“I don’t understand. QuickBooks shows that I made almost $70,000 last year in my business, but I sure don’t feel like it,” Trisha explained. “How could I have made that much but still feel so broke?”
“Let’s take a look at it together,” Katie replied. “I’m sending you a link now so I can see your screen.” After they got the computers connected, Katie looked at a couple of reports in QuickBooks. “Trisha, what information did you give your tax preparer to prepare your taxes?”
“He said that since I use QuickBooks, that I just need to give him the Profit & Loss. So that’s what I did.”
Katie started to feel concerned. “Did he ever look at the Balance Sheet?”
“No,” replied Trisha. “He never asked for it.”
“Trisha, this may seem like a strange question, but do you have a stack of checks on your desk that you haven’t taken to the bank to deposit yet?”
“I wish! I just have one that came in today’s mail. Why do you ask?” Trisha sounded concerned.
“Let me check one more thing first. Do you have an electronic copy of your tax return that you could pull up on your screen for me?” Katie asked.
“Yep. One second.” Trisha opened the document for Katie to see.
It was just what Katie had suspected. “Trisha, QuickBooks is showing you have over $30,000 in Undeposited Funds. That means that you have $30,000 in deposits that you have yet to take to the bank…”
“What?!?!” Trisha exclaimed. “That would make my life a lot easier if it were true! Why is that showing like that? And what does it have to do with my tax return?”
Katie took a big breath, “Your income is getting entered into QuickBooks twice. Which means your net income is overstated. Which also means you probably paid way too much in taxes.”
“Are you kidding me?” Trisha was incredibly frustrated. “Isn’t this why I pay someone to do my taxes?”
“Unfortunately, not all tax preparers are the same. I can help you fix this in QuickBooks and show you the proper way to record your income so that this doesn’t happen again. I’ll email you the name of a high-quality firm that I recommend for tax preparation. You can talk to them about getting your tax return amended.”
“I’d really appreciate that,” Trisha sighed. “And thank you for helping me figure out what was going on. I just knew I couldn’t have made $70,000 last year, but didn’t know how to figure it out.”
“No problem,” Katie smiled. “I’ll get you on the right track and get QuickBooks straightened out. Then we can talk about how to ACTUALLY get your income to $70,000.”
“That,” replied Trisha, “would be awesome.”
As the saying goes, “Garbage in, garbage out.” QuickBooks is great tool, but it’s not magic. You must know the proper workflows and procedures to make sure your information is getting entered accurately. Undeposited Funds is a common error many QuickBooks users make. The user is not following the proper workflow and ends up recording all the income twice – which means the income is overstated. If the tax return gets filed using that information, it could mean paying nearly double the amount of taxes you should have. View your balance sheet in QuickBooks and see if you are showing any “Undeposited Funds”. If you are, and don’t have a stack of checks on your desk totaling that amount, contact me. I can help you fix the past deposits and show you the proper way to record your income so it doesn’t happen again.
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