Overview
Many businesses use Square as their point of sales system most often at the farmers market, in the farm store, and/or for managing B2B invoicing. While Square allows for item and category level configuration - and has detailed reporting in app - it can be challenging to translate the deposits made to your bank account into your P&L. This article summarizes the different approaches you can take to accounting for Square sales.
At a high level, properly accounting for your Square sales requires three things:
Categorizing your sales by incomes and enterprises
Reconciling the different ways you receive money
If you collect taxes, accounting for those correctly.
We’ve prepared this guide to explain the different options for tagging your sales in Ambrook and best practices with regards to reconciling your cash deposits.
Tagging Methods
The main difference between the different tagging options you can choose from is the amount of work required. Generally, more manual work is required to produce richer analytics in Ambrook.
Bulk Tagging
Bulk tagging is when you select a number of transactions and apply a uniform set of category and enterprise tags to them at once. Point-of-sale systems that let you accept credit card payments from your customers sometimes make near-daily deposits to your bank account, so using bulk tagging can help you account for those transactions easily and quickly.
In Square, we recommend using the Category Sales report to determine the income and enterprise tags to apply to your deposits. This report will show you the items you sold, the locations you sold them and the taxes you collected - which is all you need to know to allocate your tags.
Some illustrative examples of how bulk tagging could be used include:
Using one category tag per channel (such as Farmers Market Sales) and enterprise splits based total sales by product type over a month.
Using category tags for different sales channels (such as Farmers Market and Farm Store) and enterprise splits based total sales by product type over a month.
Using income tags (such as Beef Income, Pork Income, etc) and using the same splits the enterprise tags.
If applicable, you will need to factor for taxes received when calculating your category tag splits.
For more detailed instructions and a guided example of this method read along here.
Pros:
Time efficient - Using bulk tagging lets you tag a large number of transactions in just a few clicks
Easy reconciliation – Your payouts in Square and income recognized in Ambrook will reconcile easily because this method does not involve recording additional transactions.
Cons:
No item-level analytics - Because deposits are tagged in-aggregate with a single category or handful of categories, you will only be able to analyze item-level sales in Square directly.
No accounting for credit card fees - Square deposits credit card payouts to your bank net of fees, so using this method will not allow you to view your gross sales and total fees paid.
Individual Deposit Tagging
Individual deposit tagging is when you go through each deposit in your ledger and tag it based on the payout details from Square. Doing this enables you to account for your sales and credit card fees down to the penny, but requires more time. Using the payout details in Square, on a transaction in Ambrook you can:
Create a negative line item for credit card fees
Create line items for your gross sales by income type or enterprise
Create a line item for your taxes collected
Pros:
Simple tagging – Each deposit is tagged based on the breakdown of categories in the Square payout, which makes it easy to know what to do, even if the process is more manual.
Easy reconciliation – Your payouts in Square and income recognized in Ambrook will reconcile easily because this method does not involve recording additional transactions.
Cons:
Time intensive - Tagging each transaction individually takes more time.
No item level analytics - Because deposits are tagged in-aggregate with a single category or handful of categories, you will only be able to analyze item-level sales in Square directly.
Sales Invoice Matching
The most robust way to account for Square sales is by creating sales receipts (as invoices in Ambrook) that capture an itemized level of detail for your gross sales and also reconcile with the payouts from Square to your bank. There are two ways that you can execute this workflow.
One way is that you follow the same steps for Individual Deposit Tagging (above section) except instead of creating line items for each sale that comprises a payout transaction, you would make an invoice for each transaction with the individual sales (by item or category), taxes and fees as line items on that invoice. Deposits from the Ledger can then be matched to the invoices and should fully reconcile.
Alternatively, you can run the “Category Sales” report from square - that captures all the sales data that you would appear on the individual invoices you might create. In combination with the “Sales by Payment Method” report from Square you can create one invoice for an entire period (month, quarter, year, etc) that represents an aggregation of all your individual sales receipts and fees paid. Matching all the payouts in your Ledger across the time period to that aggregated invoice should reconcile.
The general steps to do this are:
Identify a time period you want to create an invoice for
Create an invoice using the Sales and Taxes from the “Category Sales” report and the Credit Card Fees paid from the Sales by Payment Method report.
Create transactions representing the cash payments you received.
Match credit card deposits, checks, and cash over the time period to this single invoice.
For a more detailed walkthrough of how this works in practice, follow our example here.
Tip - Though the aggregated sales invoice method saves time, one important fact is that Square does not payout on weekends / holidays. So if the end of a month falls on a holiday or weekend, the payouts from those sales are likely to be lumped into the next month’s deposits. |
Pros:
More time efficient
Allows for line item level analytics
Cons:
Requires use of multiple reports and/or spreadsheet work
More prone to reconciliation challenges
FAQs
What if I need to edit the invoice after matching the payments?
To edit the invoice, you'll want to unmatch the payments that you've matched to the invoice in order to edit them.