QuickBooks Online Migration: Duplicates, a Loan, and a Phantom Profit
Zenith Yoga Studio converted from QuickBooks Desktop to QuickBooks Online on May 1, entering opening balances as of that date. In June, 412 bank transactions imported through the bank feed. You find: (a) 37 imported items duplicate bills the previous bookkeeper entered manually; (b) the monthly loan payment of $1,842.00 was auto-categorized in full to an expense account called "Loan Payment" - the lender's statement shows $1,610.00 principal and $232.00 interest; (c) Undeposited Funds holds $3,240.00 from three class-package sales, and those same deposits were also matched directly to income in the bank feed; (d) the A/R aging report shows $0.00, but two clients owe $1,080.00 combined. The owner reviews the P&L tomorrow morning.
1. Explain how (c) and (d) are symptoms of the same underlying problem, then walk through the fix for each and its effect on reported income.
Read the worked answer
Common root cause: the file is being maintained from the bank feed outward instead of from a sales workflow. Money in equals income; nothing ever flows through invoices and Undeposited Funds the way QBO is designed to use them.
(c) - $3,240 double-counted. The three sales receipts correctly landed in Undeposited Funds, then the matching bank deposits were also categorized to income instead of being matched to the Undeposited Funds transfer. Income is counted twice and Undeposited Funds never clears.
- Fix: match each bank deposit to the existing Undeposited Funds entry, or delete the redundant income line if the deposit was split. Undeposited Funds goes to $0.00; cash does not change.
- Effect: income down $3,240. That is the number to explain to the owner before she reads the P&L.
(d) - no invoices exist. Two clients were billed $1,080 and the aging shows nothing owed, which means the invoices were never created and any cash received was dumped straight into income.
- Fix: create the two invoices with the correct service dates, then apply any payments received against them. A/R becomes $1,080.
- Effect: revenue moves to the period it was earned and the receivable finally exists. If the cash was already booked as income, expect a wash on cash-basis income but a real $1,080 shift once accrual is in play.
Net effect on the P&L the owner is about to read: income is overstated by $3,240, and (d) means there is unrecorded A/R. Do not hand over the report until both are fixed.
2. Correct (b). Give the entry, explain why "Loan Payment" should not be an expense account, and describe the downstream effect on the balance sheet.
Read the worked answer
Entry, each month: Dr Loan Payable (or Notes Payable - Current Portion) 1,610.00; Dr Interest Expense 232.00; Cr Checking 1,842.00.
Why: repaying principal is the company giving cash back in exchange for extinguishing a liability - it is a balance-sheet transaction with no effect on profit. Only interest is a cost of doing business. Booking the whole payment as expense understates income by the principal amount every single month and simultaneously leaves the loan liability on the books at its original, too-high balance. Six months of this is roughly $9,660 of overstated expense and an overstated liability.
Mechanics in QBO: edit the bank-feed transaction and split the single line into the two lines above, then stop the auto-categorization - the bank rule that created it should be deleted or rewritten. Do not simply delete the "Loan Payment" account from the chart of accounts while it has a balance; zero it out with correcting entries for prior months first, then merge or deactivate it so nobody picks it again.
Balance sheet effect: the note payable declines by $1,610 monthly. If the loan is long-term, review the current-portion split at least quarterly so the lender's statement and the balance sheet agree - a lease or loan covenant often keys off that number.
3. For (a), advise whether to delete, void, or exclude the duplicates, and set out the order of operations for cleaning up before reconciling and closing June.
Read the worked answer
Delete / void / exclude:
- If the duplicate is a bank-feed line that was never added, matched, or cleared - exclude it from the feed. No ledger effect, nothing lost.
- If it was added but never reconciled or paid - delete is acceptable, though a memo in the description is better practice.
- If it has been reconciled, paid, or linked to anything - void it. Deleting a cleared transaction silently changes a prior reconciliation and destroys the trail; voiding keeps the record and reverses the effect.
Order of operations - cleaning up in the wrong order is how files end up worse than they started:
- Turn off the bleeding: disable auto-add on the bank feed and audit the 412 imported transactions against the bank rules that produced the 37 duplicates.
- Confirm opening balances as of May 1: bank, A/R, A/P, loan payable, Undeposited Funds, and equity. If these are wrong, everything downstream is wrong.
- Resolve duplicates (a) before anything else touches the register.
- Clear Undeposited Funds (c) and create the missing invoices (d). Fix the loan split (b).
- Reconcile May first, then June, in that order, to the bank statements. Never reconcile June before May is locked.
- Only then run the P&L, and give the owner a short written summary of what changed since the version she saw before.
Finish by setting the bank rules so the loan payment and card payments can never auto-post to income or expense again.