QuickBooks 2020 – Section 3 Transcript
The transcripts below come from the QuickBooks 2020 course on Simon Sez IT. You can follow along for free by watching the free QuickBooks 2020 course.
Preferences – Part 1
Cindy: We’re just getting started now with module three which is the module where we’re going to talk about customizing the QuickBooks environment.
One of the first things you’ll want to do is go through the Preferences in QuickBooks and set some of the different Preferences so that they work best for your company file. And I want to take a few moments and go through all of those options with you so you’ll know which options are the ones that you’ll want to change. Let’s go ahead and flip over to QuickBooks and I’ll show you how to get to the Preferences.
What you want to do is go ahead and go up to Edit on your menu and come down to Preferences at the bottom of the list.
The way the Preferences window works is you’ll notice there are different groupings of options over on the left and typically when you come in it’s already on the General grouping. For each of these groupings you’ll want to check the options that under the My Preferences tab and also the Company Preferences tab. Let’s start at the very top where it says Accounting and I’ll click on the My Preferences tab and you’ll see there are no options here. So now I click on the Company Preferences tab so that we can look at a couple of these.
I want to talk to you about this very first one that says Use Account Numbers. Now let me just cancel this for a moment. I want to show you currently what your Chart of Accounts looks like. This is the most important thing in QuickBooks right here. It’s called the Chart of Accounts. We’re going to talk more about this over in section three. Right now you’ll notice that it’s just a list of your accounts and if you notice they’re in alphabetical order over here by whatever type they happen to be. For example, if you look at the Expense accounts you’ll notice now these are in alphabetical order. If I go back to the Preferences where we just were, remember Edit on the menu, Preferences, I’m under the Accounting grouping on the left and I want to choose the Company Preferences tab. If I check Use Account Numbers and just click OK here notice now your Chart of Accounts has what we call General Ledger Numbers here on the left. So now they’re sorted by type but instead of alphabetical they’re actually numerical, right over here. That’s the difference. And these are just options. You can turn these on or off. I’m going to go back to the Preferences, same place we just were. That’s going to be up to you if you want to use those account numbers.
The next option I want to point out is the option to use the Class tracking for transactions. Let me just give you a quick overview of how this would work.
Right now you can actually run reports on the company as a whole. If you want to run a Profit and Loss for example to see how much money you made or lost you can do that. If you want to break your company down into smaller sections to run a Profit and Loss let’s say you can do that as well. As an example, let’s say that you have a business that has five different locations. You can actually turn on this class list and every transaction you create will have a dropdown where you can pick one of the different locations that that transaction is for. If you do that consistently you can run a report on the entire company but you can also run that same report per location. We call that the Class Tracking. So it’s very good for options like locations or any way you want to break down your company, maybe by departments. You’ll be able to use it for that as well.
The last thing I want to point out on this screen is this option that says Date and password down here at the bottom. One of the things that you will find is that accountants and bookkeepers will actually close the books at the end of every month and then they’ll close the books at the end of the year. Here’s what this means.
Let’s say you’ve closed the books through the end of October. It is now November. You can’t make a change before October 31st. So you won’t be able to make a change in the closed period. If you see something you need to change the correct way to change it is to make an offsetting entry in the current period. Let me give you an example.
What if you actually see that there is a bill that you’ve entered twice and you’d like to delete one. Since it’s in a closed period you won’t be able to do that but you can make a credit memo in the current period to offset that second one that you originally wanted to delete. That’s how it works when we talk about closing the books.
If you did decide to close the books you would click here to set a date through which you wanted to close your books and also you would set a password. QuickBooks will not make you close your books. It’s not even going to ask you. You just need to know this feature is here and go here and close them whenever you’re ready to do that.
Let me go down a few on the left here to the grouping that says General. And notice when you make some of these changes it will ask you if you’d like to save it. I’m going to say Yes. And this time I’m going to start with the My Preferences tab.
There are a few options here that you’ll definitely want to turn on, starting with the very first one, Pressing Enter to move between the fields. Currently if you don’t have this checked what will happen is you will start typing in a form, let’s say you’re typing in an invoice for example, and you hit the Enter key thinking you’re going to move on to the next field. What it’ll actually do is save and close that invoice and then you won’t realize it and you’ll enter a second one. If you check this box what will happen is you can use the Enter key or the Tab kay at any time to move back and forth between your fields.
There are a lot of other little options here. For example, would you like it to beep when it records a transaction? Would you like to turn off popup messages for products and services? I do want you to notice this one here, Automatically recall last transaction for this name. What this means is let’s say that you write a check to pay your electric bill. You’re going to fill out the Pay to the Order of, you’re going to put in the amount, you might put some things in the memo, you’ll have your account number somewhere, you’re going to pick the correct account that this would go to in the Chart of Accounts. There’s quite a few things that are going to be on that check. Wouldn’t it be nice the next time you pay to the order or and used the same vendor name that it prepopulates the latest check for you and you just go ahead and change the amount of money. That would keep your accounting consistent and a lot less typing for you.
The other thing is you might want to check this option, Use today’s date as default. And basically what that means is that any transactions that you create will have today’s date on them and you can change them if you need to.
All right, going down the list. Let’s look at Items & Inventory and I will go ahead and save my changes. In this case I’m going to need to click on Company Preferences. If you actually went through the Easy Step Interview and you said I do not track inventory then this will not be checked. Let’s say that you want to now track inventory, then you can come in and make sure this is checked. The other thing is if you see that you do not have the Purchase Order option on your Home screen it’s again because this is not checked.
Going down to the next one on the left, Jobs & Estimates. If you are doing job costing in QuickBooks which basically means that every transaction you create you’re going to choose which job it applies to, then you might want to look at some of these options. Here you have different words that mean pending, awarded, in progress, and you may have different terminology for these. So notice that you can go down the list and you can actually change these to whatever your terminology happens to be. Here’s where it asks Do you create estimates? If you said in the Easy Step Interview that you do but maybe you forgot to do the progress invoicing, notice here you can turn them both on or both off.
Back on the left here going down to Payments. There are a couple of things here I’d like to point out. I want to just make you aware of this one for a little bit later. This one says Use undeposited funds as default deposit to account. What that means is once we start entering invoices and then we receive payments it will actually put that payment in our Chart of Accounts in an account call Undeposited Funds. You may not want that. Later on when we talk in another module about working with payments I will show you how this works if you come in and uncheck this.
You can also set up online payments. You have the ability in QuickBooks to actually email an invoice over to your customers. If you want the customer to be able to click on that invoice and pay you right there with a credit card or using the bank transfer option then you can check this right here. You would have to go and set these up previously with Intuit.
There’s also some options for payment reminders at the bottom. And when we talk about payment reminders we’re talking about for customers. Do you want to send payment reminders to your customers, yes or no? And if QuickBooks desktop is open it will prompt you at in this case 10 a.m. but you can set that at whatever time you’d like to go ahead and do that. You’ll notice that if QuickBooks is not open you’ll still see the prompt whenever you open it the next time.
I want to go ahead and stop the video right here and have you go on over into the Preferences – Part 2. I will see you shortly.
Preferences – Part 2
Cindy: Welcome back. We are working in module three and we are on section one where we’re talking about the preferences. We’ve already completed part one. This is going to be part two. We’re just going to continue where we left off talking about the different options in QuickBooks.
When we left off we were talking about the options under the Payments on the left and we talked about the fact that if you’re receiving payments from a customer then it’s going to automatically use the Undeposited Funds as the default deposit to account. We will actually change that when we get to the section where we talk about receiving payments. Let’s go ahead and move over to Payroll & Employees on the left.
When you went through the Easy Step Interview one of the questions was do you want to use the payroll feature yes or no, and if you had said no you wouldn’t have even one single icon on your Home screen in QuickBooks to set it up if you changed your mind. You would need to come in here and choose Full Payroll in order to see that icon. While you’re in here there would be some preferences for payroll that you could use. You could go ahead and look at some options for paystubs, workers comp, and sick and vacation. There’s some checkboxes right here about recalling some different options that are on previous paychecks and then down at the bottom if you want to sort your list of employees by first name or last name you could change that option.
One thing to keep in mind is payroll is not free in QuickBooks. You do have to pay for it. We’ll be talking about that later when we get to the module about payroll.
Let’s go ahead and talk about Reminders over on the left.
These are things that you can have QuickBooks remind you that you have to take care of. It might be you have checks to print, it might be you have some overdue invoices, there might be some To Do’s you had created. You can have QuickBooks show you those in a summary or a list. A summary basically means if you had six checks to print then it would actually just give you a total of those six checks. If you chose the List option then it would show you each of the checks individually. Also for some of these you can have it remind you earlier than the actual due date if you want. And you can see you can put in the number of days right here for that.
You’re going to find that the Reminders don’t just automatically pop up on your screen to remind you that you have to take care of these things. The only time you see the reminders is when you first open the company file. There will be a white window there that lists all of these things. You won’t see it again once you close that window. The other thing is under the tab that says My Preferences here you have to have this checked because if you don’t you will not see the Reminders window at all.
Let’s move down to Reports & Graphs. There are some Reports in here that you can actually run through QuickBooks. And if there are some reports that you need to modify the options of before opening then you can check the box here and it’ll prompt you for things like that. There’s also some options under the Company Preferences that you’ll want to know about. One of them is when you run reports in QuickBooks they’re automatically on an accrual basis. You may want to run them on a cash basis. Now you can change that on each report but you can also just change it right here so they’re automatically on that cash basis. You’ll see some other options as far as aging reports. You can age from the due date or the transaction date. You might want reports to show items by the name only versus the name and description. You can see some of those options right here.
Moving down to Sales & Customers on the left. Let’s see if there’s any options under the My Preferences tab. And one of the things you’ll see is that there is an option in QuickBooks called Time/Cost. And what that allows you to do is if you incur any expenses that you need to turn around and invoice a customer for then you can actually pull those onto an invoice. QuickBooks will remember those and pull them for you. You can have it prompt you automatically to add those when you pull in a specific customer or job or you can have it just ask you what you’d like to do.
Back under the Company Preferences there’s going to be a couple of things here you might want to know about. First of all if you have a particular shipping method that you use then you can actually have that pull in automatically if you like to use Federal Express, for example. If you’re not shipping anything none of this will apply to you.
Down to Sales Tax on the left, and I’m going to save this change. One of the questions in the Easy Step Interview was Do you charge sales tax, yes or no? Let’s say that you had said no originally and now you’ve changed your mind, then you can come here and say yes. It’s also going to ask you here to set up your most common sales tax item. Now you’ll actually have to get out of the Preferences window to do this and that will be done back under here under Items & Services. You’ll set up that common sales tax and then you can come in and choose it from this particular list. We’ll get into that a little bit later when we talk about sales tax.
You can also go ahead and tell QuickBooks that most of your items are taxable or maybe they’re not and you can choose your terminology for those. And there’s a couple of other options about paying sales tax. If you pay it monthly, quarterly, or annually then you can set that up here as well.
Going down the list I’m going to skip down to Send Forms. I mentioned to you that you have the ability in QuickBooks to actually send invoices, purchase orders, things like that through email right from within QuickBooks. If you do there’s going to be a generic what I call a coversheet that goes with it and it’s this one here for invoices called Basic Invoice. I’ll just go ahead and hit Edit down here so you can see what it looks like. You can see that it says Dear and it has the first name, your invoice number, your transaction is attached, you can see this. You can change this to say whatever you would like. You can also create your own if you don’t want to use the basic one. I’ll just go ahead and Cancel that for now and here’s where you would add a new one if you wanted to create your own. And this is for invoices. You do have email templates for statements, purchase orders, etcetera.
Almost done here. I’m going to scroll down a little bit on the left. I want to mention the Spelling because you do have Spellcheck available. If you’re under the My Preferences tab you can check or uncheck this Always check spelling before printing. That is a really great feature. You do want to have your spelling checked when you’re sending out invoices or correspondence but it can be a pain sometimes if you don’t like that.
The last one at the bottom is your Time & Expenses. You’ll want to go to the Company Preferences. And this is where we talked a little bit in the Easy Step Interview about the time tracking. You could turn that option on or off. You could also specify the first day of your work week. And then down at the bottom you have some invoicing options. For example, if you wanted to track all your reimbursed expenses as income, things like that, you can go ahead and set those options.
There are a ton of other preferences in this window. You’ll want to take time and look at some of these. And some of these you won’t even recognize until you’ve been using QuickBooks for a while, but I just wanted you to see some of the more important ones and I want you to make sure you know how to get to this. And remember you get to this window by going up here to Edit and coming down to Preferences at the bottom of the list.
I’m going to go ahead and click OK now and our options are set. You might see some new icons that have appeared on your Home screen. Like for example, the Payroll right here. And those are because you’ve turned those options on or off in the Preferences.
Well that’s going to go ahead and wrap up this section on Preferences. Let’s go ahead and go over to section two and I’ll talk to you a little bit about working with the users in QuickBooks.
Working with Users
Cindy: We are working in module three where we’re talking about different ways to customize the QuickBooks environment. We’ve gone through the Preferences. That was actually section one. And now we’re on section two, Working with Users.
Right now if you open the company file you would just see QuickBooks. You’d be able to start working right away. If you set up users, as soon as you open the company file you will have to type in your username and your password in order to access the company file information. It is to your advantage to set up users for each person that will be using your company file. You do have the ability to actually track any changes that each user makes. That is one reason to set these up, because you can look at a report called the Audit Trail and just see what the transaction used to be, what it is now. It’s a really good way of tracking down errors. Another really good reason for setting up the users would be if you have employees helping you because then you can limit their access to certain areas in QuickBooks. Only the administrator can add, edit or delete a user. Let’s go ahead and flip over to QuickBooks and I will show you how to go ahead and start working with users.
As I mentioned, only the administrator can add, edit or delete a user. You would have to be logged in as administrator to do this. You would need to go up to your menu and click on Company and then you’ll see an option that says Set Up Users and Passwords and then you’ll see Set Up Users.
By default you can have up to five users in QuickBooks. If you need additional users you do have the ability to purchase them. You will currently that the administrator is logged on and you’ll see over on the right is the Add, Edit or Delete user option.
Let’s go ahead and add a user and we will say that we have hired a person to come in and help us pay the bills. I’ll show you as we go through here how you’re able to limit their access to certain areas of QuickBooks.
Let’s say we go ahead and put in our new users name and we’ll say it’s Carol and we’re going to give Carol a password. Now a couple of things about passwords. You want to make sure that no one else has the same password and make sure that you as the administrator know what the password actually is in case Carol happens to leave the company and you want to go ahead and log in as Carol or that sort of thing. I’m going to ahead and click Next and now it asks me what do you want this user to have access to. All areas of QuickBooks, selected areas, or notice there’s an option also for an external accountant. What this option means is if you have an accountant you’d like to use your QuickBooks you can give them their own username and password and that way they don’t have access to certain things in here, such as sensitive customer data, if you have credit card numbers, things like that in here. I’m going to choose Selected areas of QuickBooks and click Nexxt.
Now what’s going to happen is it’s going to walk through a series of screens and for each of these it’s going to ask me does this user have access to everything in QuickBooks, which would be full access, no access or selective. The first area it asks about is Sales and Accounts Receivable and we’re going to say no access to that. That would be anything having to do with invoicing customers. The next area it asks about is Purchases and Accounts Payable. Now this is what we hired this person to do. We hired this person to come in and help pay the bills so we’ll give them full access. Now I’m not going to give access to any more areas but just notice it asks about checking in credit cards, it asks about inventory, time tracking, payroll, sensitive accounting activities. These are things like in QuickBooks should this person be able to transfer funds between let’s say checking and savings? Should they be able to do journal entries? Those are things that we consider sensitive accounting activities and we’re going to say no. The next screen asks about the financial reports that go with those sensitive activities that we just mentioned so we’ll leave that on no access as well.
And then it asks about changing or deleting transactions. I would leave this where it defaults. The first one asks in the area that the person has access to should they be able to delete or change a transaction? Absolutely. What if our employee actually entered a bill twice and they’d like to delete one of them? This question asks about should the employee or user also have the ability to change or delete transactions before the closing date? If you remember us talking about using QuickBooks to close the books at the end of the month, what this is saying is would you want this user to have the ability to go in prior to those close periods and make those changes and we are going to say no.
This is a synopsis of the areas it asks about and have we answered each of those questions. I’m going to hit Finish and now you’ll see that Carol is one of my users.
Let me show you how this is going to work. I’m going to go ahead and close this window and I’m going to logout of this company file. Every time you’re finished for the day you should always log out. Go up to File on your menu and now you’ll see this option says Close Company/Log Off.
This is the screen you should see every day when you come in. You’re going to double click on your company file and this time what you’re going to notice is it’s going to ask you to put in the username and password. Now it has the username of the person that was last logged in. You’re just going to type over that and then you’re going to put in the actual password and then click OK.
One of the first things that you might notice is that you have your icon bar on the left and that’s because all of the options are set per user. You might also be saying to yourself, “Well I thought we limited Carol’s access just to the Accounts Payable section?” Here’s what happens if Carol clicks on an icon that she does not have access to. Let’s say Create Invoices, for example. It will pop up with a warning saying that you need Sales and Accounts Receivable permission to perform this action. She will have to ask her administrator to give her permission to get into those areas. That’s how this is going to work.
Let me go ahead and log back off and we’ll log back in as admin again. We’re going to close Company and log off. And by the way, it will ask you every fourth time that you get out of QuickBooks if you would like to back up your company file. Even if you just backed it up it will ask you that. Right now I’m going to say no. We’ll talk about backing up in a later module.
Let me go ahead and double click on our company again and this time we’re going to log back in as admin. Notice it still says Carol so I’m going to type in Admin and we did not set up a password when we went through the Easy Step Interview but in real life make sure you set up that password.
As the administrator since you’re responsible for the users you want to make sure that you go ahead and delete any users that have left your company. Maybe you have a new employee and they’ve replaced Carol. Do not give them the same username and password. Make sure you delete that user and then you go ahead and set up the new user like we talked about. If you needed to change the username or a password you could always edit the user. And notice a couple of other things. You can set the closing date from here if you were going to use that option to close the books.
And that’s pretty much what you need to know about how the users work right here. When we get into the reports in a later module I’ll show you that audit trail. I’m going to go ahead and hit Close and that’s all we need to talk about as far as users are concerned.
Let’s go ahead now and move over into lesson three and we’re going to spend a good bit of time talking about the Chart of Accounts.
Chart of Accounts – Part 1
Cindy: The Chart of Accounts is the most important part of QuickBooks. Basically it’s a listing of everywhere that the money could flow in your QuickBooks file. For example, any time you spend money what did you spend that money for? Was it for meals? Was it for gas for the car? If you received money was it income for the business? Those are what we call different items on the Chart of Accounts and we’re going to spend a good bit of time on this because like I said, this is the most important part. If your items are not set up correctly on this list your reports will not be accurate and you won’t know why.
There are two parts to this. Make sure you watch both part one and two before you move on to the next section.
Like I mentioned, the Chart of Accounts is the most important part of QuickBooks, therefore you will want to know how to get to it whenever you need to. It’s right here on your Home screen and it says Chart of Accounts.
Every single thing in QuickBooks will flow back through one of these choices. When you look at this list you’ll notice there are different types of items on this list and currently they’re set up alphabetical per type. For example, when you look at the Expense Accounts you’ll see over here they’re alphabetical. We did talk about in section one working with the Preferences and I told you there was a preference where if you wanted to turn on the general ledger numbers you could do that.
There’s going to be quite a few items you will want to add to this list and what I want to do with you is go through all the different types over here and then we’ll talk about the ones you need to add. You’ll get most of them added pretty much the first time you sit down but you will find others that you’ll need to add as you go along.
Let’s go ahead and start with the first type which are Bank Accounts and you’ll notice there are no bank accounts over here. We’re going to have to actually set these up.
Now the easiest way to add an account is to right click and choose the New option from this list. I want to also just point out that on the very bottom left of your screen you’ll see an option that says Account and by clicking the arrow next to Account there’s the same options right there you would get by right clicking. New will obviously set up a new account for you. Here’s where you would edit an existing one or delete one. One of the things you need to know about any list in QuickBooks, if you’ve ever used an item from that list even one time you’re not able to delete it. That’s because those numbers would actually pull into reports. Think about if you had a bank account that you used for a while and then you closed that bank account. You might not need the name to show up on the list anymore, you can hide it by making it inactive but you can’t delete it because those numbers actually are required for reporting purposes.
Let’s go ahead and create a checking account. I’m going to go ahead and click New and the first thing it asks is what type of account is this. Now we’re going to be going through all of these. Right now we’re talking about bank accounts. You’ll notice when you choose an option on the left it gives you some examples of what a bank account would be over here on the right. A bank account would obviously be checking, savings, money market, petty cash, like you see here but let me add some to the list. If you’re using PayPal, Square, Venmo, any of those other types of payment options you would want to add each of those as a bank account. That’s all they are is they’re bank accounts. Even Bitcoin.
The other thing that you’ll want to add is if you have any cash expenditures that flow through your business you’ll want to have an account to put those in and the only way you can do that is to create a bank account for those. Just a little FYI if you do that then your bank account will always show a negative for that particular account and that’s okay. It’s showing the expenses that ran through the company that were actually paid for with cash. Right now we’re going to set up our checking account.
If you picked the wrong type on the previous screen they give you a second chance to go in and change that type. When you name your account you can name it anything you want. If you want to call it Checking you can do that. If you want to call it Payroll, another one called Operating, you might call one First Federal, another one Heritage Trust. It really doesn’t matter what you call them as long as you know what they represent. And you will want a separate bank account for every real lift bank account that you have.
This is not a subaccount of another. We’ll talk about subaccounts a little bit later.
Here’s some things that are optional, a description. If you wanted to put in here that this was the operating account you could certainly do that so that if someone was on this screen they would know what checking represented. You do not need your bank account number or your routing number. These are more informational for you. I would not put any of this in here. You really don’t need it. You would however need an opening balance.
I’m going to click on Enter Opening Balance and then it’s going to ask me to put in the statement ending balance and the statement ending date. You have to decide when you want to start your company file. If you’ve decided you want to start at the beginning of your fiscal year and let’s just say that’s January, you’ll want to get out January’s bank statement and put in whatever its opening balance is. Remember that December’s ending and January’s beginning are the same number. If you decided you’re going to start with the current month just remember that your reports are only as accurate as all the date you put in but you could start with your current month. Just make sure you know the opening balance for that particular month. Now if you’re setting this up and you really don’t know the balance right now you can always plug in zero and go back and change it later. I’m going to go ahead and plug in $5,000. And when you type money in QuickBooks don’t type the dollar sign, don’t type the commas. It will stick all that in for you. and I’m going to go ahead and put in a statement ending and I’m going to say that I’m starting at the beginning of the year. So I’ll just go back and pick January 1, or remember I told you that December 31 is the exact same number, and I’m going to click OK. And now you’ll see it shows me my opening balance as of in this case 12/31/2018.
Down here if you still write a lot of checks then you might want QuickBooks to pop up and remind you when you get to a certain check number to order some more checks. You can plug that in. And just a little FYI. If you’re still writing checks you do not need to buy checks from Intuit. You can buy them anywhere you want. They do try to sell them to you and that’s what this option is here for.
You’re going to notice in QuickBooks a lot of screens will say Save & Close and Save & New. Save & Close means close what I’ve got here and save it and I’ll be on the screen that was underneath this. the Save & New option means save this and keep me on the same screen because I have another bank account I’d like to enter. I’m going to go ahead and hit Save & Close just to show you what we’ve done and because I dated this more than 90 days in the past it’s basically warning me about that. And if this is pain then you can go ahead into the Preferences like you see here and turn that option off. I’m going to go ahead and say Yes that I’d like to go ahead and save it and it will ask you from time to time if you’d like to set up your bank feeds. We’re going to say no. Basically what this is asking is do you want to download from the bank automatically. We’re going to talk about that in a later module. For now I’m just going to say no.
I want you to notice now there is a new bank account at the very top of the list. Bank accounts typically show up at the very top. And you can see that it has a balance of $5,000. And something just to notice. You don’t really have to know this but in accounting there’s always a debit for something and a credit on the other side of the transaction and this is what you’re seeing here that there is one side is the checking account and the other side of that entry is called Opening Balance Equity.
Let’s go ahead and set up another. I’m going to set up a savings account and I’m going to say that we have $20,000. I’ll just right click and choose the New option. I’m going to say this is a bank account. I’m going to click Continue. I’m going to name this Savings. Remember you can name it anything you want. And all I’m going to do is put in the opening balance of $20,000. I’m going to date it for 12/31/2018 and click OK and I’m just going to Save & Close. I’m going to go ahead and tell it yes it’s okay because I know that’s over 90 days old and I don’t want to download from the bank right now. And here you’ll see my checking account for $5,000 and my savings has a balance of $20,000 and opening balance equity has $25,000.
Let’s go ahead and talk about some of these other accounts that you’ll want to set up and I want to just mention the Assets just for a moment.
An asset is something that makes your business more valuable. If you have chairs, desks, maybe the business owns some vehicles, equipment, those are all assets to the business and you will want to set up these asset accounts to track those. A couple of terms that you’ll want to get used to, when we talk about assets you have some assets that are fixed, we call those fixed assets, and you’ll also have some that are more liquid. Think about if you’re a business where you have inventory in the backroom. You are worth more because of that inventory but your goal is to sell it and get it out the door. QuickBooks calls those Other Current Assets. When you set these up you want to have big buckets, and what I mean by that is you don’t want to have one for every single asset that you own because the list would be way too long. You want to have one called Vehicles, for example, another one called Equipment. Any time you have a lot of assets you could group together create an account or a big bucket as I call it and then you can put those assets in there. This is the one place where your accountant will be most helpful to you because you’re not going to know what numbers to plug in here. You’re going to get with the accountant, he or she will help you figure out the value of your vehicles, the value of your assets at a particular time. Also if there’s any depreciation or appreciation the accountant will help you figure that out as well. And just a little FYI, QuickBooks does not do depreciation and that’s because there’s so many different ways to do it. That’s where your accountant again will come in helpful and help you plug in those numbers. You do want to set the accounts up because if you go to get a loan for the bank, for example, they’re going to want to know does the company have any assets and you want to be able to show those to the bank. And there’s other reasons as well for setting up your assets but just know that this is the one place where the accountant would be most helpful.
I want to go ahead and stop the video right here and go ahead and have you go over to part two so that we can continue talking about setting up your Chart of Accounts.
Chart of Accounts – Part 2
Cindy: We have a lot more to talk about as far as the Chart of Accounts is concerned. This is part two. Make sure you’ve watched part one before you watch part two but let’s go ahead and continue going through our Chart of Accounts.
The next type that I want to talk to you about are your liabilities. A liability is something you owe. Some things you owe are considered short term. For example, if you collect payroll taxes or you collect sales tax those are short term because you have to turn around and send those to the state or whatever entity the money belongs to. We call those short term liabilities, something you’re going to pay off in 12-13 months. A long term liability would be more like a car loan for example because you might have a five year car note. When you set up your liabilities you’re going to tell QuickBooks if it’s short term or long term and the terminology they use for short term is Other Current, like you see here. Notice they set up the payroll and the sales tax liabilities automatically and that’s because in the Easy Step Interview you told it that you turned on the payroll and that you actually do sales tax. Any others you would have to add.
Let’s go ahead and set up a car payment real quick so I can show you how to set up a liability that’s more long term. I’m just going to right click and choose the New option. One of the things that might be a little confusing is this. When you set up a short term liability you’re going to choose the Loan option right here. However, if it’s a long term liability, meaning it’s over 12 months, 13 months go ahead and use the option from this dropdown and it will say long term liability. I’m going to go ahead and hit Continue.
I can name the account anything I want. Sometimes people will put the actual bank and they’ll put the last couple digits of the account number, sometimes they’ll put the name of the vehicle. I’m going to say Car Payment. And then you’ll notice down here there’s a place for your opening balance. What you’ll want to put here is as of the start date of your company file, not today, what was the balance you owed on the loan, not when you took out the loan but as of the actual start date. Let’s say I owed $12,000 and let’s say again that that was 12/31/2018. And I’ll just click OK and I’ll go ahead and Save & Close so you can see what it looks like.
You’ll now see that you have a car payment. It is a long term liability and I owe $12,000. Now something to notice, the opening balance equity went down because any time you owe something that’s a minus, whereas the bank account was a plus. So if you ever see a negative number then don’t worry about it. That’s an accurate picture of your books.
Did you notice that it didn’t ask me anywhere what is the interest rate, the term in months, any of that? And that’s because when you put in the loan you’re just setting up the account itself, you’re not setting up any of the terms of the loan. We’re actually going to be talking more about that in module eight, specifically in section three we’ll be talking about setting up what we call the loan through the Loan Manager in QuickBooks.
The other thing I want to mention at this point is when you make a car payment always put the principle amount to this loan because you want to see this go down. This is an accurate picture of what the loan balance should be. Do not set up your car payment as an expense to the business. It is not an expense. It is a liability.
Any other loans you have you would set up the same way. It could be that you took out a loan to start the business from the bank. It could be that you borrowed money from your personal to start the business. If you expect to pay yourself back then go ahead and set up a loan for that.
The next thing I want to talk about that you do not see here are credit card accounts. If you have credit cards that your business uses to buy items for the business you’ll want to set up these credit card accounts. All I’m going to do is right click and choose New, you’ll notice one of your choices is Credit Card and then I’m going to click OK. Again you can name your credit card anything you want. If you want to call it Capital One, if you want to call it Visa, Amex, it really doesn’t matter. You’re just put in your credit card account. And you do want to have an opening balance again. Remember the opening balance is going to be from the start date of your company file, get out that statement and whatever the opening balance is go ahead and plug that in. Again remember the previous month’s ending and that month’s beginning are the same exact number. I’m going to go ahead and say it was $3,500 and I’m going to put in my date of 12/31/2018 here and click OK. I’m going to go ahead and Save & Close and you’ll see now that when you see the credit card the balance that you see over on the right is going to be the actual balance on the credit card. When you make a payment towards this Amex card you want to make sure you put it to this account. Do not start breaking it out by how much is gas and how much is going to be food and that sort of thing because we’re going to do that in a different place in QuickBooks. This is just where the payments go right here.
The next thing I want to talk about are your equity accounts and you’ll see there are a couple of them right here.
If you think about equity the word Equity means equal. If you take money from the business and move it to personal or you take personal money and move it to the business those are both equal. You didn’t make money or lose money. That’s called Owner Equity. Let me give you an example of how I often see owner equity set up.
Sometimes you’ll see the terminology Shareholder Equity. That’s money you put into the business. Or sometimes you’ll see Shareholder Distributions. That’s money you took out of the business. Another way that I’ll see it set up is owner and then they’ll have subaccounts underneath for contributions and distributions. Again, that’s just a way of an owner showing that they took money out of the business or putting money into the business. And you can set it up however you’d like to.
I’m going to right click and choose New and I’ll just set it up this way because I see this often. What I’m going to see here is the word Owner as equity account. And then I’ll go ahead and say Save & New and I’m going to say Contributions, this is when you put money into the business, and this will be a subaccount of Owner. And I’ll do one more. I’ll say Distributions, this is when you take money out of the business. This again will be a subaccount of Owner. And now I’ll go ahead and Save & Close so you can see what this looks like. And this is what subaccounts look like underneath, but you can see that they’re all considered equity. So if you put money into the business it’s considered an owner contribution, if you take money out it’s an owner distribution. Sometimes that is called a Draw, an Owner Draw.
The next type I want to mention to you are income accounts. You’ll see there are a couple of them here. Income is when you actually make a sale for your business and money comes in. That’s considered income. You can have one and just use it for everything or you can break it out into multiple income accounts if you would like.
The next section is the cost of goods sold. Any time that you have to buy a product or a service to make a product or service selling your business that’s called a Cost of Goods Sold. Often you’ll see subcontractor expenses under here, job materials, things like that. And you’ll notice that on a Profit & Loss they will be actually subtracted from your income at the top.
The largest grouping that we’re going to talk about here are your expense accounts and this is when you spend money what did you spend the money for. You can see there’s advertising, there’s automobile, we’ve got bank service charges. You can kind of see the list going down here.
Let’s talk for a moment about subaccounts, using them with expense accounts. Automobile is a good example because if I want to know how much I spent this year on gas I really can’t tell if I lump it all under automobile expenses so you might want to consider making a subaccount underneath. I would just right click and choose New. The subaccount has to be the same type as the main account, so it’s an expense and then I’ll just hit Continue, and I’m going to call this one Fuel and it will be a subaccount of Automobile. And this is how it will look. See how it’s underneath it and it’s indented a little bit?
Some others you might want to consider having subaccounts underneath, insurance. You might have different types of insurance, like liability, workman’s comp, things like that. You can add multiple ones underneath there. You’ll notice that you have professional fees typically as subaccounts under there. I will see one for the attorney and one for the accountant. You’ll notice there are utilities down here. You’ll want to add subaccounts below that. You’ll want to add your water, electric, telephone, things like that.
And notice also there’s one called Ask My Accountant at the very bottom. If you just don’t know where to stick something stick it in this account called Ask My Accountant and later you can go back and move it.
This gives you a quick overview of how the Chart of Accounts is set up. Like I said, a lot of this you will get set up when you first sit down and start working on it but you might find some six months later that you need to add. You can always go back and do that or make some of these subaccounts of others, that sort of thing.
We’re going to be referring back to the Chart of Accounts often as we go through the rest of the videos but for now let’s go ahead and wrap up part two of the Chart of Accounts.
Why don’t we go ahead and head over now to section four and I’ll talk to you just for a few minutes about some of the QuickBooks sample files that you might want to look at when you’re setting up your Chart of Accounts to make sure that you do yours the correct way.
QB Sample Files
Cindy: There are several different sample files within QuickBooks that you may want to open just to look at and see how they did something or if you’re looking to set something up yourself in your own file maybe you want to look in there and see how they did it. I want to show you where those sample files are and what type of files and what you can see by looking at those files.
The way you’re going to get to the sample files in QuickBooks is right here it says Open a sample file and there’s an arrow to the right. You’re going to have at least one product-based business and one service-based business. You might have several others, depending on the version of QuickBooks that you have. I’m going to go ahead and start the service-based business and just open it up.
This is a company called Larry’s Landscaping Services and I want to go ahead and show you what the Chart of Accounts looks like in this particular one. When you’re working with one of the sample files you’ll notice that today’s date is December 15, 2024. I’ll just click OK there and it’s going to go ahead and pull up Larry’s Landscaping.
Now let me go ahead and open the Chart of Accounts here so that you can see what it actually looks like and let me scroll to the very top here. You’ll notice it’s very similar to what we did, it just has a lot more items in the list. We’ve got several different bank accounts here. And by the way, the ones with the lightning bolt mean they are set up automatic download from the bank. We’ve got our current assets and fixed assets, credit cards, liabilities, and there’s a couple here we didn’t mention before. We didn’t mention the accounts receivable. All that is, is when you create an invoice that creates what’s called Accounts Receivable. It’s money that customers owe you. This account will automatically be created once you create your first invoice.
The flipside of that is you’ll see there’s one here called Accounts Payable. These are all the bills you’ve entered that you haven’t yet paid. Once you create your first bill you’ll see that will populate there and then you’ll have some accounts payable.
Looking down this list here you can see there’s several different equity accounts like we had talked about. Here’s their owner equity. They set theirs up very similar to the way I set ours up. And you’ve got owner’s equity and there’s owner contributions and owner draws. There’s several income accounts below. They’ve got one Cost of Goods sold and then the rest are expense accounts. And you’ll notice with a lot of these expense accounts they have subaccounts below. Notice how they set up automobile. We had done Fuel as a subaccount but they’ve also got Insurance, Licenses & Fees, and Maintenance & Repairs. They’ve got Insurance down here. Some people put auto insurance under Insurance. That’s certainly okay. It’s just where would you like to see it on a report? And you can see all of these other ones all the way down the list.
Let’s go ahead and close this one and I want to take a peek at the other sample file. I’ll just go up to File and say Close Company and the other one is a construction company, so it’s going to have more of the inventory in it and it’s going to have a lot of things that a product-based business would actually have. Today’s date is December 15, 2024 and this is Rock Castle Construction.
I’m going to go ahead and pull up their Chart of Accounts and you’ll see it’s very similar to Larry’s Landscaping but it’s going to have quite a few additional accounts that we didn’t see previously. We’re going to actually be using this for the rest of our videos and that way you’ll get a really good feel for how this Chart of Accounts is set up.
Let’s go ahead and go over into the last section in this module, section five. I want to show you a new feature in the 2020 version called the Company File Search.
Company File Search
Cindy: Okay let’s go ahead and wrap up module three. We’ve been talking about customizing the QuickBooks environment and the last thing I want to talk to you about is the Company File Search option which is new in the QuickBooks 2020 version. It’s not a big deal. It’s just a way of searching for a file that you may not see initially on the screen when you go to open a file.
If your company file is closed you’re going to notice that the last few company files you had opened would be in this list right here. You could double click and just open them. If you were looking for one that was not on this list you could go over here to Open and search your computer. But they’ve got a new feature now in the 2020 version where you can actually have QuickBooks pull all the QuickBooks files and then you can search through those. It makes life a lot easier when you have your company files all over the place in your computer. I’m going to click on Find a Company File.
What it’s doing now is scanning QuickBooks and it’s going to pull up all the company files that it can find. And what’s going to happen is once they all pop up here then we’re going to be able to search for one through this list. While it’s scanning notice it’s scanning my local drive on my computer but I could have it look through any removable media such as a flash drive. Or I can have it look through a network that I might have.
Once it’s finished scanning you can type in the name of the company file that you happen to be looking for and go ahead and hit Search over on the right and there’s your company file right there. All you have to do is select it and hit Open and that’s going to open your company file.
That’s really all there is to working with the new feature, the Company File Search.
This is going to wrap up module three where we’ve been talking about customizing the QuickBooks environment. We’re going to head over now to module four and start talking a little bit about working with customers and jobs.
Cindy McGuckin
Cindy McGuckin is an IT trainer with over 20 years of experience. Cindy currently manages the IT Training Department at Trident Technical College, she's a Member of the Association of IT Professionals, Charleston, SC chapter and the Treasurer of the South Carolina Association of Continuing Higher Education.Cindy is a Microsoft Office and QuickBooks expert and her online courses have received hundreds of 5-star reviews. Her no-nonsense approach to teaching complicated topics makes her classes engaging and interesting.
