Skailit - QuickBooks Online Refresher Course

4.1 Understanding Expenses vs Accounts Payable

Choose Correctly: Using the wrong transaction type causes AR/AP discrepancies and cash flow reporting errors.

4.2 Recording Expenses (Immediate Payment)

Step-by-Step Expense Entry:

1. Go to + New → Expense
2. Select Payee (vendor)
3. Choose Payment Account (Bank or Credit Card)
4. Enter Payment Date and Method
5. Add Category (expense account from Chart of Accounts)
6. Enter Amount and Description
7. Select if HST applies and at what rate
8. Attach receipt (optional but recommended)
9. Save

Common Expense Categories:

Expense Entry Screen:

Behind the Scenes - Journal Entry:

4.3 Recording Vendor Bills (Accounts Payable)

Use a Bill when you receive a vendor invoice but will pay later (creates liability).

Step-by-Step Bill Entry:

1. Go to + New → Bill
2. Select Vendor
3. Enter Bill Date and Due Date (or payment terms)
4. Add Reference Number (vendor's invoice number)
5. Add line items with proper expense/asset categories
6. Enter amounts and apply HST
7. Attach vendor invoice PDF
8. Save (payment made later)

Example: Monthly Rent Bill

Bill Entry Screen:

Journal Entry (When Bill is Entered):

Paying the Bill Later (March 15):

1. Go to + New → Pay Bills (or open the bill and click Make Payment)
2. Select Payment Account (Bank)
3. Enter Payment Date
4. Checkmark which bills to pay
5. Save

Journal Entry (When Bill is Paid):

4.4 HST Input Tax Credits (ITCs) on Expenses

Canadian businesses recover HST/GST paid on most business purchases.

How ITCs Work:

• When you pay HST on business expenses, record it as HST Receivable (asset)
• This is an Input Tax Credit (ITC) you can claim
• QBO automatically calculates when you select HST on expense/bill
• At tax filing: Subtract total ITCs from HST collected
• Remit only the net amount to CRA

Common ITC-Eligible Expenses:

HST Calculation Example:

4.5 Managing Accounts Payable

Key AP Reports:

• A/P Aging Summary: Outstanding bills grouped by age
• A/P Aging Detail: Bill-level detail
• Unpaid Bills: All bills awaiting payment
• Bills and Applied Payments: Payment history
• Vendor Balance Summary: Total owed to each vendor

A/P Aging Summary Example:

Best Practices for AP Management:

• Enter bills as soon as received (don't wait until payment)
• Verify bill amounts against purchase orders/contracts
• Attach vendor invoices as PDFs in QBO
• Review A/P Aging weekly to catch missed bills
• Pay bills on time to maintain vendor relationships
• Take advantage of early payment discounts (2/10 Net 30)
• Set up recurring bills for regular expenses (rent, subscriptions)
• Reconcile vendor statements monthly

4.6 Credit Card Transactions

Business credit cards should be tracked separately from bank accounts.

Setting Up Credit Card Account:

Recording Credit Card Purchases:

1. Go to + New → Expense
2. Payment Account: Select your Credit Card account (not Bank)
3. Enter transaction details and categories
4. Apply HST where applicable
5. Save

Paying Credit Card Bill:

1. Go to + New → Transfer
2. Transfer From: Bank - RBC Chequing
3. Transfer To: Credit Card - Scotiabank Visa
4. Enter Amount (payment amount)
5. Save

Important: Credit card purchases increase the credit card liability. Paying the credit card decreases the liability and your bank balance.

4.7 Common Expense & AP Mistakes

• ❌ Using Bill when already paid: Creates AP that doesn't exist
• ❌ Using Expense for unpaid bills: No AP tracking, miss payment deadlines
• ❌ Paying bills via Expense: Doubles the expense, AP never cleared
• ❌ Not claiming HST on expenses: Missing valuable ITCs
• ❌ Wrong expense category: Distorts financial analysis
• ❌ Capitalizing expenses: Recording small purchases as assets
• ❌ Expensing capital assets: Recording equipment as expense instead of asset
• ❌ Personal expenses in business: Mixing personal and business transactions
• ❌ No supporting documentation: Not attaching receipts/invoices

4.8 Bank Rules for Automation

Automate recurring expense categorization with Bank Rules.

Creating a Bank Rule:

1. Go to Banking tab
2. Find a transaction to automate
3. Click Create rule
4. Set conditions (description contains, amount equals, etc.)
5. Choose action: Categorize as specific expense, add HST, etc.
6. Save rule

Example Rule:

Good Rules to Create:

• Bank fees → Bank Charges expense
• Recurring subscriptions → Software/Services expense
• Utility companies → Utilities expense
• Regular suppliers → Appropriate expense category
• Payroll transfers → Payroll expenses

4.9 Expense Best Practices

• Use dedicated business bank account and credit card (never personal)
• Categorize bank feed transactions weekly (don't let them pile up)
• Attach receipts to all transactions in QBO
• Set up bank rules for recurring expenses
• Review Uncategorized Expenses report monthly (goal: zero)
• Use consistent expense categories (don't create new accounts ad-hoc)
• Claim all eligible HST ITCs (review quarterly)
• Reconcile credit cards monthly (like bank accounts)
• Use sub-accounts for detailed tracking (Vehicle: Fuel, Repairs, Insurance)
• Document business purpose on receipt (especially meals/entertainment)
• Review Profit & Loss monthly to spot unusual expense patterns

4.10 Quick Self-Check

Q1: What's the difference between a Bill and an Expense in QBO?

✓ Bill = unpaid vendor invoice (creates AP, pay later); Expense = immediate payment (no AP)

Q2: Where does HST paid on business purchases go?

✓ HST Receivable (Input Tax Credits) - an asset account

Q3: You entered a bill, now need to pay it. What do you do?

✓ Use "Pay Bills" or click "Make Payment" on the bill (NOT create new Expense)

Q4: Should you expense a $1,200 computer purchase?

✓ No - capitalize as Equipment (Fixed Asset) and depreciate over time

Q5: How do you categorize office supplies with HST?

✓ Category: Office Supplies (Expense), Tax: 13% ON HST, claim ITC

Q6: What happens if you pay a bill by creating an Expense?

✓ Expense recorded twice, Accounts Payable never cleared

Q7: Can you claim HST ITC on client lunch ($120 + $15.60 HST)?

✓ Yes - claim 100% ITC ($15.60), but only 50% of meal is tax-deductible expense

✓ Module 4 Complete

You've learned:

• Critical difference between Bills and Expenses
• How to record expenses with immediate payment
• How to enter and pay vendor bills properly
• HST Input Tax Credits (ITCs) on business expenses
• Managing Accounts Payable and aging reports
• Credit card transaction recording
• Common mistakes: paying bills via Expense (doubles expense)
• Proper expense categorization (office supplies, meals, equipment)
• Bank rules for automation
• Best practices for expense management