How to Track Expenses in QuickBooks Desktop
Tracking expenses is a critical part of managing your small business finances in QuickBooks Desktop. With robust expense tracking features, QuickBooks Desktop makes it easy to categorize, record and report on the money flowing out of your business. Whether you want to keep tabs on specific types of expenses or get a big picture view of your spending, QuickBooks Desktop has the tools to make expense tracking efficient.
In this comprehensive guide, I’ll walk you through the fundamentals of setting up and using expense tracking in QuickBooks Desktop. Read on to learn how to:
- Set up accounts, classes and items for tracking expenses
- Enter expenses in QuickBooks
- Use accounts payable for tracking unpaid bills
- Take advantage of reporting features
- Automate expense tracking with rules
- Track mileage and business travel expenses
- Tie receipts to expenses for better recordkeeping
- Match bank and credit card transactions
- Identify tax-deductible expenses
With the right setup and work flow, you can track all of your business spending in QuickBooks Desktop with just a few clicks. Let’s dive in!
Step 1: Set Up QuickBooks for Expense Tracking
The first step in tracking expenses is making sure your QuickBooks Chart of accounts, classes and items are optimized for capturing business spending.
Start by adding specific accounts for common expense categories like advertising, contract labor, rent, utilities, office supplies and so on. QuickBooks allows you to create sub accounts under the main Expense accounts to track granular categories. Ensure you have accounts set up for all regular sources of expenses.
If you want to track expenses by specific projects, departments or business units, take advantage of the class tracking feature. Classes let you tag transactions as they happen so later you can run reports by class.
For expenses that are tied to what you sell, like cost of goods sold, create items or item groups. Items allow you to track product-level expenses.
Step 2: Enter Expenses in QuickBooks
When it comes time to actually record expenses, you have a few options in QuickBooks Desktop. Here are the main methods for entering expenses:
- Write Checks – You can write a check in QuickBooks and select the appropriate expense account. This is best for one-off expenses you pay via check.
- Enter Bills – For unpaid expenses like invoices, use the Enter Bills feature and select a vendor. Come due date, you can pay the bills to record the expense.
- Credit Card Charges – Expenses on a credit or debit card can be entered using the Enter Credit Card Charges window. The transaction downloads via Web Connect but you select the account.
- Expenses Window – General expenses without a vendor can be added through the Expenses window by selecting an account and amount. Good for out of pocket cash purchases.
- Time/Mileage – To track billable time and mileage, use the corresponding features and link to expense accounts.
Whatever method you choose, be sure to add details like the vendor, amount, date and expense account. Attach images of receipts right in QuickBooks for better recordkeeping.
Step 3: Use Accounts Payable for Unpaid Expenses
One of the advantages of QuickBooks Desktop is accounts payable tracking. Instead of directly expensing unpaid supplier invoices and bills, you can enter them as unpaid bills. This creates an AP balance for tracking outstanding payables. Then when you pay the bill, it’s expensed to the appropriate account. This approach gives you greater visibility into unpaid and paid bills.
Step 4: Run Expense Reports
The real power of tracking expenses in QuickBooks comes from generating insights through reporting. Run reports like Profit & Loss, Expenses by Vendor Summary and Transaction Detail to analyze expenses. Export reports to Excel for further number crunching and charts. Here are some popular ways businesses use expense reporting:
- See monthly/annual spending by specific expense accounts, classes, customers or items
- View expense trends over time
- Identify top vendors by total spend
- Analyze advertising or marketing costs by campaign
- Compare budget vs. actual expenses to improve forecasting
Step 5: Automate with Rules
You can save time on data entry by creating rules to automatically categorize expenses in QuickBooks Desktop. Set up rules based on the vendor, account, amount or other criteria. For example, you could create a rule that any transaction over $500 to Office Supply Co gets categorized to Office Supplies expense.
Step 6: Track Mileage & Business Travel
For mileage and business travel expenses, take advantage of QuickBooks’ dedicated tracking features. Use Mileage Tracking to log business miles driven and tie them to vehicle expense accounts. For trips, create Trip types and generate reports showing the trip details and expenses. This makes it easier to claim travel deductions come tax time.
Step 7: Link Receipts to Expenses
A key best practice in expense tracking is tying receipt images to the transactions in QuickBooks. Upload receipts as JPEG, GIF or PDF files. Then just drag and drop them onto the matching expense. Now the receipt is permanently stored with that transaction in QuickBooks.
Step 8: Match Bank & Credit Card Transactions
To save time categorizing expenses, use the Match Bank Transactions feature. When you download a bank or credit card feed through Web Connect, QuickBooks attempts to match the imported transactions to expense you’ve already entered. Review and reconcile as needed.
Step 9: Identify Tax Deductible Expenses
QuickBooks Desktop has dedicated fields for flagging tax-related expenses like business meals and vehicle mileage. When you run expense reports, you can filter or group by these fields to identify potential deductions. Consulting with an accountant can help you maximize write-offs.
With this broad overview of expense tracking best practices, you’re ready to dive into recording and analyzing expenses in QuickBooks Desktop like a pro. The key is taking the time upfront to properly structure your chart of accounts, items and classes so expense data is captured at the level of detail you need. Tap into timesaving workflows like accounts payable, rules and matched transactions to work more efficiently. And leverage reporting to transform expense data into actionable business insights.
With consistent adherence to expense tracking discipline, you’ll always have your finger on the pulse of your business’s financial health. QuickBooks Desktop provides robust tools to make this a painless process. The time investment required to track expenses pays exponential dividends across your entire organization.