how can we find potential mistakes in our QuickBooks records that would not be revealed
when reconciling with customers vendors or the bank well that's what we're going to learn in
this video fixing expense account classification if you have any questions about this topic you can
leave them in the comments section below and I'll do my best to help you and of course if you feel
the video helped you I hope you will click like and don't forget to subscribe to get updates on
new videos that come out all the time choosing the wrong expense or asset when recording a check bill
or expense type of transaction is in fact the only type of data in a transaction not checked
by an independent source is that important will we discuss how it is very important to the IRS
because you have to give a clear explanation of every category of every expense or check
or bill that you recorded so that the IRS can determine if that check or expense is in fact
deductible from your taxes so therefore the IRS is very interested in which category you put for
the check or the expense but the IRS also knows that the vendor is not checking to see in your
records which account classification you put for the check or the bill payment that you gave in
fact the payee or vendor has no interest in what category this check or bill is recorded in our
records so how do you find any checks expenses or vendor bills with this mistake well we start
with what works for ninety percent of these transactions it's called the one vendor one
expense rule this rule asserts that about 90% of the time each vendor will have only one expense
in their transactions conversely about 90% of the time each expense will always have the same
vendor or vendors recorded in the transactions for that expense for example UPS and FedEx will always
be delivery expense they will never repair our equipment therefore if we see a cheque or bill
payable to UPS and we see repair expense in the category field we know it's a mistake conversely
reese's repair ranch will always be repair expense in every transaction that we record with risa she
will never deliver a package for us therefore if we see a cheque or bill payable to Risa and
we see delivery expense in the category field we know it's a mistake so what's the solution well
solution step one we will run reports that show vendor name by expense we will easily compare
the vendor names to the expense category we will open and examine anything that we're not sure of
when we run this report in this case we will use the trial balance and open each expense an asset
we will observe the vendor name in each account and then I mark your teacher actually planted two
mistakes and let's see how difficult or easy it is to find using this method so we click the reports
menu and then we open the trial balance that is setup to show the results of all transactions
regardless of date now the first one we'll take a look at is delivery expense let's double-click the
balance and open the account notice that in the account delivery expense every single vendor is
UPS except one of them so you'll notice that the wrong name jumps right out at you and you can see
clearly that this must be a mistake because rex repair shop does not perform delivery service now
before we open it up you may notice that there's one or two transactions that don't have a name
that's because it's the nature of the transaction and if you notice it's a transaction type that we
would not usually have for example here we have this as part of a deposit and I happen to remember
from the previous course that we actually took money from undeposited funds at the moment we
were making a bank deposit and we took away some of that money and pay UPS for delivery so we
opened up that one and that one is legitimate what about this one this one doesn't have a name well
that's because it's part of a journal entry and we actually attempted to put the name UPS in the
name field of the journal entry when we learned about journal entries a little while ago in the
course and for some reason even though we put ups in the name field it did not show up here but it
is legitimate so the only one we need to change is this one and we can easily double click and if
we wanted to we could click here and we could change it to repair expense but I'm not going
to because I want you to see this mistake from another point of view let's take a look at the
other mistake open the trial balance and this time we'll open repair expense we double click
and you can see that every transaction for repair expense has either greece's repair ranch or rex
repair shop but the one that has the raw vendor jumps right out at you right here that we chose
you well this check that was payable to UPS we accidentally put repair expense and of course
we could just fix it and save it but I want you to see the mistake from the other reports point
of view the other method that will reveal these types of mistakes will be to run reports that
show expense by vendor name you can easily compare the vendor names to the expense category on this
report then you can open and examine anything you're not sure of to do this we will use the
transaction list by vendor report then we will customize the report to show the split account
because the split account is actually the expense or the asset that goes with the vendor transaction
then we will observe the expense name in each vendors section you will see the same mistakes
that I mark your teacher planted there so let's go ahead and follow the directions we click reports
then we will click transaction list by vendor one of the reports we set up at the beginning
of the course now we will modify this report as follows we click the COG and then you have
to click show more now here's what you have to do you must include the split account Accounts
Payable is listed in every single one of these because that's the account account so let's just
remove that and we also don't need posting because we know it's going to be posted so we remove those
check marks and make sure you include split then when we click away QuickBooks Online has
an opportunity to recalculate the report now let's take a look at those two vendors when we
come down to wrecks repair shop you notice every account is either recs repair or account payable
now let's talk about this account payable showing up as split if we double click that means it's a
bill payment that's why account payable shows up as the split instead of the regular account but
if account payable shows up as a split and it's a bill payment we don't have to worry because if
this is a bill payment it means this must have been paying one of these two previous bills and
the previous bills as you can see have the correct expense so as long as all the ones marked as bills
have the correct expense we can ignore the accounts that say account payable because
those are bill payments to the correct bill the only one we have to worry about is the same one
that we found a moment ago delivery expense and we could double click open it up and fix it but
I'm waiting to show you something better let's double check this with ups when we scroll down
to UPS you will notice that they all have delivery expense or account payable for a bill that has the
correct delivery expense account but the only one that your eyes can clearly see is wrong in
the UPS section is the one marked repair expense and we can go ahead and double click and fix it
now you may well ask what about a vendor we purchase different things from Staples is
our example for a vendor with multiple accounts in their transactions we sometimes buy supplies
from staples and we sometimes buy equipment from staples so what do we do well in this rare case
if a small number of transactions are in the vendor or in the vendor section we should check
the attached source documents of each one because if there aren't that many it won't take that long
to check if there are many then what we should do is find another data field in the transaction that
may indicate which expense or asset is being purchased for example if equipment purchased
are usually thousands of dollars and supplies purchased are usually less than $100 each purchase
then we could simply use the money amount to judge whether we put the correct expense account
before we open it up and actually look at the source document you will know what may identify
the correct category in your own company if you know how your company runs there will always be
something in the transaction that will tell you is this supposed to be one expense or the other and
if you're not sure you can always open it up and look and the final issue that always comes up when
reclassifying transactions what if you made the same mistake on many bills and many checks well
the solution is something called the accountants tool box inside the accountants toolbox is a tool
called reclassify transactions unfortunately it's only available in the accountants edition or if
you log in as the accountant user fortunately most of our students are actually using the
accountants edition so I can show you exactly how this works right at the top if you're logged
in as the accountant user Philby this icon with these words accountant tools go ahead and click
and click reclassify transactions now this tool is great but what you must be aware of is you
must control the date first you must first before you do anything on the left or do anything below
you put the dates here because everything else depends on that now to be safe I'm simply going
to include everything and be sure I'm including everything by putting the dates from before the
course till after the course this way every single transaction will be included now first we'll do it
by the account and then we'll do it by the vendor to do it by account you would click here and type
in the name of the account or at least the first few letters rip pair now this is the only account
that begins with the word repair so let's double click now you can see every single transaction in
the account for repair expense and you can see the name of the person or vendor responsible in
repair expense so if we click only or it should be that way only repair expense we should get
only the repair expense account yep see only the repair expense account and we go up and down and
we can see oh here is ups but if there were many of them we would click on every single one that's
labeled ups and if they were all mistaken because there were many we could click this and it would
select all of them but in this case we don't want to do many at once even though we could we can
just click here and then when we click reclassify QuickBooks asks us where does ups belong and if
you go here we can find delivery expense on this list and then when we click apply it'll say the
transaction has been changed and you can verify that in the reports that we just saw now in order
to do this by vendor we have to click this X to remove the existing filter then we choose
the vendor so now we'll choose rex repair shop and we'll choose just checks find transaction
oh look at this you can see when we search under rex repair shop we would expect every account to
be repair expense so the one that says delivery is the one that's wrong if there were many we could
click all of them and reclassify them all at once with this tool but there's only one of them so we
select only the one we need to reclassify click reclassify and then we put the correct account
in this case it should be repair expense once we click apply everything is fixed now let's verify
that everything is fixed when we come back to the trial balance and we look at delivery expense you
can see that it all says UPS and none of them say rex repair and of course when we look at
repair expense they all say either Rex or Risa and none of them say UPS congratulations you
now know how to prove an entire set of books and records is correct to the last detail you