In my October 2016 blog post titled “Why QBO is Not as Magic as Clients Think” I pointed out some bumps in the road which can cause clients to veer off track when using QuickBooks Online (QBO). Here I am continuing that conversation, focusing on the use of the Transfer feature in QBO.
Transfers vs. Expenses
QBO includes a “Transfer” data entry screen (found at + | Other | Transfer). This screen offers the following data entry fields, using the example of transferring $500 from a Business Checking to a Business Savings account:
Transfer Funds From: Business Checking
Transfer Funds To: Business Savings
Transfer Amount: $500.00
Memo: To record transfer of funds from Checking to Savings
This seems like a great way to enter the transfer of funds from one bank account to another. It has an intuitive appeal which makes us feel confident that if our clients find this screen, they can enter a bank transfer quickly and easily, with minimal chance of error.
The Transfer screen will create the following transaction, if you look at the Transaction Journal:
If the client takes a look at the Registers for the Checking and Savings accounts, the Checking register will display an entry for $500 in the “Payment” column (money out), and the Savings register will display an entry for $500 in the “Deposit” column (money in). Voila – double entry bookkeeping at its finest, all done behind the scenes – just what we want, and expect, from QuickBooks.
Why I Don’t Like the Transfer Screen
Even though it works perfectly, here is why I don’t like it, don’t use it, and counsel my clients not to use the Transfer screen. By the way, the Transfer feature exists in QB Desktop as well, and I do not recommend using it there, either.
When you use the Transfer screen, there is no Payee associated with the transaction. Here’s why you should care: if there is no Payee, you can’t look for the transaction in the Vendor Center and see all the transactions for the Payee/Vendor. You may be thinking to yourself, “Of course there’s no payee, numbskull. It’s a Transfer, not a Check or Expense payable to a vendor.” But that is exactly the point!
Alternate: I propose creating a Vendor called “Transfer to Savings –xxxx,” where –xxxx is the last 4 digits of the Savings account number. Then instead of using the Transfer screen, write an actual Check from the Business Checking account, using the Write Check screen.
Your check will look like this:
Choose a payee: Transfer to Savings –xxxx
[Source] Account: Checking –xxxx
Payment Date: 02/01/2017
Check No. [leave blank]
Account: Savings –xxxx
Description: To record transfer from Bus Checking to Bus Savings
This will create the exact same transaction, namely:
But you also get this:
- By creating a Vendor, you can go to the Vendor Center and view all the transactions/checks written to “Transfer to Savings.”
- If you have your Accounts & Settings | Advanced | Automation set to: Pre-fill forms with previously entered content (On), then each time you start typing a check with Payee “Transfer to Savings –xxxx” it will prefill all the fields, saving you time and effort.
Hidden Gotcha – The Accidental Transfer
Here’s where not using the Transfer feature gets more tricky in QBO. Have you ever noticed this, when you click on a downloaded transaction which is still sitting in the bank feed download screen: if you click on the transaction to show the detail, there are three radio buttons there: Add, Find match, Transfer.
The Add button is by far the most frequently used option. But I have seen a payment, say from the Business Checking to the company credit card, default to “Transfer,” and I have had clients accept this without a thought.
I’ve also seen transactions default to the “Transfer” button if the client used their online banking bill pay to pay, say, a Comcast bill. Clicking the Transfer to Comcast will indeed post the expense, but with no Payee.
To reiterate, this makes it difficult to track payments to Comcast in the Vendor Center, because if you look at the transactions listed for Comcast from the Vendor record, you will not see Transfers listed, only Checks, Expenses and Bill/Bill Payment. The Transfer will be missing and it will look like you missed a payment to Comcast.
Of course, if you run a P&L, you will find the payment is properly recorded, but you can see why this can become confusing. I don’t like having what appears to be a gap in payments when I look at Comcast’s transaction history in their Vendor record.
It may seem like a small thing, whether or not to use the Transfer screen or the Transfer button in QBO, but I feel it is a reasonable Best Practice to avoid the temptation to use it, as the alternate method provides a better bookkeeping trail, while achieving the same results. Do you agree?