrectly Categorizing Owner’s Pay
How you pay yourself depends on your business structure:
- LLC → Owner’s Draw
- S-Corporation → Salary (through payroll)
Many business owners mistakenly run payroll when it’s not appropriate, which can create compliance and tax issues.
6. Mishandling Returned Checks
Returned checks need to be handled carefully to keep records accurate.
The correct approach:
- Set up a returned check as a product or service
- Link it to the bank account, not as an expense
- Ensure the amount is properly charged back to the customer
This ensures both your bank records and customer balances stay accurate.
7. Recording Loans and Large Purchases Incorrectly
Big purchases—like vehicles or equipment—can offer significant tax benefits, but only if recorded correctly.
A common mistake is combining principal and interest into one expense.
Instead:
- Record the purchase as an asset
- Record the loan as a liability
- Split monthly payments into:
- Principal (reduces liability)
- Interest (recorded as an expense)
Only the interest portion is deductible as an expense—this distinction is critical.
8. Not Reviewing Reports Monthly
Finally, one of the biggest missed opportunities is failing to review financial reports.
Your reports are the final analysis of your business performance.
At a minimum, review monthly:
- Profit & Loss Statement
- Balance Sheet
Without this step, you’re missing the true pulse of your business.
Final Thoughts
QuickBooks done right is a beautiful thing. If you have any questions, don’t hesitate to reach out. We are here for your QuickBooks problems.
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