“Setting up for Success” is a series of snack-sized, task-oriented articles curated around specific accounting workflows and the fundamental concepts behind them.
We recommend watching all of the videos in order as a set so you can confidently complete the specified tasks in QuickBooks Online. If you do decide to skip ahead to specific sections, set aside time to go back and read the article in its entirety so you have a firm grasp of the fundamental process end-to-end.
For this set of videos, there are no exercises to follow along with. Instead, we insist you simply absorb the broader accounting and workflow concepts introduced in this article. Taking a few minutes to contextualize your business within the broader “how’s” and “why’s” of accounting will go a long way in preparing you for sustain success. So sit back, relax, and let it all sink in.
How to Categorize Transactions: Types of Accounts & Fixing Errors | QuickBooks Online Tutorial 2018
Resist the urge to jump right into processing transactions. We know you’re excited, but be patient -- make sure you understand each step of the process end-to-end.
- Every time you record a transaction, train yourself to double-check where money is coming from and where it's going (i.e. payor, payee, “deposit to” account, etc). Categorizing transactions correctly so they end up in the appropriate account is the only way to guarantee your sales and expense reports are accurate.
- Sub-accounts are a great way to keep accounts organized and track income and expenses in greater detail. You can designate parent and sub-accounts in your Chart of Accounts (learn more in “Creating and Managing Accounts”). When you add transactions, make sure they're added to the sub-account and not the parent account, which is meant to aggregate the total of the subs.
- The video makes a key distinction between assets and expenses:
- Assets are tangible and intangible things you use for your business over and over again, such as computers, company cars and office furniture. While these items are initially a cost to your business, they have lasting value.
- Expenses are things you spend money on for your business, but you aren’t able to use them over and over again. This includes things like rent and utilities.
- For more in-depth explanations of assets and expenses, check out our QuickBooks Encyclopedia – Basic Accounting Definitions.
- Assets are tangible and intangible things you use for your business over and over again, such as computers, company cars and office furniture. While these items are initially a cost to your business, they have lasting value.
- Separating accounts not only provides accurate, detailed financial data, the practice helps you stay compliant in the case of an audit.
For instance, if you plan to work with Independent Contractors (classified as Vendors in QuickBooks), you need to create a specific expense account for their expenses. When it’s time to create their1099s, you'll need to tell the IRS about those payments which should be kept completely separate from normal employee payments.
Separating transactions now will save you a ton of time come tax season. To learn more (and stress less), check out “How to Add Independent Contractors in QuickBooks Online."
Accounting Terms You Need to Know | QuickBooks Online 2018
QuickBooks takes care of the complex accounting work that goes on behind-the-scenes so you don’t have to worry about T-accounts or double-entry accounting formulas.
However, everyone who does bookkeeping should learn the basics. You’ve probably heard of the two terms below. They both refer to transactions in-progress:
- Accounts Receivable (A/R) – Money customers owe you, right now.
- Accounts Payable (A/P) – Money you owe to vendors, right now.
The next two are terms may sound familiar, but you may not know how they related to accounting. Debits and credits essentially describe how transactions impact an account – debits refer to money drawn from an account while credits refer to the opposite, money put into another. Luckily, you don’t have to know these because QuickBooks does all the heavy lifting for you.
If you want to learn more account terms, check out “QuickBooks Encyclopedia – Basic Accounting Definitions” and Understanding the Basic Accounting Formula with ProAdvisor Scott Meister (@ScottMeisterCPA).
Understanding the Chart of Accounts | QuickBooks Online Tutorial 2018
The Chart of Accounts (also referred to as the CoA) is a powerful tool – it's essentially the database for all your accounts that dictates how transactions are categorized. This is where you organize existing accounts or create new ones.
As a first time user, you won’t have to do much work in the CoA since the default accounts in QuickBooks Online can handle most common transactions. While the CoA may seem like an accounting-heavy roadblock, once you understand how it works, you’ll feel confident making judicious changes when the occasion arises.
- If you need to create an account, pay extra attention to the Account Type. This determines whether a posted transaction is recorded as income, an expense, an asset or a liability. ProAdvisor Stacy Kildal takes you through the entire process in – “Account Types are More Important than Detail Types.”
- You can name your accounts whatever you’d like so long as the names are relevant and specific – learn best practices from Real World Training.
The tutorial does an excellent job of visualizing the complex accounting that goes on behind-the-scenes every time you process a transaction. You notice when the instructor enters the loan, the checking account increases (credit) by $15,000. Here’s the tricky part, the liability account also increases by $15,000 (credit). You might assume the number would be negative since you a liability means you owe money, but since the account is tracking your liability total, the number actually increases.
The tutorial also demonstrates a very common use of the "Add New Deposits" feature on the bottom of the Bank Deposit module. This is where you enter transactions outside the daily norm of sales forms, such as business assets or loans.
- When you’re entering a new deposit, add a detailed description of what the transaction is while the information fresh in your mind - - where it came from and why you are putting it into this account. At the end of the year, these notes will help you and your accountant decide if you need to re-categorize transactions and catch ones that are out of place.
Bookkeeping Best Practices: Tips & Tricks | QuickBooks Online Tutorial 2018
As our narrator notes, accounting is cyclical, meaning most tasks need to be completed on a regular basis (daily, weekly, monthly, quarterly and annually). You may want to do these more or less frequently depending on your business needs.
Keeping a regular cadence will make working with your accountant and reporting taxes much easier. Don’t let work pile up. Take out your calendar and set up reminders for these common bookkeeping tasks.
- Daily Tasks: Entering transactions (Invoices and Expenses)
- Weekly Tasks: Review Accounts Receivable and Accounts Payable [i.e. transactions in progress] and follow up with the appropriate parties
- Monthly Tasks: Bank Reconciliations, run Profit and Loss Reports (also see Parkway Inc’s Monthly-Close checklist), review your Balance Sheet
- Quarterly Tasks: Quarterly payroll taxes
- Annual Tasks: create your budget, clean up lists and accounts in QuickBooks
How to Use Reports: Understanding When to Use the 3 Types | QuickBooks Online Tutorial 2018
We cover financial reports in greater detail in “Setting Up for Success with QuickBooks Online – Financial Reports and Reporting Features,” but this video provides a great introduction.
- Summary Reports – these provide a good amount of detail and basic analysis. The Balance Sheet and Profit and Loss Reports are the most common summary reports and the reports you will probably run the most.
- List reports – these provide tons of raw data with little analysis. Essentially, they are a summary of your list databases (i.e. account list, customer list, invoice list, products and services list). They’re great for getting an overview but do little in the way of providing deep financial insight.
- Detail Reports – as the name suggests, these are basically summary reports with additional details. A common detail report is the “Sales by Customer Detail” report, which the video briefly discusses. The primary benefit of detail reports is how they break out and organize the details, letting you quickly dive into the nitty-gritty.
- You can also customize and save reports using various filters. While most reports use the same set of filters, certain customizations are limited to specific types of reports.
Setting up for Success in QuickBooks Online
- The Fundamentals
- Adding Products and Services, Customers and Vendors to Lists
- Financial Reports and Reporting Features
Check your progress
Learn everything you need for successful accounting
