How to Use QuickBooks

Before we begin, let me first say that I am a certified QuickBooks Pro Advisor and can be found on the QuickBooks website. QuickBooks is a wonderful piece of software, but it does come with some complications. Before we get into the meat and potatoes of the software, you need to get a grip on "accounting" first. This is the key to successful posting of your transactions. All accountants everywhere use the following setup for the chart of accounts.

First, start using account numbers! If you have an accountant already for your business, ask him/her for the chart of accounts they are using. No sense in making your own set to use when the numbers are changed into what your accountant is using when they get the data from you and charging you to do it. Recognizing the account number along with the account name will stop you from using the incorrect account.

Typically, the numbering system works this way.

100 or 1000's = Assets

These are things that have a dollar value placed on them, such as your bank accounts, furniture/fixtures, computers, automobiles, land, buildings, inventory, etc. These are classified as current assets, fixed assets, other current assets, inventory, and of course, accounts receivable). Start with your bank accounts first, which are current assets. Next list anything that depreciates and call them fixed assets. You can finish the list of assets once you get the chart of accounts from your cpa.

200 or 2000's = Liabilities

These are things that you owe and have an outstanding balance. If you are using an account called accounts payable, this is an example of a liability. Also included in this category are the various payroll taxes, car loans, equipment loans, officer loans, credit cards, etc. They are classified as accounts payable, current liabilities (paid off within 1 year), long term liabilities (over 1 year), and credit cards.

300 or 3000's = Equity

Equity is simply what you are worth. This figure goes in the red and/or black and keeps a running tally since you began doing business. The change is due to a profit or loss at fiscal year end. Your opening balance equity is the account used to setup your opening balances on all your balance sheet accounts. Post everything to this one account.

So, the 1's, 2's, & 3's are what represents your balance sheet. When your fiscal year closes out and you start the new year, these accounts still have balances, whereas your income and expense accounts have nothing in them yet until the first transaction is posted in the new year.

Next you have what makes up a profit and loss statement, and these accounts also represent what is shown on your business tax return.

400 or 4000's = Income

This need not be explained here. We all know what income is. You can have one account called income, or you can have an income account for each category of income.

500 or 5000's = Cost of Goods Sold (COGS)

These are used to show the big ticket items purchased to produce your income. If you are a manufacturing company, you would have accounts for materials, labor, and things like this. They are actually expense accounts, but COGS are listed first before any operating expense accounts in the chart of accounts. I have a client that owns a transportation business for the elderly and disable. We use her vans' expenses as a COGS, because it should not be shown as just a generic operating expense of automobiles/vehicles expense. It's better to show your high cost items first and list them as COGS.

600 or 6000's = Expenses

These are all of your operating expenses. This list is usually massive, but can be reduced with better posting techniques. Simply think of where the expense will ultimately wind up on your tax return and post it there. There's no need to show separate accounts for utilities like electric, gas, and water usage. Just post under one account. Auto expense is for car washes, oil changes, vehicle maintenance, and leased vehicles. If you have a car loan in the company name, do not post payments to this account. It should be posted under your loan account (liability), but do show the interest paid under interest expense.

You must also think like a detective. The bookkeeper is the detective preparing the "case" for the district attorney. Keep a daily written journal of anything special or weird that goes on in the course of each business day. Typically, this is anything that causes you to pause and think of what to do with a transaction. Another thing to write down is anything you think you will need to remember later on. It's a good journal to reflect upon at year end when your cpa has his list of questions to ask you about the postings.

The D.A. is your accountant. He must properly prepare the findings and prepare the tax return for the Internal Revenue Service. The IRS is considered the jury. You can now see how important posting each transaction can become. More importantly, you are now ready to maneuver through QuickBooks software with a better awareness of where to post each transaction.

If you are already using QuickBooks software, in order to turn on the use account number preference, you must click on "edit" (top left corner) and scroll down to preferences. Each category is to your left, and you want to click on accounting. Under the tab of company preferences, click the box for "use account numbers". Now, when you look at your chart of accounts, you will notice there are numbers shown. QuickBooks anticipates the number to use. These will need to be changed to the list you obtained from your cpa.

It's good idea to go through all the preference settings. You can automatically place the decimal point, decide what date to use when entering transactions, setup Form 1099 information, and many more useful settings. This is one of the most useful things you can do to have the software work the way you want it to. Example would be when entering credit card information from your monthly statement. You might want to change the date entered as the last date used to enter the activity. When finished, you can set the preference back to use current date. Under reports, you want to click the "refresh automatically". This will show an immediate change in your reports after you corrected it.

Under reports, run a copy of your general ledger on screen. Scroll through each account and look for transactions not posted correctly. This is exactly what your accountant will do when he gets your data. All inaccuracies will show up here. When you find something that needs to be changed, roll your mouse over the transaction. When you get the little magnifying glass, do a double click. This brings up the transaction, and you can change it right here. Go back to the general ledger, and you will see the change.

The vendor list needs to be looked at. Most likely, you will see several names that are the same, but with each one spelled differently. This is because when the name can't be found, someone just adds it. Misspellings is the number one cause of this. You can fix this by making sure that first of all that they are the same. Double check the addresses. If they are the same, but just misspelled, you must spell them exactly the same. QuickBooks will then prompt you to merge the accounts. Click yes. Put in as much detail as you can. My clients don't use rolodexes, because all the contact information needed is at the click of the mouse. Any account not being used at all anymore should be made inactive. Right click their name in the list, and choose make inactive.

Go through your customer list. Again, put all the information you can such as phone numbers, fax numbers, and email addresses. Email addresses are wonderful, because you can email invoices directly to your customer as soon as the invoice is created from within QuickBooks. This is only available in pro or higher. It also helps you get paid faster. You aren't using snail mail to get your invoices to your customers.

Look for my other articles on receiving payments, making deposits, entering/paying bills, writing checks, handling payroll, recording credit card transactions, and other types of activity. How to do each will be explained in detail. The information in this article is necessary to help you cut costs with your accountant and to understand accounting methods to apply with bookkeeping skills. Remember, be a detective!