Bookkeeping is largely a system of categorization of your financial transactions. The Chart of Accounts creates the categories.
The Big 5 – Main Accounting Categories:
Assets – Things you own that have value, including:
- Bank accounts
- Furniture & fixtures
- Loans you gave someone else
- Accounts receivable (amounts you have billed to customers that they have not paid)
Asset accounts appear on your balance sheet.
Liabilities – These are things that you owe to others:
- Auto loans
- Personal loans
- Payroll taxes or income taxes due
- Credit card balances
- Accounts payable (amounts you owe to your vendors)
Liability accounts also appear on your balance sheet
QuickBooks has a wide variety of products. Deciding which one to use is your first task.
There are 3 PC desktop versions to choose from:
Pro - Most small businesses can use and adapt QuickBooks Pro to their specific needs. It is a complete, powerful program that contains everything necessary to do the most important tasks – invoicing and receivables, payables, bank statement reconciliation, basic inventory, job costing, financial statements and other reporting. And it does those things well. You can customize your invoice and other forms to fit your needs, including adding your logo.
Premier – This version offers all of what you get with Pro, plus industry-specific editions and some enhanced inventory features. You can also create sales orders, do business planning and sales forecasting, although the planning and forecasting features are not necessarily as user-friendly as the rest of the program is. Premier has other features that an accountant might find helpful, such as the ability to easily reverse journal entries, but this is not something the average QuickBooks, non-accountant user would need. This version would be most useful if you have multiple departments or classes of costs you would like to not only track, but also run class- or department-specific reports for. Industry specific versions:
- General Business
- General Contractor
- Manufacturing & Wholesale
- Professional Services
The QuickBooks marketing people like to make it sound like all you have to do is plug in your program and Voila - you’re a bookkeeper! QuickBooks is easy – once you know how to do it. Without some kind of accounting or bookkeeping background, it isn’t always obvious how to proceed or what to do first. This guide will help. Follow these steps for basic setup.
Step 1 – Determine which version of QB is right for your business
Step 2 – Purchase and download (or install from a disk)
Step 3 – Create your company file
Step 4 – Set up your Chart of Accounts
Step 5 – Set up sales tax
Step 6 – Set up Customer files
Step 7 – Set up Vendor files
Step 8 – Set up Items
Is a sale considered income when you bill it to the customer or when you collect the payment? The answer to that question depends on which method of accounting you use.
- If you use the accrual method, your sale becomes income when you earn it, or in more practical terms, when you invoice it. Even if you have not yet collected the payment you would recognize the income on your books.
- Using the cash method, you would recognize the income when you collect the payment, regardless of when or if it was invoiced.
This logic also applies to expenses. Under the accrual method, an expense is recognized as such when it’s billed to you, whether you have paid that bill or not. Under the cash basis, the expense is not recognized until it’s paid.
The words “accounting” and “bookkeeping” are often used interchangeably. But the differences are large.
A bookkeeper records the day-to-day transactions of a business. This includes entering and paying bills, creating invoices to clients, reconciling the bank statements and processing payroll, among other tasks.
An accountant takes the information created by the bookkeeper and interprets it, creates adjusting entries, financial statements and other reports, and analyzes and presents the information to the business owner, shareholders or other interested parties.
Of course, all these tasks can be done by the same person, but someone who does only bookkeeping tasks should not take the title of Accountant.