Episode 13: The Top 8 QuickBooks Mistakes (And How to Fix Them)

In this episode of QuickBooks Mastery for Small Business Success, father-daughter team Erica Northrup and Lee Davis break down the 8 most common QuickBooks mistakes they see business owners make every week—and how to fix them so your books stay clean and accurate all year long.

If you’ve ever thought, “I’m doing something wrong in QuickBooks… but I’m not sure what,” this episode will give you clarity fast. You’ll learn why these mistakes create messy reports and stressful cleanups, and what simple habits and workflows keep QuickBooks working the way it’s meant to.

Key Takeaways

1. Reconciling monthly is your first line of defense—skip it and nothing else is reliable.
2. The bank feed is a tool, not a bookkeeper—match first, don’t add blindly.
3. Undeposited Funds errors can make income look wildly wrong.
4. Owner pay must be categorized based on how the business is structured.
5. Return checks need a proper workflow so income isn’t distorted.
6. Vehicles/equipment financed purchases must be set up as assets + loans (not expensed).
7. Monthly reports help you catch problems early—before decisions are made blindly.

Questions to Reflect On

1. Which of these 8 mistakes have I made in the last 90 days?
2. If my reports were wrong right now, would I know?
3. Do I have a monthly routine that keeps QuickBooks clean—or am I reacting at tax time?

Mentioned in This Episode

Send Us Your Questions: support@leedavisandcompany.com

(Your question may be featured in a future episode.)

Timestamps

00:55.000 – Episode 13 intro: “I think I’m doing something wrong in QuickBooks…”

02:20.257 – Mistake #1: Not reconciling every single month

05:43.108 – “If reconciliation isn’t done, nothing else is accurate.”

05:53.303 – Mistake #2: Misusing Ask My Accountant / Uncategorized

08:33.000 – “It’s like your inbox—you should never let it pile up.”

08:42.455 – Mistake #3: Not using the bank feed correctly

11:25.000 – “Match, don’t add.”

12:28.000 – “The bank feed is a tool, not your bookkeeper.”

12:41.347 – Mistake #4: Not using Undeposited Funds correctly

15:00.000 – “This mistake makes people think they made $200K more or less.”

15:09.853 – Mistake #5: Incorrectly categorizing owner’s pay

17:08.000 – “This is one of the fastest ways to make your P&L misleading.”

18:06.000 – Mistake #6: Invoicing mistakes (return checks)

19:32.000 – “Clean invoicing equals faster money.”

19:57.054 – Mistake #7: Vehicle/equipment purchases and loans

22:47.000 – “The whole payment is not an expense.”

23:37.727 – Mistake #8: Not reviewing reports monthly

26:30.000 – “You don’t need to be an accountant—just look consistently.”

27:14.000 – Pattern: fixing one or two things isn’t enough

27:36.000 – Tease: “We’ve got something coming”

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Welcome to QuickBooks mastery for small Business Success.

I'm Erica Northrup.

And I'm Lee Davis.

I handle the tech and he handles the numbers.

And together as a father daughter team, we bring decades of experience helping small to medium sized businesses thrive.

We know that as a business owner, your time is best spent mastering your craft and growing your business, not getting lost in QuickBooks.

Managing finances can be confusing and you don't have hours to waste sorting through spreadsheets or fixing bookkeeping mistakes.

That's where we come in, helping you streamline QuickBooks so you can focus on building your business.

Each week, we break it all down into simple, actionable steps so you can focus on growing your business, not fixing your books.

Let's embark on this journey together.

Welcome back to QuickBooks mastery for small Business Success, the podcast where we help business owners get confident with their numbers and take control of their finances.

I'm Erica Northrup here with my papa and co host, Lee Davis, and this is episode 13.

Guys, today we're diving into one of the most common frustrations we hear from business owners.

I think I'm doing something wrong in QuickBooks, but I'm not sure what.

And usually they are doing something wrong through no fault of their own.

They never got any training and nobody teaches small business owners how to use QuickBooks the right way.

So today we're breaking down the top issues that we see over and over again every single week and how to fix them so your books stay clean and accurate all year long.

If you've ever felt unsure about your quickbook setup or workflow, guys, this episode is for you because we are going to give you so much clarity.

So I feel like, papa, this has been a long time coming.

We've done 13 episodes of this podcast and that just blows my mind that we are at episode 13 and so today we're just going to be breaking down.

We actually came up with eight of the top mistakes that people make in QuickBooks, and we're going to give you the problem and then we're going to give you what we believe is the fix for that problem, and so you don't make those mistakes in the future at all.

So let's kick it off by talking about the number one mistake, not in any kind of order, but the first mistake we're going to talk about is not reconciling every single month.

So, puppet, tell me, why is this a problem?

It becomes a problem if you look at your bank account and the goal is to reconcile your account, all the bank reconciliation information Goes in one place.

So when you hit reconcile, if your account doesn't reconcile, then you know you have some problems, got a big problem, you might have a lot of transactions that have been duplicated.

And my best advice to you is don't wait months to reconcile.

Just make sure that you do that in month one, and so at the latest month two.

Because if you have a problem, then you can fix it quickly, understanding what that problem is.

Because I will often tell people when they want me to help them fix their accounts, give me access to your QuickBooks and send me over your first bank statement or a couple of your bank statements on your accounts and let me review that reconciliation and then I can identify the problems and we can go ahead and fix it.

So again, I think just making sure, because that's the collection of where everything goes in the chart of accounts into their bank account.

So again, you can identify problems quickly and fix them.

And you do see in some cases where they may not have recorded a check or they missed some deposit, it's common problems.

Or they haven't recorded something correctly because you can look at bank errors or the bank feed, and there's just a number of things that you can identify, help the client fix their problem.

Makes a lot of sense.

And so the fix is that you get in this habit or this pattern of reconciling every single month, right?

That's right, yeah.

And whether that's their bank account, their credit card, their loan account, or their merchant account, it's just making sure that you tie up the accounting for each month that you make sure that if it is reconciled, then while you may not necessarily have things all entered correctly, but as far as the bank goes, you've accounted for all of your transactions.

That makes a lot of sense.

And so you were suggesting doing it after the 10th of the month to reconcile?

Yeah.

After the 10th, make sure your work is done.

And then after the 10th of the month, work on the previous month and get your bank reconciliations done.

That makes sense.

And then what if you're behind, it's been six months and I haven't reconciled, then what do I do?

I still tell my clients, put a month at a time.

Okay.

Don't try and do six months because you'll be overwhelmed.

You can't reconcile, Especially if you have a lot of transactions.

I have some clients that have 200 transactions a month.

While that doesn't sound like a lot, multiply that times six months.

Oh, no, that's a lot.

I feel like 20 transactions is a lot.

Right.

But if it's 20 or 200, it's best to just go one month at a time.

And, and you would start.

Obviously this is simple, but start from the oldest and move forward.

Yes, and move forward.

Yeah, that's what I do with clients too.

I say, oh, yeah.

Just while it may seem not very efficient, it works.

You gotta start somewhere.

And if reconciliation isn't done, nothing else in your books is accurate.

Period.

End of story.

Yeah.

Okay, moving on.

Mistake number two, misusing the ask my accountant or uncategorized accounts.

So why is this a problem?

If you don't know what to do with it, or you didn't enter a expense when you entered the charge, it's automatically going to put it in uncategorized.

Or if you thought about it and you wanted to put it in and ask your accountant, you've got either a lot of uncategorized transactions, both income and expense, or you have just a handful of corrections to make.

But it does mean that if you don't address those on a monthly basis, that they're going to have chaos at tax time because they're going to need to be accounted for and your accountant isn't going to be willing to do it.

You're going to have to go back and pull those receipts and figure out what expense that particular transaction should be accounted to.

And it also doesn't reflect correctly on your expenses because you're going to have to account for those expenses and categorize them correctly.

Okay, and is this more one of those instances where we can go back to the Schedule C and use that to help us?

So you can use your Schedule C to help you know how to categorize.

Sometimes clients want to break down the expenses by a particular department or a unit, for example, and they have a couple of departments they will oftentimes create create a whole mess of expenses by each department rather than one expense.

And letting QuickBooks set up a class.

If they think, I'll just set up another expense for this department, so I've got two expenses and I'll put that Department A and department B know that they are just in some cases duplicating or making three times the amount of work in their chart of accounts when they just need one expense account, and that they need to use the class system in QuickBooks to break it down by department.

So in other words, as people look to categorize expenses, they want to make sure they just use that Schedule C and just keep it simple.

Keep it simple.

That's a great way to look at it.

And basically, again, it's another habit to get into every month if you're going to use it sparingly, that Ask my accountant feature.

And then every month, make sure that those are cleared.

That's right.

So.

So that you're not getting this backlog and there's not a mess or chaos when it comes to getting your stuff into your accountant and tax time and all of that.

Yeah.

Okay.

I guess it's like your inbox.

You should never let it pile up.

It is bad news when the inbox piles up really bad news.

Okay, moving on to mistake number three.

You guys not using the bank feed correctly.

This is a huge one.

Why do people make this mistake mistake?

And why is this important that we get this right?

In our training course, I have big slide through the bank transaction category with a big app that says, don't use this right away.

Okay.

Because what happens is people will say, oh, I can just set up my bank feed and I can just enter all of those.

When they come in, folks is more than glad to give them an account and tell them what to do with it.

However, nine times out of ten, it's wrong.

Right?

You can't rely on the QuickBooks technology to help you enter your transactions.

You need to understand that you could have duplicate transactions.

Right?

Because QuickBooks has suggested an account, but meanwhile, it should have come from another account and there could be missing income and expenses.

And basically, I always tell people, don't click the add button in the bank feed.

Click Match.

Because you know when you click match that you've got it entered correctly.

At least you've got it so you know what you did with it.

All right?

Sometimes people will go ahead and just click on an expense and they don't categorize it so they've got that in the bank feed.

Or again, it's miscategorized.

The biggest mistake I've seen is that people will use the bank feed and they'll enter all of their bank deposits as income when it's still sitting in the undeposited funds account.

So then of course, it has to be backtracked and those have to be deleted and you have to match the deposits correctly.

So again, the bank feed is very helpful when it's set up correctly and used to really be the tool that it is.

The bank feed doesn't do your bookkeeping for you.

I feel like most people feel like the bank fee does the bookkeeping for them, but it doesn't.

Yes, it does.

Not it just seems if you start using the bank feed before you're ready, it creates more work for you down the line.

And that's what we don't want you to do is have more work, more of a mess you have to untangle later.

Yeah.

Oftentimes I tell people learn how to enter transactional work and then you understand how it all fits together.

Understanding the bigger picture.

Yeah.

And, and then it does make it clear how you would go ahead and match items in the bank fee.

But the key is really always look to match transactions.

Think about the fix.

It's really match, don't add.

And if you're going to add, make sure you understand look at the account that transaction is going to.

But I would prefer people, especially when they're starting out, think about matching transactions.

Never record income manually and accept accept the bank fee deposit that causes duplicate deposits.

Okay, review your rules.

QuickBooks has some rules in the bank feed so they can save you work.

But sometimes people haven't understood how to set those rules up correctly.

My best advice is make sure that you understand how those rules can work and how the bank feed can really save you time and money.

You can always wait on using the bank feed until you really understand how the bank feed works.

That's right.

You can always go back and if, if you wait to reconcile your accounts, you can always go back and add the bank feed once you've done all your work and your transactions and truly get to those matches.

Yeah, it's all about matching.

So people, the bank feed is a tool, not your bookkeeper.

If you rely on it without understanding what it's doing, your books will fall apart fast.

Let's use the bank feed how it's intended to be used.

Mistake number four, not using undepos funds correctly.

Very important to know that if you don't understand that undeposited funds is a collection, it's just a place like your bank bag that you put your checks in and you make the deposit that you have to understand is because when you go ahead and receive a payment and you post it to undeposited funds.

But if you use the bank feed and you've posted that as a deposit, you now have that income recorded twice.

So it will cause your sales receipts to be overstated and so your income is incorrect.

And you know you will need to go back and delete those deposits that you posted directly to the bank account and go back to your undeposited funds account and record them correctly, knowing that if you have multiple deposits, multiple checks you're depositing, then you want to make sure that you're using your undeposited funds to click them all off and get to the one deposit that equals what's in your bank account.

If people have multiple deposits but they don't equal the deposit that was made at the bank, then they're going to have to be deleted and they're going to have to start over.

You have another mess that you're going to have to clean up.

That's correct.

Clean up on aisle six.

Clean up on aisle six.

I feel like this episode is all about how to avoid creating those messes, those mistakes, because it just causes you more work down the future.

Right?

Yeah.

Okay.

Love that.

And this is another one of those places that we could use the schedule C to help us through figuring out what to actually categorize these things that we're categorizing as undeposited funds, correct?

Yeah, not so much.

I think it's more so just understanding the flow of the work.

As you receive payment, it goes to undeposited funds.

You click off those deposits or those checks and they equal the deposit.

And if they don't equal the deposit, then you say, oh, I've missed a check or I need to enter a payment.

Yeah, it's just understanding how undeposited Funds works in QuickBooks and how it might relate to the bank fee.

I guess this is the mistake that makes people think they made 200k more or 200k less than you actually did.

This is why it's so important, people.

So important.

Okay, moving on to mistake number five.

Incorrectly categorizing owners pay.

Why is this a problem, Papa?

It's a problem because people oftentimes don't understand they may be an LLC and they think they can pay themselves through payroll, when in fact, unless they're a subchapter S corp, they really should pay themselves as an owner draw.

Lots of times people don't understand how to pay themselves.

They think they want to take out withholding and they don't understand how the whole pay mechanism works.

How do I get paid?

The key is really making sure that if you're an llc, you're going to pay yourself through an owner draw and subchapter S corp. You can use payroll to pay yourself.

Otherwise use a shareholder distribution or owner equity.

If you have questions, you can, you can ask your accountant or certainly you can ask us.

You don't want to wind up at the end of the year when your accountant says, by the way, you're going to have to refund all the taxes that you've collected in the payroll because you really should have been considered an owner draw and you need to pay based on an estimated payment.

You clearly don't want to be in that situation.

You want to understand exactly what your options are.

And if you think that you'd rather be a W2 employee than set yourself up as not just a straight llc, but set yourself up as an S corp.

So really understanding what's the proper way to set up your business so that everything falls in line.

That's right.

Love that.

Okay, so then what is the fix?

I guess we just touched on it there is really choosing the right category for which what are you a sole corporation or are you an llc?

Yeah, and I think those kind of discussions should be had.

So the fix really is to decide that when you get started, ask that question and get some good tax advice.

That is most excellent.

This is one of the fastest ways to make your profit and loss completely misleading.

Would you say that statement is true, Papa?

Yeah, I think it makes your financial, your profit and loss misleading because really you're not a policy.

Then you know what, you shouldn't be reporting your income as wages because that has tax consequences to you because you don't pay workers comp on the owner unless you're actually a subchapter S corp and then that worker's comp is able to get deducted from your wages because you are the owner and you're not really covered by workers comp.

So therefore there's just all kinds of complications to the system unless you understand exactly how you're to be paid and how to record that.

So keeping things simple and setting things up right the first time.

So what I hear if you get things set up right the first time, a lot of these mistakes can be avoided.

Yeah, huge.

Okay, Mistake number six.

And these are mistakes around invoicing and specifically around how to handle return checks.

I see that quite frequently QuickBooks doesn't explain to you how you should handle a return check.

Okay.

You can go online or GPT and try to get an answer.

But you know what, ChatGPT doesn't have it.

Right.

So I would say, because I know I just dealt with a client who did that.

So just understanding that return checks have to have their own service code.

So you set up a return check as a product and service and particularly speaking about the online product and that account is linked in the return check.

The account that should be considered is not an expense.

It's A hook to their bank account.

So thinking about that return check will come back out of their bank account and will be charged back to the customer, and they can be re invoiced for that return check.

And if there's a bank fee, you can go ahead and set up that bank fee and again have that come out of the checking account.

And so when you go to re invoice the customer, you can reinvoice them for the return check and you can reinvoice them for the bank fee.

And it doesn't affect the income when they pay the bill.

When they pay your invoice, it gets handled correctly.

Yeah.

So it's.

Yeah, invoice is important.

Right.

Invoicing mistakes, they don't just affect QuickBooks, they affect your cash flow, your collections, your ability to pay your bills.

Invoicing equals faster money.

And this seems to be an issue if it's not clear to people helping you, our listener, to understand if you have a return check and it's going to happen, how do you deal with it?

And this is how you deal with it.

That's right.

Awesome.

Okay, moving on.

Mistake number seven, not recording vehicle or equipment purchases and their loans correctly.

So why is this a problem, Papa?

It's a problem because when basically new businesses starting out, they can get a tax benefit from recording their equipment and their fixed assets correctly.

Because those are all big tax deductions for them.

Right.

So they want to make sure that if they're going to purchase equipment or vehicles, it all starts with the purchase and sale agreement.

Okay.

So that they need to make sure that they fish that purchase and sale agreement out of their glove compartment.

Don't leave it in there, people.

Don't leave it in there.

Get it recorded properly, because you want to record correctly what the company owns and what the company owes so that it all gets accounted for.

And if you understand it's a sequence that you need to record that with the company owns as the asset and then record the liability, meaning the loan.

And the bank will charge you interest.

So you want to separate your interest payment from your principal payment.

And lots of times people will just put it all together and say, oh, I want to deduct the whole thing and do that.

It's not deductible, but on one side, they can take the depreciation on the fixed asset, of course, but they can also deduct the interest.

So.

So it's important that you separate, when you make the payment, the principal from the interest.

The bank will oftentimes either send you a Monthly statement, or they'll give you an amortization statement that you need to keep track of.

This is good.

So the fix just to summarize is record the vehicle or equipment as an asset.

Correct.

So a fixed asset account.

So create a liability account for the loan.

Is that something we would do?

Okay.

Record the purchase by increasing the asset and increasing the liability.

Liability, that's correct, yes.

And then when making monthly payments, split the payment between the loan principal.

This reduces the loan balance and then the interest expense.

That's correct.

Okay.

Do not expense the whole payment, only the interest as an expense.

That's right.

And I have some clients to say, okay, I want you to just put the whole payment toward the principal.

Okay.

And at the end of the year, when they get the interest statement, then they want me to adjust it that way and that's perfectly fine.

Makes sense.

Some cases their lender may not provide a monthly statement, but most times they do.

But if they don't, then there's always a fix around that as well.

So listeners, when you finance a vehicle or any kind of large equipment that you're going to use for your business, the whole payment is not an equal expense.

Repeat after me.

The whole payment is not an expense, only the interests.

The principal simply pays down the loan.

If you don't set up the asset and the loan correctly, your books and your profit will be completely wrong.

So just keep that in mind, especially when you're starting your business and you're probably purchasing a lot of new things for this business.

That is a good time to keep that in mind.

Okay, so we've come to the last mistake that we're going to focus on.

And I'm sure this has been fun.

I'm sure we're going to do this again because I think understanding our mistakes and understanding where we're going wrong will help us to do things right.

Because I feel like this is life, right?

We learn more from our mistakes than we ever learned from our successes.

Unfortunately, that is how it is sometimes you got to go through the hard knocks of life in order to get things right the second time around.

Mistake number eight, not reviewing reports monthly.

Okay, Papa.

I feel like this is one we hit on quite often, but break it down for us.

Why is this important?

Basically understanding that the reports are ultimately the final analysis for the month, looking at the profit and loss.

If for some reason there's way too much money in your income and not enough money in your expenses, or the other way around, you can eyeball it and say, oh, I didn't make that much money.

And maybe you put a loan payment as income, you put some loan proceeds as income.

Or just understanding that the profit and loss is really your first line of defense.

Right.

That you want to be able to take a look at and say, yeah, that looks for.

Or, no, I didn't spend all that money.

Or I know I made my car payment and it's not here.

Again, it might be just looking at what might be some missing pieces that should be in your profit and loss.

And also the balance sheet.

Looking at your balance sheet and first of all, make sure it balances with your profit and loss.

That's just if you review your reports monthly and you know what should be in your cash account, if there's no changes in your liabilities and you made a payment, then you just know.

Again, just looking at that with an eye to say, is this right?

Obviously looking at your accounts receivable aging.

I had a client who come in and said, oh, I know my client paid that bill.

Oh, it looks like I charged them twice.

Oh, yeah, you charged them twice.

Again, if you look at your aging and you pick it up that way, then it's a good way to say, oh, let me out figure, fix that.

And also their accounts payable.

It's keeping an eye on your accounts payable and making sure that you have a good handle on what you owe.

Yep.

And then we talked about cash flow.

That could be optional, but I think the four reports that you really want to look at is your profit and loss, your balance sheet, your aging, and your AP aging.

Those can be just great reports to review on a monthly basis.

Yeah.

And if you're not reviewing your reports again, we talked about this, this at length in a previous episode.

So go check it out.

If you're not reviewing your reports, you're missing out on the pulse of your business.

You're not understanding where you're at financially.

If you're making big decisions, you'll be flying blindly when making those decisions.

If you don't understand where your business is at exactly by looking at the hard fact numbers.

Because you might think your business is somewhere based on what you think is going on.

But then when you actually look at the hard data, the numbers on your business, it is a completely different story.

So I think really getting into the nitty gritty is huge.

You don't need to be an accountant to understand your numbers.

You just need to look at them consistently.

I think that's the key there.

Yeah.

Especially when you're just getting started.

Yeah.

And Then as your business grows, you grow with it.

Absolutely.

You need more usually as your business grows.

Okay, I feel like those were eight great miracles, mistakes that people make.

And the great summarize Papa to really help people understand.

Here's the problem and here's the fix.

Here's what you're doing and here's how you can fix that.

Yeah.

And I think if you have a problem that you want help with, just.

Just email us, send us our way and we will feature it on the air for sure.

At some point.

If you've recognized yourself in any of these mistakes, you're not alone.

We see them every single week.

And fixing one or two things helps, but it doesn't usually solve the bigger picture.

Over the next few weeks, we're going to talk more about why these issues keep happening and what it actually takes to get lasting clarity.

And if you're listening right now thinking, I really want to learn this the right way, just know we've got something coming.

We've been working on something behind the scenes to help business owners learn this step by step, and we'll share more about that soon.

So make sure you're subscribed because this conversation is just getting started.

Awesome, you guys.

Thanks for listening to QuickBooks mastery for small Business Success.

So we'll see you next time, you guys.

Bye for now.

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