A function in QuickBooks I often see overlooked or completely misused is the Enter Bills and the subsequent Pay Bills function in QuickBooks. Both are great functions that give an overview of what the company's total liabilities are to vendors, when they're due, and the ability to print or even pay them online through QuickBooks.
In this two part post we'll discuss the process of entering bills and then we'll dicuss how to properly pay the bill.
The flip side to this is that it is time-consuming and the same basic function (paying a bill) can be achieved by just entering a check into QuickBooks when payment is remitted. Most small business that I deal with actually does this very thing.
To them, it's not worth the time and effort to enter the same costs they know and understand each month. They set up an ACH with most vendors and will enter the expense into QuickBooks when it hits the bank. This can even be further automated by using a memorized transaction for fixed costs every month.
However, if you're a restaurant, the number of vendors can be overwhelming. Each has its own time frame (Due on receipt, Net-30, etc.) when the payment is overdue, they send multiple bills over the course of the month with varying amounts, and remit monthly statements with an overview of all the bills sent for that particular month.
Don't freak out though, QuickBooks helps handle this process in a smooth manner.
How QuickBooks Handles Bills
The accounting behind entering and paying a bill is as follows:
- The bill is entered which increase your expense account and increase
your Accounts Payable (liability)
- The bill is paid which decreases your Accounts Payable and decreases your checking (cash) or transfers the liability to a credit card
How to Enter Bills into QBO
Each vendor must be entered with the name, address, account number, etc. However, if you prefer, this information can be entered when you key in the bill. The steps to enter bills in QBO are:
- Locate the 'New' button in the top left corner of the menu.
- When you click on the 'New' block, a dropdown appears. Go to the second column entitled 'Vendors' and choose the 'Bill' option.
- Enter the bill information starting with the Vendor information. The dropdown will include all vendors already entered. If you need to add a new vendor, choose 'New', key in the details and hit 'Save'. Once the vendor is chosen, the address information will automatically populate.
- Next, add the bill date. Because the terms dictate the due date from the date of the invoice, use the date the vendor created the invoice.
- If you enter terms, the due date should calculate on its own.
- The invoice number is entered in the Bill No. section. This is helpful in locating payment for certain invoices. If there is no invoice number, many clients use a certain schema such as the first three letters of the vendor and the date of the invoice or something similar.
- Tags are a tool to track certain expenses behind the scenes. For instance, if you are sponsoring a fundraising event, you could use the tag, Fundraiser. You could take it a step further and add specifics like Fundraiser: Food. Later, you can run a report based on the tags to determine how much you spent in each area.
- The category is the expense account you want to debit. An example of this is Repairs and Maintenance or Supplies. Using this type of cost coding is helpful in understanding your Profit & Loss form and when filing your Federal tax return.
- Adding a description is a good idea in case there are questions later about the expense. For example, when the expense is for breakroom supplies, you could type in a description of what you bought - cups, plates, utensils.
- Next, the amount is obviously the dollar amount of the invoice. Some companies offer a discount if you pay by a certain date, so make sure you look for that on the invoice and subtract the discount if you qualify.
- Below the box where the category, description and amount go, there is an option to 'add a line' or 'clear all lines'. The 'add a line' box is convenient for invoices with multiple line items.
- In the far left corner of the screen, there is a space to write a memo or leave notes and an attachment area. Some clients prefer to scan the invoice and attach a copy to the bill. This could also be utilized to include receipts.
- On the bottom right, there is a green box with a dropdown. You can choose to 'Save and Close', 'Save and New' or 'Save and Schedule Payment'. Choose 'Save and New' if you have more bills to enter or 'Save and Close' if you are done. Check out our blog on paying bills for more information on how to pay bills.
Note: Quickbooks Online uses a handy warning message if you type in the same invoice number for a client to avoid duplicate payments. If this happens, hover your cursor over the left menu bar where it says 'Expenditures' and choose 'Vendors'. Locate the vendor and click on the name to see a list of all the bills entered.
Entering bills is cumbersome if you have a large number of invoices. It is, however, an excellent way to make sure everything is paid on time, that you have an accurate reading of your accounts payable, and assist with cash flow and forecasting.
Refer to your CPA for the threshold that they would like to see an expense become an asset.
Double Checking with Statements
If a vendor is sending multiple bills or has the potential to send multiple bills over the entire month a statement is generated on a monthly basis requesting payment to be remitted for the referenced bills currently due. I never use the statement as a means of remitting payment.
If I've been doing my job right I will have all of the bills in QuickBooks referenced to the statement. I use the statement then as a means of reconciling my outstanding bills.
I first head into the vendor center, select the vendor, then review the bills referenced in the statement. If you've been entering each bill in with all of the pertinent information you can sort by then date then follow along with the invoice numbers.
I double-check all of the invoices as credits can be issued that are overlooked, an amount can be entered wrong ($654.63 vs. $645.63), and you may have just lost a bill. This helps you manage your vendors and keeps your head cool.
Entering bills can be time-consuming and as discussed before might not need to be in your company's deck of cards.
If however you're receiving multiples bills from a plethora of vendors entering bills into QuickBooks helps keep your accounts payable in check, holds your vendors accountable for credits issued, and gives you a big picture of your total liabilities to your vendors at any one given time to help forecast your cash flow.